Thursday, January 22, 2009

Nationalizing Banks

"The Government was not nationalising Anglo Irish Bank in order to bail out developer friends." said Finance Minister Brian Lenihan. “It is in the national interest and has been taken to safeguard the economic future of the country”, he said, introducing the legislation in the Dáil. “It is not a question of saving a few developers from going to the wall — it is a matter of underpinning deposit and wholesale funding throughout the financial system.”

Anglo Irish had to be rescued because it was of “systemic importance” to the country, with a balance sheet in excess of €100 billion. Contrary to some impressions, the bank lent to a wide range of customers and not just developers, although the latter formed a very important part of Anglo’s balance sheet, said Mr Linehan. “Thousands of customers rely on Anglo for credit, while hundreds of thousands of depositors are involved. All my advice is that letting Anglo Irish Bank fail would lead to very serious disruption of our financial system.”

But Mr Lenihan stressed there would be a new regime at Anglo now that it was being nationalised. “The Government is determined to protect the taxpayer’s interests by putting clear blue water between the new Anglo Irish Bank and the unacceptable behaviour that has gone before.” He said the day-to-day running of Anglo would continue as normal, with all staff remaining employed by the bank. “Anglo will be managed on a commercial basis at arm’s length from the Government allowing the full potential of the bank’s business to be realised,” Mr Lenihan said. “The Government will be appointing a new board to oversee the running of the bank and to prepare a comprehensive business plan to enable Anglo to continue as a going concern.” There was “no question” of winding up the bank, he added.

Mr Lenihan also said Anglo had about €70bn outstanding in loans and advances to customers, but rejected suggestions this was all bad debt: “As with any bank, there is a mixture of mostly good loans and some that are distressed.” While it was clear there would be losses “on some of the loans”, Anglo had about €7bn of shareholder funds and other capital available to it to offset any losses on the loan book, he said. All borrowers from the bank “remain subject to the same terms and the new board of Anglo will place a particular focus on ensuring that all debts are fully pursued”, he said. “Depositors and other creditors of Anglo continue to be protected by the Government’s guarantee on all bank liabilities until September 2010.”

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