Anglo Irish’s stabilisation will be tough
THE stabilisation of Anglo Irish Bank will be difficut but if the nationalised lender was wound up taxpayers would be left with the bill, its chairman warned yesterday, helping fuel a spike in Irish borrowing costs.
Once a darling of investors during the height of the “Celtic Tiger” economy, Anglo Irish has become the bane of the country, contributing to its second sovereign rating downgrade in three months due to the cost of bailing it out.
Donal O’Connor, the bank’s chairman, told a parliamentary committee that even an “orderly wind-down” would likely cause a flight among overseas investors who provide much of the commercial lender’s funding, ultimately burdening the exchequer further. He said: “We did look to see what would happen if the bank was wound up. We recognise the difficulties, we are very concerned.
“We are trying to stabilise and de-risk the bank. It is a challenge, it will be difficult.”
O’Connor’s glum assessment sent the yield premium investors demand to hold 10-year Irish government bonds to 210 basis points versus benchmark German Bunds, its widest spread since late April.
Dublin will likely have to borrow more to pump up to €4bn (£3.4bn) into Anglo after a fresh wave of bad loans pushed the lender to the worst loss in the country’s banking history last month.
Another bailout may also be required if Anglo’s stress scenarios, which point to an additional impairement charge of between €1.5-3.5bn, emerge.
Standard & Poor’s cut Ireland’s sovereign credit rating to AA and kept it on negative outlook on Monday in the aftermath of Anglo’s losses and warned that it could reduce it again if the banking sector’s loan losses accelerate faster than expected.