BRUSSELS (MNI) – Troubled lender Anglo Irish Bank will cost the
Irish government E29.3 billion in its base case scenario but could cost
E34.3 billion if additional unexpected losses are incurred, the
country’s central bank said on Thursday.

And it confirmed that the additional costs would mean the country’s
government would have to look again at its budget plans.

So far the government has injected around E4 billion in cash in to
Anglo Irish, with the rest of the money coming as promissory notes to be
paid down over an unspecified timeline.

“The additional budgetary costs – and in particular the higher
debt-to-GDP ratio that is implied – confirm the need for a reprogramming
of the budgetary profile, though it is important to recognise that the
bulk of this reprogramming need arises from other sources,” Central Bank
Governor Patrick Honohan said in an emailed statement.

The Irish central bank said the total capital required for Anglo
Irish – which it plans to split – under the base scenario is E29.3
billion. This includes E29 billion for the Asset Recovery Bank and E250
million for the Funding Bank — the two separate institutions that will
be created if the government is allowed by the European Commission to
pursue its plan of splitting Anglo Irish into two parts.

“Under the stress scenario, in the event that unexpected additional
losses are incurred, the Central Bank estimates that an additional E5
billion of capital could potentially be required,” the statement said.

In the same announcement, the Irish central bank said that Allied
Irish Bank needs to raise E3 billion in fresh capital before the year
end and that Bank of Ireland has sufficient capital.

Ireland’s banking system became deeply indebted after the Irish
property boom collapsed. After committing close to E23 billion to Anglo
Irish alone, the Irish government has come under pressure to reveal the
total cost in recent weeks, after Irish bond spreads hit their widest
ever level over the benchmark German Bund.

Earlier this month, the government said it would split Anglo Irish
Bank in two and wind-down or sell off bits of it.

“Today’s announcements take the Irish banking system closer to a
final resolution of its restructuring, which is a prerequisite for
sustained economic recovery,” Central Bank Governor Patrick Honohan said
in an emailed statement.

“We have today confirmed that we are pressing ahead with our plans
to require the Irish banks to meet more rigorous capital requirements
which are closely aligned with the new international standards set by
the Basel Committee and to do so by the year end,” Ireland’s Head of
Financial Regulation, Matthew Elderfield, said.

Irish 10-year bond spreads hit a fresh high over the German Bund on
Wednesday as investors worried about the total cost of bailing out the
banks and how this might impact Ireland debt and deficit levels.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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