–Adds More Details, Background

BRUSSELS (MNI) – Ireland’s government will split troubled property
lender Anglo Irish bank into two parts and plans to wind-down or
sell-off bits of it, the Irish government said on Wednesday.

The property lender, to which the Irish government has committed an
estimated E23 billion in funding, will be separated into a “funding
bank” and an “asset recovery bank,” the government said in a statement.

The “funding bank” will hold deposits and continue as a
nationalised regulated bank, while the “asset recovery bank” will be
sold “in whole or in part,” or “its assets will be run off over a period
of time,” the statement said.

No new money will be lent by either division, the finance ministry
said but it didn’t say what the new plan would cost or give any
indication about how long it would take to implement.

Last week Anglo Irish Bank reported a record loss of E8.3 billion
in the first half of this year. It has been dubbed “the worst bank in
the world” by Irish national press.

Problems at the bank first emerged in 2008, after it revealed it
had loaned billions of euros in property loans that would never be
repaid after Ireland’s once booming real-estate market collapsed.

The Irish government has so far committed more than E23 billion to
prop up the troubled lender, around E4 billion in cash last year, and
the rest in promissory notes, due for payment in the future.

“Anglo Irish Bank has not expanded its loan book since it was
nationalised in early 2009 and this will remain the case,” the
government statement said.

“It is intended that in due course the recovery bank will be sold
in whole or in part or that its assets will be run off over a period of
time,” the statement added.

The anti-trust arm of the European Commission will need to approve
these plans, and early signs are positive, after the Commission released
a statement endorsing the Irish government’s announcement.

“I welcome the clarification by the Irish Finance Minister on what
would now be the Irish-preferred option regarding Anglo-Irish,” European
Commissioner for Competition Joaquin Almunia said in a statement.

“I view this new option positively as it would deal better with the
distortions of competition,” he added, saying that a “number of
important aspects still need to be clarified, and a new notification
received before the Commission is in a position to finalise its
assessment and to take a decision.”

Earlier Wednesday Irish bond spreads were at their widest against
German Bunds since the start of European Monetary Union, as traders
speculated that the country wouldn’t be able to manage its large budget
deficit and the problems in its banking system.

Irish bond spreads rose to +396 basis points above the benchmark
Bund — their highest level since the creation of the Euro — in early
trading on Wednesday. The cost of insuring Irish debt against default
rose 21 basis points Wednesday to 401 points, a new record high.

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

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