Ireland's third largest lender, Anglo Irish Bank Corporation plc, which was valued at 7 billion Euro (9.2 billion dollars) in 2007 with a share price of 17 Euro, was nationalised last Thursday. Shareholders will receive 22 cent per share.
The government originally planned to approve a package to recapitalize Anglo with an injection of 1.5 billion Euros (2 billion dollars) and in doing so the government would receive a 75 per cent stake in preferential shares, however this option was abandoned late last week.
The reasons for this u-turn were outlined in a Government statement, ”The funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative.
“Accordingly the Government believes that the recapitalization is not now the appropriate and effective means to secure its continued viability. Therefore the Government must move to the final and decisive step of public ownership.”
According to the Government this decision had been made after consultation with the Central Bank and the Financial Regulator which has confirmed that Anglo Irish Bank was solvent.
Anglo Irish Bank is the third largest financial institution in Ireland, with a balance sheet of approximately 100 billion Euro (131 billion dollars). This includes a large deposit base which the Irish Government was determined to safeguard. The Government also wished to make clear that it would ensure the future of Anglo Irish Bank with Government assistance, thus allowing the bank to continue to trade normally, with all employees remaining on-board.
Business as Usual
The recently appointed Chairman of the Board, Mr. Donal O’Connor, will retain his current position. Mr O’Connor became Chairman after Mr Seán FitzPatrick(previous Chairman) resigned when it was revealed that he had hidden personal loans with the bank valued at 87 million Euro (114 million dollars).
The government is looking at a compensation deal for the people who had shares in the bank before it was nationalized. The government stressed, "All customers of Anglo Irish Bank can be assured that the full amount of their deposits and savings are further safeguarded by this action. They can also be assured that they can and should continue transacting with Anglo as normal and there is no need for customers to take any steps as a result of this announcement. Anglo Irish Bank will communicate directly with all customers in the coming days."
The Government has removed a clause which it had included in draft legislation to nationalise Anglo Irish Bank. The clause was included to prevent large depositors (greater than 20 million Euro) from withdrawing funds if their debts with Anglo exceeded their total deposits.
The revised Bill is due to be presented to the Houses of the Oireachtas this week.
Fine Gael Deputy Leader Says, We Told You So
Opposition party (Fine Gael) Deputy Leader Richard Bruton T.D. was pleased that the Government had changed its mind with respect to its recapitalisation plan for Anglo Irish Bank.
"They have adopted the plans set out by Enda Kenny yesterday in relation to Anglo Irish Bank, the latest Fine Gael proposal that they have been forced in to adopting."
Mr. Bruton acknowledged that the Government's change of stance was the correct decision as it would help protect the viability of the remaining banks but the Government needs to make clear if this new announcement will extend the State Guarantee to any additional debts of the bank.
Invest Irish taxpayer's money in Anglo-Irish Bank was highly questionable says Labour MEP
Labour MEP for Dublin Mr Proinsias De Rossa said, "Despite the approval, the decision to invest Irish taxpayer's money in Anglo-Irish Bank was highly questionable."
Mr. De Rossa pointed out that the European Commission's decision on Ireland’s re-capitalisation of Banks was simply confirmation that the investment respects EU state aid and internal market rules. The labour MEP said, "It is not a judgment on whether or not this is a good deal for the Irish economy or in the wider interest of the Irish public."
Mr. De Rossa added, “Despite the regulator having commissioned the PWC report, we are none the wiser as to the current value of the Anglo-Irish loan book or what exactly the taxpayer is buying into. Nor do we know any more about the Fitzpatrick Affair."
“Overall, this is a high price to pay for very little reassurance that credit will flow again to the real economy; it does little either to re-assure homeowners.”