EC Approves Anglo Irish Funding

by Jason Gorringe, Tax-News.com, London

12 August 2010

The European Commission has authorized under EU state aid rules an emergency recapitalisation of up to EUR10.05bn in favor of Anglo Irish Bank, ahead of a final decision on authorizing the bank’s restructuring plan.

Commenting, Commission Vice-President for Competition, Joaquín Almunia, said: "Anglo Irish Bank needs a third emergency recapitalisation to meet its obligations. The measure is necessary to preserve financial stability in Ireland. However, there is no doubt that Anglo Irish Bank has to restructure profoundly in a way that effectively tackles the weaknesses of the past business model and ensures a sustainable future without continued state support."

At the end of June, Ireland notified a capital injection of up to EUR8.580bn in favour of Anglo Irish Bank, to be paid in annual tranches over 10 years. This is to cover the capital needs of the bank as of end of June 2010 until December 31, 2010 and will help the institution to preserve an adequate level of Core Tier 1 capital. This amount can now be increased to EUR10.05bn, depending on the actual valuation of the bonds issued by the National Agency for Asset Management (NAMA) in the accounts of Anglo Irish Bank, the Commission said.

In its comments on the third capital injection, the Commission said: “It has become necessary because impairments and losses on Anglo Irish Bank's entire commercial loan book have continued to increase due to the poor quality of the book and the drop in prices on the commercial property market combined with the ongoing crisis on financial markets. Furthermore, in recent years, Anglo Irish Bank participated in much risky lending to commercial real estate developers and investors. This sector accounted for the largest part of its loan portfolio, which led to very large losses when the property market started to rapidly worsen. Due to the magnitude of the losses, Anglo Irish Bank needed a further capital injection in order to ensure that it would meet its regulatory capital requirements.”

To date, the Commission has already approved two emergency capital injections for Anglo Irish Bank (EUR4bn in 2009; and EUR10.44bn in March 2010). Discussions on the restructuring plan are ongoing.

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