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The Government announced on Thursday night that it is to nationalise Anglo Irish Bank, which became Europe's most successful bank during the Irish property bubble and is now its biggest casualty.
Minister for Finance Brian Lenihan announced that the Government was taking “steps that will enable the bank to be taken into public ownership”.
Lenihan said he received assurances from the Financial Regulator and Central Bank that the company is solvent.
The State was due to take control of 75 per cent of the bank after announcing a plan in December to provide €1.5 billion in public funds. An extraordinary general meeting of the bank's shareholders was scheduled for this morning and is still set to go ahead.
Lenihan said at a press briefing, that as the bank’s funding position has been weakened, and its reputation damaged as a result of a recent scandal, recapitalisation alone would not guarantee its future viability.
"There is no need to do that in the context of a nationalised institution because it is under total State ownership", said in relation to a State-funded injection, signalling that public funds of less than €1.5 billion would be required in the short-term.
The final value of the bank will be decided by a State-appointed assessor – and not by its final closing on stock exchanges, he said.
"An assessor will determine what the value of the bank is for the purposes of compensation of any particular shareholding.
"I am not in a position to make that assessment this evening. It would be improper of me to make that. The market attached a particular valuation. Of course, the market valuation is not conclusive. A separate investigation will have to be made by the assessor."
The Attorney General Paul Gallagher advised that the "bank might be worth less than that, or more than that. Therefore an assessment has to take place.
"The market valuation is only an estimation made by the market at a particular time. We know how stressed the markets are.
"Regard will be had to a wide range of factors including the liquidity of the bank; the future of the bank, the assets, the liabilities. All those will be taken into account by the assessor.
Anglo Irish has debts of €100bn, but deposits of €80bn: Those depositors have to be paid on request and interest has to be paid as undertaken. That's the fundamental issue with Anglo."
<We operate to the highest ethical and governance standards as we aspire to be a model corporate citizen. For this reason we invest heavily in the development and training of our staff, as well as maintaining the highest levels of integrity in our relationships with our stakeholders> - - Anglo Irish Bank Annual Report 2007
Anglo Irish Bank was founded in 1964 as Dublin City Bank and became a publicly quoted company in 1971. It had 1,900 employees in December 2007.
In 1986 Seán FitzPatrick, a chartered accountant, became Chief Executive; Dublin City Bank merged with Anglo Irish Bank Ltd and assumed the latter's name.
December 2008/January 2009 - - Chairman Seán FitzPatrick, Chief Executive David Drumm and a number of board members resigned after it emerged that FitzPatrick had taken measures over an eight-year period, to conceal details from shareholders, of an €87 million loan he took from the bank.
Lenihan said some deposits had been removed in recent weeks, and months but he refused to divulge more: "I am not prepared to disclose about cash balances of an institution which will now trade with the protection of the State. I am not prepared to answer that question.
"The funding position of the bank did weaken as a result of the disclosure of the improper and unacceptable practices carried on by the chairman. There was some stabilisation with the assumption of control by a new chairman, Donal O'Connor".
Anglo Irish Bank closed at 22 euro cent on the Irish Stock Exchange, on its last day of trading before becoming a State-owned bank.
On February 21, 2007, the ISEQ index rose to an-all time high of 10,041 and the Financial sub-index rose to 18,098. Bank of Ireland closed at €18.65; Anglo Irish closed at €16.64 and AIB closed unchanged at €23.95.
A year later, on February 21, 2008, AIB closed at €13.80, Anglo Irish Bank finished at €8.84, while Irish Life & Permanent closed at €10.20 and Bank of Ireland traded at €9.50.
Seven issues dominate the Irish market and in recent years, overseas residents, dominated by institutions, have owned more than 60% of Irish bank shares. Ireland's biggest company CRH, accounts for about a third of Irish market capitalisation and in December 2007, foreign holders held 84% of the issued shares.
The Minister rejected a question which suggested that the Government had by its actions guaranteed the investments made in Anglo by Ireland's wealthiest businessman, Sean Quinn, who has already lost about €1 billion from the investment.
"We are not guaranteeing Sean Quinn, and I really think that is an unacceptable way to formulate the question. The position is that Sean Quinn may owe this bank some money. It is the duty of the bank that any monies owed by him are paid."
Questioned about how the bank will be valued finally, he said: "If the assessor decides that the bank is worthless, then the compensation paid is nil. If the assessor decides that this was a very valuable institution, notwithstanding market sentiment, then, of course, any shareholder is entitled to some compensation."
Refusing to provide a final figure, he said: "The market capitalisation is very low. And there are those who have argued that the market capitalisation, though low, is excessive."
He went on: "If as many have suggested in public print in recent weeks – to no advantage to the Irish State, I have to say – that this particular institution is worthless then, if that is the case, nil compensation will be paid. That is the assurance I can give the taxpayer."
Fine Gael said the Government had finally been forced into recognising their mistaken approach to Anglo Irish.
"The handling of this issue confirms, once again, that the Government are all at sea on economic policy and are lurching from one u-turn to the next. First it was the multiple u-turns on the Budget, then the requirement for recapitalisation of Irish banks, then the idea of a pay freeze, and then finally their u-turn on Anglo Irish Bank’s entitlement to be included in the recapitalisation programme," said finance spokesman Richard Bruton.
“This latest of u-turns, while the correct decision that will help protect the viability of the remaining banks, does not bode well for the steady and assured management of the economy in the future. Finally, the Government needs to clarify if today’s announcement has the effect of extending the State guarantee to any additional liabilities of the bank, including the owners of €2 billion in perpetual preference shares,” he added.
Department of Finance Statement:
The Government has today decided, having consulted with the Board of Anglo Irish Bank Corporation plc (“Anglo”), to take steps that will enable the Bank to be taken into public ownership.
This decision has been taken after consultation with the Central Bank and the Financial Regulator which has confirmed that Anglo Irish Bank remains solvent.
Anglo Irish Bank is a major financial institution whose viability is of systemic importance to Ireland. Anglo has a balance sheet of some €100bn with a substantial deposit base which the State is determined to safeguard. The Government has made clear that it will ensure its continued viability. Anglo Irish Bank will continue to trade normally as a going concern, with appropriate Government support as necessary. All Anglo employees remain employed by the company.
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 recapitalisation 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.
The Government believes that the prospects for the institution are solidly underpinned in the new structure, with the benefit of state ownership and a renewed management and Board. In the current circumstances the State is the only available potential owner.
The recently appointed Chairman of the Board, Mr. Donal O’Connor, will stay on as Chairman. Anglo will be managed on an arms length basis as a commercial entity. A new Board will be appointed having regard to the need for appropriate continuity.
Shareholder rights will be respected in this process. The relevant legislation outlines a process for determining compensation as appropriate.
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.
Information will be available on the websites of Anglo Irish Bank, the Central Bank, the Financial Regulator, and the Department of Finance. Customers with particular queries may also phone Anglo Irish Bank or the Financial Regulator.
Creditors (including bondholders) of Anglo Irish Bank can be assured that it will continue to service its obligations and will repay its debts at maturity.
The Government has prepared legislation to put this decision into effect. This will be presented to the Houses of the Oireachtas on Tuesday.
Tomorrow before the markets open, it is expected that the Irish Stock Exchange and the UK Listing Authority will announce that Anglo shares will be suspended from listing on the Stock Exchanges.
The Minister said“I would again stress that this Government decision safeguards the interest of the depositors of Anglo, and the stability of the economy, given the significance of Anglo in this regard, as already recognised by the European Commission. The bank will continue to operate as normal and depositors and creditors should continue to transact as normal.”
Customers of all financial institutions can have confidence that the wider financial system in Ireland remains well capitalised and liquid and that the Irish authorities will be proactive to ensure that their interests are protected and their deposits and debts are secure.
The Government will ensure the continued viability of all systemic financial institutions.
The Government remains fully committed to the recapitalisation proposal already announced in relation to AIB and Bank of Ireland. These plans include injection of core tier 1 capital in the form of preference shares and underwriting of further core tier 1 capital issuance.
Anglo Irish Bank statement
A statement from Anglo Irish Bank on the Government's takeover plan
The Board of Anglo Irish Bank met this evening following the decision of the Government not to proceed with the recapitalisation of the Bank. The Government advised the Board of its willingness to take the Bank into public ownership. The Board will work fully with the Government to ensure the long term commercial viability of the Bank.
Anglo Irish Bank will continue to trade normally as a going concern and accordingly customers and providers of funding can be fully assured of the safety of their deposits and investments, which remain State guaranteed. The Board and management are committed to driving the business forward on an independent and commercial basis.
The Government has confirmed that all employees remain employees of the Bank.
The purpose of the EGM, planned for tomorrow, Friday 16 January, no longer exists. It is intended as a result to open and adjourn the meeting as the proposals tabled are no longer relevant.