Anglo Irish Bank split in two

The European Union has approved the Irish government's plans to split Anglo Irish Bank, described as Ireland’s 'most distressed institution' by Irish Finance Minister, Brian Lenihan.

The mounting costs of dealing with the bank, which was nationalised last year, has been a key factor in fate of the Celtic Tiger economy.

Lenihan said the 'decision by the Government will provide certainty about the future of Anglo Irish Bank. Resolution of this, our most distressed institution, is essential to the promotion of confidence and stability in our financial system.' When asked how long the wind-down process would be, Lenihan said it would be ‘difficult to see it going beyond 15 years’.

Analysts have remained consistently negative about the outlook for Ireland and ratings agencies Moody's and Standard & Poors downgraded Ireland in July and August respectively.  

Politicians would not provide specific details on the cost of the proposed plans to Irish tax payers. However Anglo Irish management estimate that the cost will be €25 billion while ratings agency Standard & Poors has said it could be €35 billion.

It is believed the government has already ploughed nearly €23 billion into the specialist lender. Yesterday the Irish government issued a statement saying: ‘The Government decided that Anglo Irish Bank will be split into a Funding Bank and an Asset Recovery Bank. Anglo Irish Bank has not expanded its loan book since it was nationalised in early 2009 and this will remain the case. 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.’

In a statement the European Commission Vice President Almunia said: 'I welcome the clarification by the Irish Finance Minister on what would now be the Irish preferred option regarding Anglo-Irish. I view this new option positively as it would deal better with the distortions of competition. However, 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.'

The commission said it was necessary for government guarantees and short-term bank liabilities to continue. Deposits of savers in the UK are also guaranteed under the Financial Services Compensation Scheme.