Anglo Irish Bank posts record first-half loss

31st August 2010, Comments 0 comments

Ireland's state-run Anglo Irish Bank reported a record first-half loss on Tuesday, hit by soaring bad debts, and revealed that the government had injected another 8.58 billion euros to prop it up.

Anglo, nationalised early last year to save it from collapse, said in a results statement that it made a pre-tax loss of 8.2 billion euros (10.4 billion dollars) in January-June, compared with the same part of 2009.

The record shortfall included a massive impairment charge of 4.8 billion euros, while the group also faced a 3.5-billion-euro loss on loans which it sold at a discount to the National Asset Management Agency (NAMA).

An impairment charge acknowledges unexpected costs or losses, such as bad debts.

"The severe contraction in the Irish property market, rising unemployment and weak consumer demand ... continued to influence asset prices and impairment charges into the first half of 2010, culminating in the reporting of a pre-tax loss of 8.2 billion euros," said bank chairman Alan Dukes.

"In addition, international funding markets were stressed during the period, which impacted the bank's funding and liquidity position."

The Irish government has meanwhile pumped another 8.58 billion euros into the troubled group, taking its total state support to 22.88 billion euros.

Anglo Irish Bank added on Tuesday that it would seek to wind down at least 80 percent of its business over the next 10 years.

"We have considered in detail a number of alternative strategic options for the future of the Bank, including an immediate liquidation," added Dukes.

"After detailed consideration, we have decided to pursue a plan to split the bank, winding down at least 80 percent of the old bank and creating a new viable bank from the remaining good quality loan assets.

"It is the board's strong view that this restructuring plan represents the best possible outcome for the taxpayer of all the alternatives available."

The Irish government had set up the NAMA -- a so-called 'bad bank' -- to buy mainly soured property loans from the banks with a book value of some 81 billion euros.

Leading Irish banks became grossly over-exposed to lending to property markets, notably commercial property.

This became apparent when interest rates began to rise, the property bubble burst, and the interbank lending market on which they were heavily dependent for funding dried up, initially because of uncertainty arising from the collapse of the US investment bank Lehman Brothers and from the US subprime mortgage crisis.

Tuesday's earnings has reminded investors that the Irish banking sector's problems have not gone away, according to GFT analyst David Morrison.

"This is another grim set of results for the nationalised bank," Morrison said.

"While not a complete surprise, the results remind investors that Ireland's problems are far from over, as the government is forced to pour in more funds to keep the bank afloat.

"With the US and European economies still struggling, the bank is likely to need further government support."

Dukes warned that the outlook remained uncertain, despite the Irish government's attempts to stabilise the economy.

"While the important steps taken by the Irish government have contributed significantly to stabilising the economy, the recovery is expected to be slow and uncertainty remains around the future direction of property markets."

Analyst David Morrison at online trading site GFT commented: "This is another grim set of results for the nationalised bank.

"While not a complete surprise, the results remind investors that Ireland's problems are far from over, as the government is forced to pour in more funds to keep the bank afloat.

"With the US and European economies still struggling, the bank is likely to need further government support.

"The trouble is that this is rising the cost of insuring Ireland's sovereign debt, due to a government banking guarantee, and this comes just as Irish banks have to refinance 25 billion euros of debt due in September."


© 2010 AFP

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