Banking: Ireland's banks react to the bail-out
As the terms of the EU (et al) bailout of Ireland was confirmed, attention was again focussed on the banks. Anglo-Irish is doomed. No news there, then. But if all is so terrible, why did Bank of Ireland and Irish Life and Permanent see 16% and - incredibly - almost 40% increases in their share prices?
The reason is simple: those two institutions are not just safe from the swingeing scythe of those demanding a price for their funding but are actually going to be recapitalised.
Better still, they will be able to raise money in the markets - and have been given an extension of time to fix their balance sheets.
Anglo-Irish, on the other hand, will cease to be. Allegedly.
Central Bank’s governor Prof Patrick Honohan told RTÉ (state-owned broadcaster) that the bank would be closed as quickly as possible: "We are talking weeks," he said yesterday. But although the bank will formally close its doors quickly, it will be a lingering death: Honohan said that winding down the bank's loan book would take several years.
Prior to Sunday, there was a plan to split Anglo Irish into two - an asset recovery bank and a funding bank. Part of the price to be paid for IMF funding is that that plan will be aborted and the bank shut up. Honohan admits bondholders will lose, as will shareholders.
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But there is confusion: Mike Aynsley, Anglo Irish's CEO says that what is really happening is a re-branding exercise. Yesterday, as news of Honohan's comments spread, Aynsley e-mailed staff: "no decision to close the bank had been made," his note said. He opined that any decision to close or take other steps in relation to the bank would need to be discussed with and agreed to by the lending countries and institutions. He is bullish: he wants to restructure the bank and the Irish Nationwide Building Society into a new entity into what he termed "a restructuring and recovery bank." That sounds like the plan that Honohan appears to be dismissing.
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