Anglo failure would ‘bring down’ Ireland

So while I’m watching our opposition politicans debate the extension of the guarantee, news breaks on the Financial Times about information they were looking for earlier today. Deficit to reach 30%. Is that a record?

Dublin will on Thursday unveil a fresh recapitalisation of Anglo Irish and seek to draw a line under its banking crisis. But doing so will raise the cost of its taxpayer-funded bail-out of the banks to up to €35bn ($48bn) and lift the country’s fiscal deficit to a record expected to be as much as 30 per cent of gross domestic product

In an interview with the Financial Times, Brian Lenihan, finance minister, said Ireland had no choice but to act.

“Any Anglo failure would bring down the sovereign. It is systemically important not because of any intrinsic merit in the bank. But because of its size relative to the national balance sheet. No country could contemplate the failure of such an institution,” he said. As part of the new bail-out the finance minister will authorise the immediate transfer of Anglo Irish’s remaining €25.9bn in non-performing property loans to the National Asset Management Agency, the government body set up to house troubled assets from the banking crisis. At one swipe, the move will halve Anglo Irish’s size.

On Wednesday Standard & Poor’s, the credit rating agency, downgraded Anglo Irish’s subordinated debt by three notches to triple C and warned there was a “clear and present risk” of a restructuring of the bonds. Earlier this week, Moody’s Investors Service similarly downgraded the bank’s sub bonds, but also downgraded Anglo Irish’s senior bonds by three notches because of the “greater marginal risk” that the government would not support those creditors.

In anticipation that Allied Irish Banks may now be targeted by the markets, Mr Lenihan is separately expected to announce a further taxpayer injection of about €2-3bn to help the bank meet the regulator’s year-end deadline to raise €7.4bn. Announcements by Mr Lenihan and the financial regulator will seek to restore calm to the debt markets where Ireland’s cost of borrowing was again at near record levels on Wednesday.

So that means effective nationalisation for AIB. €5bn more for Anglo too. “The cost of its taxpayer-funded bail-out of the banks to up to €35bn”.