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IP/10/1046

Brussels, 10 August 2010

State aid: Commission temporarily clears support for Anglo Irish Bank

The European Commission has authorised under EU state aid rules an emergency recapitalisation of up to € 10.054 billion in favour of Anglo Irish Bank. The Commission approved the measure until it will have reached a final decision on Anglo Irish Bank's restructuring plan.

Commission Vice-President for Competition Joaquín Almunia said: "Anglo Irish Bank needs a third emergency recapitalisation to meet its obligations. The measure is necessary to preserve financial stability in Ireland. However, there is no doubt that Anglo Irish Bank has to restructure profoundly in a way that effectively tackles the weaknesses of the past business model and ensures a sustainable future without continued State support."

At the end of June, Ireland notified a capital injection of to €8.581 billion in favour of Anglo Irish Bank, one of Ireland's largest banks, to be paid in annual tranches over 10 years. It will cover the capital needs of the bank as of end of June 2010 until 31 December 2010 and will help the institution to preserve an adequate level of Core Tier 1 capital. This amount can be increased to €10.054 billion, depending on the actual valuation of the bonds issued by the National Agency for Asset Management (NAMA) in the accounts of Anglo Irish Bank.

This is the third capital injection for Anglo Irish Bank since the beginning of the financial crisis. It has become necessary because impairments and losses on Anglo Irish Bank's entire commercial loan book have continued to increase due to the poor quality of the book and the drop in prices on the commercial property market combined with the ongoing crisis on financial markets. Furthermore, in recent years, Anglo Irish Bank did a lot of risky lending to commercial real estate developers and investors. This sector accounted for the largest part of its loan portfolio, which led to very large losses when the property market started to rapidly worsen. Due to the magnitude of the losses, Anglo Irish Bank needed a further capital injection in order to ensure that it would meet its regulatory capital requirements.

To date, the Commission has already approved two emergency capital injections for Anglo Irish Bank (€ 4 billion in 2009 - see IP/09/1045; and € 10.44 billion in March 2010, of which € 10.3 billion were effectively granted – see IP/10/400).

The Commission found that the recapitalisation is indispensable to remedy Anglo Irish Bank's financial difficulties and maintain confidence in the Irish financial markets. Therefore, the Commission temporarily authorises this measure as emergency aid until it has reached a final decision on Anglo Irish Bank's restructuring plan, which was submitted by the Irish authorities on 31 May 2010. Discussions on the restructuring plan are currently ongoing (see IP/10/400).

The Commission, in the context of these discussions, will insist on an in-depth restructuring of Anglo Irish Bank, taking into account the high aid amount received, which, apart from the three recapitalisations, includes an impaired asset measure through the transfer of its commercial loans to NAMA and guarantees under the two Irish guarantee schemes (Credit Institution Financial Stability scheme (IP/08/1497) and Eligible Liabilities Guarantee scheme (IP/09/1787) as recently prolonged by the Commission on 28 June 2010 (IP/10/854).

Background

At the height of the financial crisis, the Commission adopted a Communication on the recapitalisation of financial institutions (see IP/08/1901) for Member States to be able to inject emergency support into banks in order to safeguard financial stability.

Under the Communication the Commission temporarily authorises emergency support temporarily and requests a restructuring plan that ensures the bank's viability and compensation for the distortion of competition.

For an overview of the decisions adopted by the Commission in the framework of the financial crisis as well pending decisions (for which the Commission has already opened an in-depth analysis) see Memo/10/284.

The non-confidential version of the present decision will be made available under case number NN35/2010 and N279/2010 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.


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