Anglo Irish 'could face EUR 450m writedowns'

Anglo Irish Bank, which is being nationalised, may have to write down the value of its commercial property loan book by as much as EUR 450 mln following a legal ruling in Ireland.

Stock broking form NCB said the Irish High Court had for the first time backed the writing down of a secured asset during the examinership process. The decision could also hit Ireland's two largest banks, Allied Irish Banks (AIB) and Bank of Ireland, as they - like Anglo Irish - have significant exposure to the flagging real estate and construction sectors. NBC said AIB may have to write down its commercial property loan book by EUR 415 mln, and Bank of Ireland by EUR 263 mln. The stock broker estimated the total impact of the ruling on the Irish banking sector could be about EUR 1 bn.

NCB said: 'The judgment reduces banks' ability to benefit from any recovery in businesses that enter examinership.' The number of companies going into administration is now expected to increase significantly. 'In particular, we expect players in the property and construction space to consider examinership,' the stock broker said in the report.

Dublin and London-listed Anglo Irish is Ireland's third-largest bank. Having made its name largely as a major financier during the Irish property boom, Anglo Irish saw its share price plummet by up to 95% in the latter part of 2008, reducing its market capitalisation to EUR 250 mln, as the global financial crisis and the property downturn ravaged the Irish banking sector. The Irish government had intended to invest EUR 1.5 bn into Anglo Irish in return for a 75% stake, but last Thursday as the bank's position was becoming increasingly precarious the government announced it would take the bank fully into public ownership. The government insisted Anglo Irish was still solvent.

Investors began taking flight from Anglo Irish after the bank's reputation was rocked in December 2008 by revelations that bank chairman Sean FitzPatrick and another board member Lars Bradshaw had concealed EUR 87 mln worth of directors' loans. The men took out loans from the bank to purchase the bank's shares, which in itself is allowed. But over the last eight years they concealed the arrangement from shareholders by moving the loans to other backs prior to end-year audits. The scandal led to the resignation of the two men and bank CEO David Drumm.

Irish finance minister Brian Lenihan has indicated the government may consider using Anglo Irish to hold 'toxic debts'. Trading in Anglo Irish's shares was suspended ahead of the presentation of the nationalisation legislation in the Irish parliament on Tuesday.