Taxpayer between a rock and hard place on Anglo

When Anglo Irish Bank reveals later this week that it has written down almost €14 billion of bad loan losses for the 15 months to the end of 2009, the news will inevitably trigger a further major debate on whether this zombie bank should be wound down in an orderly fashion or continue to be given very expensive life support in the vain hope that it might, one day, be able to stand on its own feet again. The stark figures set to be announced when the bank reports its losses this week will undoubtedly have most sensible people questioning the wisdom of trying to keep a failed financial institution limping along. Most people will ask why we must continue to pump our scarce cash into a lifeless institution whose former chairman, Sean FitzPatrick, had his collar felt by the Gardai last week as his spectacular fall from grace continued. This bank will turn out to be the biggest and costliest drain on the State for the next 10 years if the Government insists on keeping it alive. The problem for the taxpayer is that we are being told it will cost even more if we allow it to go to the wall. It was one of the main discussion points at the Fine Gael ard-fheis at the weekend with party leader Enda Kenny pledging that FG in government would scrap the plan to bail out Anglo and use the money instead to start a national recovery bank that would support new lending and create jobs. Anglo has already swallowed up €4 billion of taxpayers' cash and is likely to require a further €6bn to keep it going. Taxpayers are entitled to ask why they should throw even more cash into this toxic black hole. The answer, according to the chairman-in-waiting of Anglo, Alan Dukes, is that the cost of closing down the disgraced bank would be greater than the cost of keeping it open. Dukes believes the price of winding it down would amount to €20bn. He is convinced that this basket case bank could even have a viable future and that the nationalised institution could even be sold back to the private sector, with a profit for taxpayers, in the future. That is not an opinion likely to be shared by many economists. The team brought in to oversee the overhaul of the bank are planning to divide Anglo up into a good and bad bank, with the former getting its depositors and the latter absorbing its non-performing loans, and this bad bank would be gradually wound down over the course of a decade. However, in the equivalent of a banking Catch 22, the taxpayer looks set to lose either way - whether Anglo sucks in ever more billions of State funds or whether it is wound down at an even greater cost. The true state of this bank will become clearer shortly when Nama takes its first loans and announces the price it will pay for them. This so-called 'haircut' is crucial and will determine, among other things, the amount of money that will be needed to go to recapitalise the banks to allow them start lending again. With €10bn of public funds already pumped into the Irish banking system, and at least a further €15bn to come, not to mention the billions needed to fund Nama, then the shocking cost and scale of the Irish banking scandal comes more clearly into focus. It is accepted that AIB and Bank of Ireland, the big two banks, are of systemic importance to Ireland's financial and economic wellbeing and cannot be allowed to fail. However, there remains a bigger question mark over Anglo. It may once have been Ireland's third biggest bank but it is not Lehman Brothers. It is now a millstone around all of our necks and will continue to be a disaster for the State and taxpayers for years to come. Its business model of borrowing billions on the international capital markets and lending this money to a small cadre of Irish developers to speculate on property is completely dead and it has no effective role to play in retail banking. Bullying taxpayers into continuing to support Anglo by threatening Armageddon if they do not is not a convincing enough argument anymore when it comes to this bank. A thorough, independent cost-benefit analysis of the two options open - winding it down or keeping it open - needs to be presented to the public before any firm decisions are taken on what to do with Anglo Irish Bank. That way, at least an informed debate can take place about what is in the best interests of taxpayers and the least cost to the exchequer when it comes to dealing with this intractable problem.