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Anglo Irish Bailout

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Newsflash on bbc about an hour ago, but it wasn't repeated. Found this instead.

By Quentin Fottrell

Of DOW JONES NEWSWIRES

DUBLIN (Dow Jones)--Ireland's Finance Minister Brian Lenihan said Friday he will seek E.U. approval to inject EUR4 billion into recently nationalized Anglo Irish Bank Corp. after it plunged to a loss in the first half because of deteriorating asset quality.

The minister, who nationalized the bank after a series of loan scandals and soaring impairment charges, said his priority now was to protect the economy from the wider losses that would occur should the bank collapse, protect the EUR64 billion of customer and interbank deposits in the bank, and prevent Anglo from becoming a "systemic threat" to the financial system.

However, Lenihan said Anglo Irish is also in a position to generate new capital itself by buying back certain outstanding subordinated loans from bondholders. Because of recent market weakness these now trade at a significant discount to their par value.

"This exercise will generate profit and additional capital for the bank," the minister said.

Lenihan said first-half results at the scandal-plagued corporate lender were disappointing, marking further asset deterioration since it was nationalized.

The bank plunged to a EUR4.1 billion pretax loss in the fiscal first-half after booking hefty loan impairment charges, mainly as a result of loan losses of EUR3.7 billion. This compared with a pretax profit of EUR667 million the year before.

Anglo has impairment provisions on its balance sheet of EUR4.9 billion, but forecast that the impairment losses for the three years to end-September 2011 "are likely to reach EUR7.5 billion."

Anglo also said that, if there was another 10% fall in the value of land and development assets, there could be an additional impairment charge of EUR1.5 billion. The government's National Asset Management Agency, or NAMA, will take control of those assets, and also land and development assets from Bank of Ireland PLC (IRE) and Allied Irish Banks PLC (AIB).

NAMA has said it will take up to EUR90 billion in assets from Ireland's banks, but the finance minister has said the actual value of these assets will be "significantly less" than that.

Anglo's Executive Chairman Donal O'Connor said: "Clearly the bank made mistakes in some of the lending decisions taken in recent years, particularly in relation to property lending in Ireland."

"The minister's decisions place the bank on a sound financial footing and we are determined to repay the taxpayer by creating a viable, efficient and respected bank," O'Connor added.

Anglo said impaired loans hit EUR10.7 billion and that its development lending totals EUR17.7 billion or 24% of its loan book. Two-thirds of this lending is Irish-based and covers all phases of development from unzoned land to completed units.

Lenihan also said that despite the weak results he was satisfied the bank had fully disclosed the problems it faces, which he said was "an important step in allowing the difficulties to be addressed in an orderly fashion."

The minister said: "It is important to remember that this is the first time we have put money into Anglo Irish Bank although we signaled our readiness to do so last December before the bank was nationalized."

The full implementation of NAMA will assist in securing the future stability of the institution and the new business plan will address the need for the bank to reduce costs and restructure, he said.

The government has asked for the appointment of new management including an external CEO and chief risk officer. It has already injected EUR3.5 billion each into both Bank of Ireland and Allied Irish Bank. "The results in the case of Anglo Irish Bank do not give rise to any reconsideration in relation to these institutions," Lenihan said.

Last December, Anglo's then-Chairman Sean FitzPatrick resigned after revelations about loan transfers between Anglo and Irish Nationwide Building Society to conceal EUR122 million in borrowing from Anglo to avoid including them in the year-end results.

Anglo's now-former CEO David Drumm and former Chief Financial Officer Willie McAteer also resigned in the wake of that scandal. The Irish Financial Services Regulatory Authority and Office of the Director of Corporate Enforcement is also investigating recent transactions at Anglo.

The government took a 75% stake in Anglo last year and, after those revelations, finally decided in January to nationalize the institution, which was once the darling of the Irish Stock Exchange, and known for its aggressive investment in property development before the crash in the Irish property market.

Company Web site: www.angloirishbank.com

-By Quentin Fottrell, Dow Jones Newswires; +353-1-6762189; quentin.fottrell@dowjones.com

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