Yesterday January 16, 2009 The Government of Ireland nationalized the Anglo Irish Bank. The shares were suspended from trading in all the exchanges. Anglo Irish was listed as a sponsored ADR with the ticker AGIBY. The ADR last closed at less than a dollar at $0.12.The Department of Finance of the Irish Government says:
“The Government has today decided, having consulted with the Board of Anglo Irish Bank Corporation plc (â€œAngloâ€), to take steps that will enable the Bank to be taken into public ownership. This decision has been taken after consultation with the Central Bank and the Financial Regulator which has confirmed that Anglo Irish Bank remains solvent. Anglo Irish Bank is a major financial institution whose viability is of systemic importance to Ireland. Anglo has a balance sheet of some â‚¬100bn with a substantial deposit base which the State is determined to safeguard. The Government has made clear that it will ensure its continued viability. Anglo Irish Bank will continue to trade normally as a going concern, with appropriate Government support as necessary. All Anglo employees remain employed by the company.”
The government backtracked on its earlier proposals to bail out the plan. The authorities took the drastic action state take over of the bank since Anglo Irish was the most exposed to the commercial real estate market which collapsed with the downturn in the Irish economy. Officially the government statement said:
“The funding position of the bank has weakened and unacceptable practices that took place within it have caused serious reputational damage to the bank at a time when overall market sentiment towards it was negative. Accordingly the Government believes that the recapitalisation is not now the appropriate and effective means to secure its continued viability. Therefore the Government must move to the final and decisive step of public ownership.”
Until a few years ago the Irish economy was growing at an astonishing rate among the EU countries that it earned the nickname “Celtic Tiger” since the country grew from being one of the poorest in Western Europe to one of the most successful.
Anglo Irish’s reputation was seriously damaged when it was revealed last month that the Chairman Sean Fitzpatrick took loans of â‚¬87m from the bank secretly in the past eight years. He was forced to resign as well.
Hence the bank’s funding position and the chairman’s scandal which lead to the loss of confidence in the bank sealed its fate. The government decided that the best thing to do to protect the financial system was to nationalize the bank .
Incidentally Fitch downgraded five Irish institutions – Allied Irish Banks, Anglo Irish, Bank of Ireland, Irish Life & Permanent and Irish Nationwide Building Society on January 15th. Allied Irish Bank (AIB) and Bank of Ireland(IRE) ratings were dropped from AA- to A. The ADRs of AIB and IRE share prices are $4.05 and $4.07 respectively as of yesterday’s close. While each of these two banks are set to receive a bailout of â‚¬2bn each it is still very risky to invest in them at this time.