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Banks totter amid deepening economic downturn

Text by News Wires

Latest update : 2010-03-31

Anglo Irish Bank logged record losses in Irish corporate history and Bank of Ireland announced it was seeking 2.7 billion euros in extra capital on Wednesday to offset its own losses, as the country continues to reel from global recession.

AFP - Ireland reeled Wednesday after Anglo Irish Bank posted the worst loss in Irish corporate history while fellow troubled lender Bank of Ireland called for a massive capital injection.

The finance minister had lambasted the banks on Tuesday for reckless behaviour that helped push the Ireland into one of its worst economic downturns and on Wednesday the extent of the damage was made abundantly clear.

Anglo Irish Bank, nationalised in early 2009 to save it from collapse, said it posted a net loss of 12.7 billion euros (17.2 billion dollars) in the 15 months to the end of December as its bad debts ballooned.

The record loss compared with a profit of 664 million euros in the 12 months to the end of September 2008, the bank said, after switching the end of its financial year to December 31.

The bank, like many of its rivals, has been battered by the global financial crisis, a deep recession and a property market meltdown, resulting in billions of euros of bad debts -- loans that have to be written off.

Bank of Ireland meanwhile said it was seeking 2.7 billion euros in extra capital after posting a huge net loss for the nine months to December due to massive bad debts.

The bank, 16 percent state-owned, said it suffered a net loss of 1.46 billion euros in the nine months to December.

That compared with a slender net profit of 53 million euros in the 12 months to March 31, 2009, the group added, after also switching its financial year.

Anglo's announcement came as the EU's competition watchdog opened an in-depth probe into Irish state aid to the lender and its restructuring plan.

The European Commission, the top Brussels anti-trust watchdog, authorised emergency recapitalisation of 10.44 billion euros for the bank for a six-month period, recognising that a capital injection was necessary.

EU Competition Commissioner Joaquin Almunia said "there is no doubt" the bank needs "significant recapitalisation to meet their obligations."

However, "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," he said.

On Tuesday, Finance Minister Brian Lenihan told an angry parliament that his "worst fears have been surpassed" about how recklessly bankers had behaved but said a massive state bailout was necessary as the least bad solution.

Lenihan said the state would buy 81 billion euros of toxic assets from failing lenders and inject an extra 8.3 billion euros into Anglo Irish Bank.

Lenihan said "truly shocking" information had emerged about the way Irish banks had behaved in the run-up to the global financial crisis.

"At every hand's turn, our worst fears have been surpassed," he said.

"Some institutions were worse than others. But the fact is that our banking system, to a greater or lesser extent, engaged in reckless property development lending. In too many cases there were also shoddy banking practices.

"The banks played fast and loose with the economic interests of this country," he charged.

Anglo Irish Bank said on Wednesday that the 15 months to December had "been an exceptionally difficult period" for the bank and for all its stakeholders.

"This loss is primarily due to an impairment charge of 15.1 billion euros which reflects the very significant deterioration in asset quality since September 2008.

"The results for 2009 clearly reflect the costly mistakes in lending decisions that the Bank made in the past," it conceded.

"Our focus is now on seeking the most effective means of overcoming the impact of past mistakes and on becoming a constructive component of a reformed and modernised Irish banking structure."

Anglo Irish Bank was the poster boy of the Celtic Tiger economic boom, lending to many of Ireland's leading businessmen and developers.

Its activities during the boom are now being investigated by the police fraud squad and Ireland's regulator and corporate watchdog.

Date created : 2010-03-31

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