Simon Carswell reports on an interview with Anglo’s Mike Aynsley and Maarten van Eden in this morning’s Irish Times. The number that jumps out is the extra €20 billion Mr. Aynsley claims it would cost to wind down the bank.
Winding down the whole bank would cost €20 billion – on top of the cost of the split, which stands at about €25 billion – he said.
Maarten van Eden, Anglo’s chief financial officer, added that the split option would also retain €47 billion of the bank’s funding, which would otherwise have to be provided by the Government.
This comprises €23 billion of customer deposits, €16.5 billion of wholesale funding and €7 billion provided by other banks, he said.
A few observations: First, the €47 billion does not include funding from the ECB and Irish central bank, which I presume would be available (subject to liquidity programmes in place) in the wind-down scenario. Second, surely Anglo’s “deposit franchise” is dependent on the government’s liability guarantees, and again it is not obvious that these it would not be available in a wind down – after all, the bank is presently not engaging in any new business either. Finally, even in the worse case scenario where the deposit funding disappears, would it really be that much more costly if the government had to borrow to pay off the funders directly? As it is, the markets are well able to see through the consolidated balance sheet of the government and the nationalised (and semi-nationalised) banking system. And even with the guarantee, Anglo must offer premium rates (e.g. 3.5 percent on one-year deposits).
It would be good to get commenters’ views on the €20 billion premium cost estimate.