Ireland to wind down Anglo Irish bank

Ireland's government has outlined a compromise solution for winding down troubled Anglo Irish Bank, but failed to put either a price or a timeline on its plan.

Yielding to political pressure, Finance Minister Brian Lenihan ditched Anglo Irish's own plan to carve a functioning niche lender out of what is left of the nationalised bank when it transfers €36 billion ($NZ63.4b) in property loans to Ireland's state run bad bank.

Instead, Anglo's remaining loans will be housed in an asset recovery bank, where they will be worked out over a period of time while its deposits will be put into a government-backed deposit bank which will not engage in any lending.

The capital cost of the plan - the final bill which investors have been seeking - will be known by October when the central bank announces the units' capital requirements.

The prospect of a final price being put on the cost of bailing out Anglo, which has saddled Ireland with the worst budget deficit in the European Union, gave some relief to Irish debt spreads but analysts said overall the lack of detail was disappointing.

"We're still none the wiser really. Okay it tells you the route they're going, but I don't think it gives you any clarity on the amount of money it's going to cost the exchequer which is what the market is worried about," said Alan McQaid, chief economist at Bloxham Stockbrokers.

"I don't think the market gives a hoot one way or the other if it's a 'good bank/bad bank' or if it's wound up, the issue is how much it's going to cost."

The premium investors demand to hold Irish 10-year paper over German bunds dropped by just over two basis points to around 380 basis points after the announcement, 9 bps off a euro lifetime high hit on Tuesday.

Shares in Ireland's top two banks remained largely unchanged with Bank of Ireland nearly 3 percent weaker and Allied Irish Banks largely flat after earlier dropping 2 percent.

Keeping Anglo open for business would have stuck in the gut of voters sickened at having to shell out €25 billion for its reckless property lending while facing yet another round of tax hikes and spending cuts in the 2011 budget. .

- Reuters