(107) The Commission notes that …] have not provided a detailed business plan for New Bank
or Old Anglo, whether under the base case or the adverse case. It is therefore not possible
for the Commission to assess to which extent the business plans of both entities are
credible and rely on prudent assumptions. Accordingly, the Commission would need to
receive a stress test of the New Bank.
(108) …] in particular submit that in 2014 New Bank will generate profits of approximately
EUR …] billion, whereas Old Anglo will generate losses of EUR …] million only.24
This means that that the total profits of Old Anglo/New bank together would amount to
EUR …] million. That profit would be equivalent to the profit generated by Anglo in
…], (…]), i.e. at the top of the commercial real estate cycle. Considering the level of
impairments in Anglo, the projected reduced size of New Bank and taking into account
that it intends to develop activities in areas in which it has no previous experience, the
Commission doubts that such an objective is achievable under prudent assumptions and
with reasonable risks. In particular, the previous business model, which allowed such a
high profit in …], was characterised by a far too high level of risk.
(109) In order to complete its assessment, the Commission requires further information to assess
the restructuring plan, in particular a description of the methodology used to build the
business plan including assumptions on market shares of New Bank in each market it
targets, and growth of these markets. In addition the levels of impairments and operational
and funding costs should be explained and benchmarked versus comparable banks.
Impairments (NAMA and non-NAMA)
(110) As regards the impact of the participation of Anglo in NAMA and the estimations of
impairments provided by the Bank, the Commission observes that the valuation of the
assets concerned has not yet been approved. Moreover, the Commission has yet to receive
information regarding the impairments related to loans that will not be transferred to
NAMA. The Commission therefore has doubts whether the assumptions in the
restructuring plan are sufficiently conservative on the impairments.
Macroeconomic assumptions and regulatory environment
(111) The Commission notes that the analysis of some key macro-indicators (e.g. GDP growth,
house prices) is incomplete and sensitivity analyses with regard to the relevant
macroeconomic parameters and with regard to changes in the regulatory environment
should be provided to allow for a proper assessment of the business plan. The
Commission thus has doubts on the reasonableness of the assumptions used and on the
consequences for the business plan that was based on this data.
(112) The Commission also observes that the plan depends on the rating of the Irish State bonds
being maintained at a current level. Moreover, the potential impact of a broader
restructuring of the Irish banking sector or individual Irish banks has not been considered
in the plan, thus casting doubts on the scope covered by the adverse scenario. The
Commission invites the Irish authorities to take such considerations into account when
modelling the adverse scenario.
Legal and accounting construction of New Bank/Old Anglo
(113) In the Old Anglo/New Bank scenario, according to the plan, the figures describing the
split of activities between the two entities are only illustrative and are subject to further
legal, accounting, regulatory and tax analysis. It is therefore uncertain that the construction
foreseen is sustainable. The absence of this information calls into question the feasibility,
achievability and (financial) consequences of the plan for Old Anglo, New Bank and the
Irish authorities. For this reasons, the Commission has doubts on the scenario as described
in the plan.
(116) The Commission finds that the reduction of the risk weighting has not been substantiated
to a reasonable degree by the Irish authorities and thus doubts whether this reduction is
realistic enough to be taken account in its assessment of the restructuring plan. Further
evidence regarding the rating of New Bank and evidence that the regulator will accept a
reduction of the risk profile of loans transferred is thus needed.
(117) According to the plan, New Bank will engage in new and challenging sectors (for instance
…]). Over the period 2010-2014 the diversification initiatives will account for [35-45]%
of the new loans granted by the bank25. They therefore contribute substantially to the
business plan, and the successful entry of New Bank on these markets weights heavily on
the viability of the bank. Anglo is not currently active on these markets and therefore lacks
the required expertise or competitive advantages. Little explanation is provided with
regard to the specific expertise needed to enter these markets and how New Bank will
acquire it. Similarly, few explanations are provided with regard to characteristics of these
markets, such as a description of competitors and competitive intensity.
(118) Consequently, the Commission has doubts regarding the New Bank’s capacity to penetrate
different market segments without undercutting price and without accumulating excessive
risks. Further information will thus be needed to provide evidences that the new
businesses targeted by New Bank will positively contribute to its viability.
Exposure to the property market
(119) New Bank would remain very much exposed to the property market. Over the
restructuring period, …]% of the new loans granted by New Bank will be in the property
investment area (not including mortgages), and, in 2014, …]% of the loans of New Bank
will be commercial property backed loans.
(120) This exposure to the property market has been one of the main reasons why Anglo has
required State aid support. It is unclear whether the level of exposure of New Bank to the
property market is acceptable in terms of risks, and how this will be reflected in its
funding costs and resilience to stress scenarios. At the moment, the Commission doubts
whether further large exposure to a sector which is experiencing severe difficulties and
which is volatile by nature will contribute to the viability of New Bank. The plan also
does not indicate whether New Bank will stop with risky lending practices such as
interest-only loans and high loan-to-value loans (with possibility for the borrower to
increase its borrowing when the value of the mortgaged property increased). Further
information is therefore necessary to assess whether the business model of New Bank is
(121) The funding strategy of New Bank does not seem sufficiently developed. In particular it is
unclear which spread the New Bank should pay for wholesale funding, and what will be
the different sources of customer deposits. In addition the Commission has doubts
regarding the funding structure and the sustainability of the business model due to the
maturity mismatch of New Bank’s assets (long-term) and liabilities (short-term).
Moreover, given New Bank’s relatively high reliance on corporate and wholesale funding
at the outset, which gives rise to the need to maintain a strong credit profile, it is uncertain
that New Bank would achieve the credit profile without relying on Government support.
(122) To address funding concerns, the restructuring plan foresees that deposits will increase.
According to the plan, New Bank will attract depositors and other funding counterparties,
with an improvement in the total core funding (including retails and corporate deposits,
debt securities issued and excluding inter-bank and ECB) over the term of the plan (EUR
…] billion in 2010 increasing to EUR …] billion in 2014). In particular, retails deposits
will increase from …] billion in 2010 to …] in 2014. The Commission doubts whether
these forecasts are realistic taking into account the fact that most banks active in Ireland
and the UK focus on the gathering of retail deposits to address funding concerns. The
Commission furthermore doubts whether New Bank’s plan to enter the German market to
gather deposits is reasonable as it will require substantial investments, while it is unclear
for what amount these deposits would contribute to New Bank’s funding mix. The
Commission therefore invites the Irish authorities to provide evidence with regard to New
Bank’s access to wholesale funding and increase in deposits.