Irish government says to wind down part of Anglo Irish Bank

(DUBLIN) - The Irish government on Wednesday said it planned to split state-rescued Anglo Irish Bank into two banks, with one half eventually being sold or wound down, in the hope of satisfying the EU.

Anglo Irish will be split into a so-called Funding Bank and Asset Recovery Bank. The former will guarantee deposits while the state will seek to offload the latter bank.

The decision followed a briefing of cabinet ministers by Finance Minister Brian Lenihan and talks he held earlier this week with the European Commission and EU finance ministers.

"The Government decided that Anglo Irish Bank will be split into a Funding Bank and an Asset Recovery Bank," a statement said.

"Anglo Irish Bank has not expanded its loan book since it was nationalised in early 2009 and this will remain the case. It is intended that in due course the Recovery Bank will be sold in whole or in part or that its assets will be run off over a period of time."

It added: "The depositors will become customers of the Funding Bank which will be fully capitalized and continue as a regulated bank.

"In order to restore the reputation of the Irish Financial System it is essential to bring finality to the problem of Anglo Irish Bank -- our most distressed institution," said the statement from the finance ministry.

Anglo's preferred option for the bank's future envisaged splitting the bank into an asset management company and a new good bank.

The asset management company would -- over time -- have managed out the bank's lower quality assets remaining after the transfers to the state's bad bank, NAMA, the National Assets Management Agency.

The new good bank would have managed the remaining share of the loan book, retained the bank's deposit funding and sought new lending opportunities to grow the bank.

The statement said Lenihan acknowledged the "good faith and hard work" of the board in producing a credible proposal for the future of the bank.

"However, the Government has concluded that this plan in its current form does not now provide the most viable and sustainable solution to ensure the continued stability of the Irish banking system."

Anglo Irish last week reported a dizzying pre-tax loss of 8.2 billion euros in the six months to the end of June, on top of 12.7 billion euros for the whole of 2009, the biggest-ever losses in Irish corporate history.