Dublin intends 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 an Asset Recovery Bank. The former will guarantee deposits, while the state will seek to offload the latter.

The decision followed a Cabinet briefing by Finance Minister Brian Lenihan and talks he held earlier this week with the European Commission and European Union counterparts.

"The government decided that Anglo Irish Bank will be split into a Funding Bank and an Asset Recovery Bank," a finance ministry 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 capitalised 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."

The central bank will decide in October how much the plan will cost and the finance ministry gave no estimates in its statement.

Anglo welcomed "the certainty" the government's statement brought to "a very difficult situation."

In a statement Anglo said it would "work closely" with officials of the various state agencies "to deliver a detailed plan to give effect to this new option for the bank and will implement this plan."

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.

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

EU competition commissioner Joaquin Almunia said he welcomed the clarification on Ireland's preferred option.

"I view this new option positively as it would deal better with the distortions of competition," he said.

"However, a number of important aspects still need to be clarified, and a new notification received, before the commission is in a position to finalise its assessment and to take a decision."

Almunia also confirmed he would back an extension to the country's bank guarantee scheme until the end of the year.

The commission has authorised around 25 billion euros (32 billion dollars) in emergency state recapitalisations for Anglo Irish, which "obviously creates distortions of competition," he stressed.