Dublin ready to close Anglo if state solvency dictates-UPDATE 2

Trade the News

Monday September 06, 2010 07:36:13 PM GMT

* Newspapers report govt wants gradual wind-down

* Minister: splitting bank or closure remain 2 options

* Cost manageable, won't bankrupt country -Lenihan

* Public, smaller govt party Greens want faster wind-down

(Recasts with finance minister, analyst comment)

By Andras Gergely and Padraic Halpin

DUBLIN, Sept 6 (Reuters) - Ireland is still mulling whether to keep parts of Anglo Irish Bank open but stands ready to wind it down if that helps keep the country solvent, Finance Minister Brian Lenihan said on Monday. Earlier on Monday, the Irish Independent newspaper reported Lenihan would ask the European Commission to allow a closure of the troubled lender over a 10-year period and analysts say that scenario is looking increasingly likely.

Science and technology junior minister Conor Lenihan said on Saturday the bank would be "decommissioned", the latest signal that the government, conscious of its wafer-thin parliamentary majority, is set to cave in to growing pressure.

Anglo Irish has submitted a plan to Brussels, favouring the option of carving out a small functioning bank via a "good bank/bad bank" split and Lenihan said on Monday that this proposal was still on the table.

"We have to evaluate that case," Lenihan said. "If what is best for the taxpayer and for the country -- in terms of the risks to the country's solvency -- if the best option is a workout (wind-down) over an extended period of time, then so be it," Lenihan told public radio RTE before flying to Brussels.

The escalating cost of rescuing Anglo Irish is a major threat to Ireland's creditworthiness, with analysts seeing it as the next potential euro zone trouble spot after Greece despite much-vaunted efforts to cut public spending.

Lenihan said however the costs would be manageable.

"I was a bit concerned to see yesterday that a lot of public opinion believe that Anglo Irish Bank will bankrupt the country," he said referring to a survey published at the weekend. "That's simply not the case."

Lenihan also said he had completed treatment for cancer, stabilising the disease and allowing him to stay in his job in the run up to the next budget which he said on Monday would be presented on December 7.

At around 352 basis points, the premium investors demand to hold 10-year Irish debt rather than benchmark German Bunds remains only about 20 bps below last week's record highs, showing investors still nervous.

Anglo Irish Bank's chief executive told the Sunday Business Post that Brussels wanted to wind down the lender. He said management still believed it would be better to keep some of it open but that this was unlikely to be accepted.

PRESSURE BUILDING

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

"The pressure on them for a wind down is building up and the mood you get, just from talking to people in the street, is that you're heading for a wind down," Alan McQuaid, chief economist at Bloxham Stockbrokers said.

"People are just getting brassed off and I think that in itself will force the hand of the politicians."

The Sunday Times also said, without naming sources, that Lenihan would ask in his meeting with European Competition Commissioner Joaquin Almunia if Anglo Irish could be gradually wound down, arguing that a quicker closure would be too costly.

Almunia, who will have the final say on Anglo Irish's fate, said on Saturday he would discuss the matter with Lenihan but did not say what was his preferred outcome. On Monday he declined to comment on the matter.

The Green Party, the coalition allies of Lenihan's Fianna Fail, said Anglo should be wound down in less than a decade.

"It has to wind down in a way that is longer than the immediate term but shorter than 10 years," Green Party Chairman Dan Boyle told Monday's edition of the Irish Times newspaper.

(Additional reporting by Foo Yun Chee in Brussels; Editing by Ron Askew)

(c) Copyright Thomson Reuters 2010. Click For Restrictions. http://about.reuters.com/fulllegal.asp