Brian Lenihan: 'not prepared to give Anglo any more than €4bn'

Anglo Irish, the nationalised bank which has already received €4bn in taxpayer's money, has told the Department of Finance in a submission that it needs €5.7bn in additional monies to be viable over the next few years and to develop as a small business lender.

The bank declined to comment last week, but the Sunday Tribune understands the bank has told the department that €5.7bn will be needed to restore its capital levels to international norms and to have a sufficient capital buffer against losses which can be elevated in the SME sector.

The scale of the capital injections, included in a two part submission to be finalised by the end of month, is unlikely to find favour with the Minister for Finance, Brian Lenihan, who said in a NewsTalk radio interview late last week the bank would not be given any more than €4bn in future.

A debate is now taking place between the bank and the department over the costs of re-capitalisation long term versus a gradual wind down of the institution. The costs associated with the second option are believed to be larger than €5.7bn, but a wind down option has strong support among some officials, particularly if done over an extended period.

The other emerging threat for Anglo is that the European Commission may order the institution to be closed entirely. Last week, Department of Finance officials, and the bank were studying comments by the European Union competition commissioner's head of cabinet, Irishman Anthony Whelan, who said a "very radical solution'' could be necessary for Anglo.

The government is hoping to put off any further funding of Anglo well into 2010, but any fresh borrowings are likely to be closely examined by the ratings' agencies, who are currently expressing some scepticism over the forthcoming budget.

Difficulties forcing through public sector pay cuts could still force Lenihan to raise taxes next month, the agencies told the Sunday Tribune. They also warned that the government will have to dramatically hike taxes, including income taxes, in the long term if Ireland is to get its finances in order by the newly extended European Commission deadline.

Fitch Ratings director Chris Pryce said expenditure cuts alone wouldn't be enough to help Ireland meet the new end-2014 deadline. "I honestly think the government would prefer to cut spending – but it will find that hard to do," said Pryce.