ANGLO IRISH BANK is to be split in two, creating new ‘funding’ and ‘recovery’ banks, it has been announced.

The decision follows intense cabinet discussions earlier today on the bank’s future after ministers were briefed by Brian Lenihan on his meetings with Europe’s finance and competition commissioners earlier this week.

In a statement released this afternoon, Lenihan confirmed that the cabinet had considered the opinions of Anglo’s board, the Central Bank, the National Treasury Management Agency, the Department of Finance and the European Commission.

He said that the government had concluded that the bank’s proposed restructuring – into good and bad banks – did not provide “the most viable and sustainable solution to the ensure the continued stability of the Irish banking system.”

The newly-formed funding bank will not engage in any further lending, instead handling just the bank’s deposit book and being directly owned by the Minister for Finance, while the long-term goal is for the recovery bank to be sold “in whole or in part” or for its assets to be run off.

Spun off

Funds deposited in the new bank will be entirely insulated from the performance of the loan book, the statement said. The focus of the recovery bank would be to maximise the return to the taxpayer.

A formal plan is being submitted to European competition commissioner Joaquín Almunia for his approval.

The news saw the 10-year yield on Irish government bonds fall back below 6%; rates on the bonds had climbed to 6.046% in the hour before the plan was revealed.

It had been thought that the government would bow to the pressure from Anglo’s management to support the good bank-bad bank spinoff, though it had been speculated that a compromise of this kind could be offered.

A final price of the winding down of the recovery (or ‘bad’) bank will be estimated by the Central Bank with its final tally announced in October.

It had been widely reported that the European Commission had had reservations about the restructuring model was unlikely to have received the approval of the European Commission.

Competition commissioner Joaquín Almunia welcomed the government’s announcement but said 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 solution.”

The government had already ruled out an immediate wind-down of the bank, which had been estimated to cost up to €70bn.

Anglo had said earlier it expected “certainty” on its future today, with chief financial officer Maarten van Eden describing the possibility of the bank defaulting on its bonds as a “disaster”.