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Anglo Irish's fate rests in the hands of developers

ANGLO Irish Bank's fortunes are tied to the fate of a small number of property developers, some of whom face major losses as the Irish property market unravels, auditors of PricewaterhouseCoopers (PwC) warned.

In extracts of a report published late on Friday, PwC painted a hair-raising picture of Ireland's No. 3 lender, which was nationalized in January and has been described as the "rotten burrow of Irish banking" after a string of scandals.

Ireland's government published parts of the PwC report after a public clamor for more information.

Probes into possible share price manipulation, window-dressing of deposits and directors' loans at Anglo have helped accelerate Ireland's economic decline as investors, fearful of more controversy, give Irish securities a wide berth.

"The report clearly demonstrates the government was correct to guarantee the financial system last September at a time when financial market liquidity conditions were under severe pressure," Finance Minister Brian Lenihan said.

PwC's revelations overshadowed Anglo's annual report, which was issued earlier on Friday and laid bare for the first time the bank's US$567 million loan to a so-called "golden circle" of 10 top customers to buy its shares and prop up the price.

Extracts from the PwC report, compiled after the government guaranteed the deposits of all Irish lenders in September, show how exposed Anglo Irish is to local property developers who were once feted as stars of the "Celtic Tiger" economy.

Under a "highest stress scenario," the auditors estimated that Anglo Irish, which rode the local property boom to extremes, could face impairment charges of 2.3 billion euros (US$2.89 billion) in its 2009 financial year and 3 billion euros in 2010. The combined 5.3 billion euros nearly overshadows Bank of Ireland's worst-case impairment loss scenario of 6 billion euros for a three-year period up to March 31, 2011. Anglo Irish did not update its own estimate for bad debts when it published its annual report earlier on Friday, an omission seized upon by opposition politicians and analysts.

"We're still mired in this feeling we are not getting the full picture," said Richard Bruton, deputy leader of opposition party Fine Gael.

PwC noted that Anglo had a deliberate policy of building relationships with key property developers, who represented a significant proportion of the loan book.

But PwC warned that some of these customers were likely to face significant losses on residential property developments and undeveloped land banks, resulting in major losses for the bank.

In November Anglo's management told PwC that a number of their larger customers were experiencing short-term cash flow difficulties and were trying to sell assets.

About 15 customers have more than 500 million euros worth of loans with Anglo.


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