Anglo Irish lent "golden circle" 451 million euros

Ireland's Prime Minister Brian Cowen (L) answers questions from a Reuters reporter in Tokyo, January 14, 2009.

DUBLIN (Reuters) - Anglo Irish Bank lent 10 customers 451 million euros (394 million pounds) to buy its shares, the disgraced lender said on Friday, confirming a controversial transaction that has triggered a political storm.

In its eagerly awaited annual report, Anglo Irish said only 83 million euros of the loans, which were largely secured on the now worthless shares, had been repaid.

Ireland's government has been on the defensive over the so-called "golden circle" of 10 investors, with Prime Minister Brian Cowen forced to deny either he or any of his cabinet knew their identities or the details of the deal.

Finance Minister Brian Lenihan said the publication of Anglo Irish's annual report, the first to fully lay bare its loans to directors and key customers, marked a clean break.

"The publication of these accounts concludes a regrettable chapter in the history of Anglo Irish Bank," Lenihan said in a statement.

The loan to customers is the latest in a string of scandals centred around Anglo Irish, which was dramatically nationalised in January after a directors' loan debacle involving former Chairman Sean FitzPatrick undermined confidence in the bank and threatened a costly collapse.

Donal O'Connor, who was appointed chairman in December, apologised for the controversies, which have badly damaged Ireland's overseas' reputation, prompting investors to give Irish equities a wide berth and triggering a blow-up in its sovereign bond spreads.

"I acknowledge again the sense of hurt, outrage and disappointment that people feel towards the bank following disclosures regarding loans to the former chairman and other matters," O'Connor said in a letter contained in the accounts.

O'Connor, a former senior partner at PricewaterhouseCoopers, has been named executive chairman after the bank said on Friday it had decided to defer the appointment of a chief executive until a new business plan and various reviews are completed.

Declan Quilligan, an executive director, has been appointed chief operating officer and Matt Moran, chief financial officer, has been named director of group finance.

FUNDING POSITION

Directors' loans from the bank totalled 179 million euros at the end of its 2008 financial year, including more than 80 million owed by FitzPatrick, and Anglo Irish said there was likely to be an impairment charge for these loans in its next set of results.

The group, a former poster boy for the boom years of the "Celtic Tiger" economy, said its first half results up to the end of March would include a 300 million euros provision for losses on loans secured on the banks' shares.

Anglo Irish repeated that its total provisions for 2008 were 914 million euros but it said a review of its loan book was ongoing and the results would be published in its first half results.

Analysts expect Anglo, which has a large exposure to highly leveraged property developers, to hike its bad debt charge particularly after the country's top two lenders, Bank of Ireland (BKIR.I) and Allied Irish Banks (ALBK.I), nearly doubled their loan loss provisions.

The group, which relies heavily on wholesale markets for its funding, came under severe stress last September when those markets shutdown in the wake of Lehman Brothers' collapse.

Anglo's predicament prompted the Irish government to controversially guarantee the deposits of all major Irish lenders.

Anglo said while that guarantee had improved its access to funding markets, its funding position had since been significantly weakened by the string of scandals and ratings downgrades.

"The board is resolute in its determination to ensure that the bank emerges from its current situation as a strong and viable institution and one that stakeholders feel proud of," O'Connor said.

(Reporting by Carmel Crimmins, Andras Gergely and Jonathan Saul; Editing by Andrew Macdonald)