Ireland signals possible extension of bank guarantee

DUBLIN (Reuters) - Ireland's government signalled on Wednesday that it is seeking to extend a guarantee of bank liabilities as part of its discussions over the future of nationalised lender Anglo Irish Bank ANGIB.UL.

Ireland's guarantee, which is set to run out at the end of the year, saved its financial system from collapse when it was first issued in September 2008 and has continued to be a lifeline for lenders since the Greek crisis shut off their supply of term funding.

Both Anglo Irish and Allied Irish Banks (ALBK.I), the country's second-largest lender, have called for the guarantee to be extended and the government said it was in discussions with Brussels about its future.

"The government is united in its determination in relation to the resolution of the Anglo Irish Bank issue," it said in a statement.

"The government is working with the EU authorities to that end; it is also in active discussion with the EU commission about the future of the bank guarantee."

Analysts are expecting the guarantee will be extended as Irish banks face having to refinance around 25 billion euros in debt this month.

The central bank governor said last month that any extension of support should be in quarters rather than years.

Anglo Irish has to refinance 7.2 billion euros this month.

UNITY OF PURPOSE

The government is in discussions with the European Commission about what to do with Anglo Irish, which has saddled Ireland with the worst budget deficit in the European Union due to the cost of bailing it out.

Investors fear the cost of propping up the lender will keep rising but Anglo's chief executive Mike Aynsley told Reuters on Tuesday that a final bill of around 25 billion euros was broadly correct, provided a state-run "bad bank" does not demand a higher-than-expected discount for removing soured loans from the bank.

Rating agency Standard & Poor's said the Anglo bailout may cost 32 billion euros under a worst-case scenario.

On Wednesday, a junior minister cautioned that the 25 billion euros figure may rise if the state-run "bad bank" or National Asset Management Agency (NAMA) demanded a higher discount than the 65 percent cited by Aynsley.

"You heard Mike Aynsley yesterday putting a figure of 25 billion with a caveat relating to NAMA," said Martin Mansergh, a junior minister in the finance ministry.

Finance Minister Brian Lenihan has said clarity on the final bill would come when Dublin reaches agreement with Brussels over whether to split the lender into a good bank/bad bank or to wind it down.

He denied there was any rift with coalition allies the Green Party over which option to choose for Anglo following the first cabinet meeting since the summer break.

"There is complete unity of purpose in the government," Lenihan said. "We submitted to Europe the final documentation requested yesterday. Clearly, the European authorities need time to examine this documentation and all these matters will be addressed in due course."

(Reporting by Andras Gergely and Carmel Crimmins; Editing by John Stonestreet)