Annual Report & Accounts 2009 - Anglo Irish Bank

Notes to the financial statements continued
55. Related party transactions
150
Irish Government
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over
the other party in making financial or operational decisions, or one party controls both. During the period the Group was taken
into State ownership and, as a result, the Irish Government is considered a related party. On 30 September 2008 the Irish
Government introduced the Credit Institutions (Financial Support) Scheme 2008 ('CIFS') under which the Minister for Finance
guaranteed certain liabilities of covered institutions, including the Bank, until 29 September 2010. Fees paid under the Irish
Government guarantee scheme are set out in note 4. In accordance with accounting standards other credit institutions who
have also participated in the scheme are not considered related parties as they are not under the same common control as the
Group.
Arising from the introduction of the CIFS Scheme, two Non-executive Directors were nominated by the Minister for Finance
and appointed to the Board. Frank Daly and Alan Dukes were co-opted to the Board as Non-executive Directors on
18 December 2008. Donal O'Connor was appointed as Chairman on 18 December 2008 and as Executive Chairman on
19 February 2009. Maurice Keane was co-opted to the Board as a Non-executive Director on 21 January 2009.
On 21 December 2008 the Minister for Finance announced a framework to provide additional capital to certain Irish credit
institutions, including Anglo Irish Bank Corporation. The Government's proposed investment of €1.5bn in the Bank was to be in
the form of perpetual preference shares ranking pari passu to ordinary share capital on liquidation. On 15 January 2009 the
Government announced that it had decided not to proceed with its original recapitalisation proposal and advised of its
intention to take the Bank into State ownership. The Bank’s shares were subsequently suspended from trading on the Irish and
London Stock Exchanges on 16 January 2009. The Anglo Irish Bank Corporation Act, 2009, which provided for the transfer of
all the shares of the Bank (including the non-cumulative preference shares (note 42)) to the Minister for Finance, was enacted
under Irish law on 21 January 2009.
On 7 April 2009 the Minister for Finance announced that NAMA would be established with the purpose of strengthening the
Irish financial sector. NAMA is to acquire eligible bank assets from participating institutions. The NAMA legislation was passed
by the Houses of the Oireachtas on 12 November 2009 and was signed into law by the President of Ireland on
22 November 2009. On 9 February 2010 the Bank applied to be designated as a participating institution in NAMA. This
application was accepted by the Minister for Finance on 12 February 2010.
During the financial period, the Bank's Shareholder invested €4bn of ordinary share capital in the Bank. The European
Commission ('EC'), as a condition of its approval of the Government’s capitalisation of the Bank, required that no further
coupon payments be made on any of the Group’s Tier 1 securities except for the payment due on the Tier One Non-Innovative
Capital Securities on 23 July 2009. In September 2009 the Board resolved that the non-cumulative distributions on the €600m
Fixed Rate/Floating Rate Guaranteed Non-voting Perpetual Preferred Securities of Anglo Irish Capital UK (2) LP would not be
paid.
The financial support provided by the Government to the Group referred to above is subject to review by the EC under EU state
aid rules. The Group has submitted a restructuring plan to the EC and the review of that plan by the EC is ongoing. The EC will
consider whether the plan demonstrates the Group’s long term viability, that the Group (and its capital holders) make an
appropriate contribution to the restructuring costs from their own resources and that measures are taken to limit distortions to
competition arising from the financial support provided by the Government to the Group. The Irish Government and the EC
may therefore exert significant influence which could impact the Group's future results and financial condition.
On 31 March 2010 an €8.3bn capital contribution from the Bank's Shareholder, which was a receivable at 31 December 2009,
was settled via receipt of a promissory note (note 58).
Placings with and deposits from the Central Bank and Financial Services Authority of Ireland are detailed in notes 19 and 37
respectively. In addition, in the normal course of business and on arm's length terms, the Group has entered into transactions
with Government-related entities. The principal banking transactions include taking deposits, investing in Government bonds
and providing loans. At 31 December 2009 normal banking transactions outstanding between the Group and such entities
amounted to: deposits of €436m, Government bonds of €1.1bn and loans of €173m. The loans represent amounts advanced
to Becbay Limited (a joint venture entity involving the Dublin Docklands Development Authority). This transaction is on arm's
length terms and the maximum balance in the period was €173m.
The volume and diversity of other non-banking transactions are not considered significant. Furthermore, while the Irish
Government or Government-related entities may in the normal course of their business hold debt securities, subordinated
liabilities and other liabilities issued by the Group, it is not practical to ascertain and disclose these amounts. In the ordinary
course of business the Group purchases certain utility and other services from entities controlled by the Irish Government.
Pension funds
The Group provides normal investment fund management and banking services to pension funds operated by the Group for
the benefit of its employees. These services are provided on similar terms to third party transactions and are not material to the
Group.