Anglo Irish: What are the options?

nesf

Karl Whelan has written an excellent blog piece spelling out in simple terms what the liabilities and assets of Anglo are: http://www.irisheconomy.ie/index.php/2010/04/03/anglo-what-are-the-options/#more-6204

One key criticism of it is in the first comment. The Government didn't actually say that winding down Anglo would cost 70 billion but that the Government would have to come up with 70 billion to pay off depositors et al while waiting for asset sales to make up the difference, with a final cost of 30 billion. The key thing to bear in mind here is that is 70 billion right now which is very different to the recapitalisation of the bank which would be 8.4 billion paid out over 10-15 years. We couldn't come up with 70 billion in cash right now reasonably which is one of the main reasons why we can't wind down Anglo right now. He also gives a detailed explanation of why we can't just make professional investors take a hit and wind down the bank cheaply (most of the bank's debt isn't in professional investor hands but in the hands of the ECB and other Irish banks which for obvious reasons can't be ****ed around).

nesf

Too lazy to read summary:

a) Total assets approx 70 billion (including NAMA haircut). Total liabilities 81 billion.

b) The vast majority of that 81 billion is owed to depositors, other banks and central banks (Irish and ECB). Approx 17 billion is debt securities owned by professional investors.

c) Because of b) no quick and easy way to wind down the bank. Money owed to other banks, depositors and central banks has to be paid back under any realistic set of circumstances.

d) Problems of rescinding the bank guarantee: Doing so screws over the other Irish banks which would cost us a lot of money. Many of the major Irish banks will need to turn over debt very soon (i.e. go look for more money from private investors). We can't afford to make these investors nervous about Irish bank debt. Also, in general anything that might increase instability in our rickity banking system should be strongly avoided. We're in enough **** as it is.


That's a very brief, and oversimplified, summary of some of the key points. Read the full article, it's not too long and should be interesting for people.

Idbatterim

take a read of the below article in which Dave McW says defaulting is an option.


http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID%20MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5.2.0.0-qqqn=1-qqqx=1.asp

nesf

Idbatterim wrote: »

take a read of the below article in which Dave McW says defaulting is an option.


http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID%20MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5.2.0.0-qqqn=1-qqqx=1.asp

McWilliams is talking about defaulting on bonds. He doesn't deal with at all the other liabilities that must be paid and the amount of cash needed on hand to deal with this. He's be right if all or nearly all Anglo's liablilities were bonds owed to professional investors, but this is not the case.

ei.sdraob

nesf wrote: »

McWilliams is talking about defaulting on bonds. He doesn't deal with at all the other liabilities that must be paid and the amount of cash needed on hand to deal with this. He's be right if all or nearly all Anglo's liablilities were bonds owed to professional investors, but this is not the case.

were told there is 30billion of depositors money in Anglo

but who are these depositors? how many people??

no details are given, and of course this is a bank with a history of "cooking" its books to hide the ugly details


assuming 500,000 depositors (is there even that many? once again we just dont know details), thats 60K (!) per depositor, and i cant think of any business that would put its money in Anglo, hell their day to day banking services are inexistent

nesf

ei.sdraob wrote: »

were told there is 30billion of depositors money in Anglo

but who are these depositors? how many people??

no details are given, and of course this is a bank with a history of "cooking" its books to hide the ugly details

That 30 billion number was from Prime Time. Maybe they screwed up reading the report? The 2009 report says 27 billion.

No bank report says who the depositors are or how many people are involved for obvious reasons.


Edit: For those interested deposits in 2009 had dropped from 51.5 billion in 2008 to 27 billion. Almost halving over the year as people took money out over the year.

ei.sdraob

nesf wrote: »

That 30 billion number was from Prime Time. Maybe they screwed up reading the report? The 2009 report says 27 billion.

No bank report says who the depositors are or how many people are involved for obvious reasons.


Edit: For those interested deposits in 2009 had dropped from 51.5 billion in 2008 to 27 billion. Almost halving over the year as people took money out over the year.

im not talking about releasing the names of all customers

im talking about providing us the public (the same public that owns the bloody bank) with some data and stats

we are asked to save the bank but are not given much info. i asked this in another thread, what exactly where the TDs voting on recently with respect to the bank bailouts, what figures were printed on their briefs?

nesf

ei.sdraob wrote: »

im not talking about releasing the names of all customers

im talking about providing us the public (the same public that owns the bloody bank) with some data and stats

While it'd be fascinating to be given such stats I don't think there's any accounting/reporting requirement for having to do them so we may go wanting I'm afraid.

K-9

ei.sdraob wrote: »

im not talking about releasing the names of all customers

im talking about providing us the public (the same public that owns the bloody bank) with some data and stats

we are asked to save the bank but are not given much info. i asked this in another thread, what exactly where the TDs voting on recently with respect to the bank bailouts, what figures were printed on their briefs?

What type of figures would you be looking for? Companies, Multinationals, Age profile, that type of stuff?

Thanks for the piece Nesf.

ei.sdraob

K-9 wrote: »

What type of figures would you be looking for? Companies, Multinationals, Age profile, that type of stuff?

Thanks for the piece Nesf.

# of depositors would be a good start

# of businesses if (any) with deposits

% of deposits owned by top 10 customers, this is same bank that pissed away billions to about dozen people

there might not be a requirement, but i don't understand what exactly where the TDs asked to vote on last week if they weren't given any of the above (how can our elected representatives make decisions with no figures being provided)?
if the bank is really under new management and there is nothing wrong then what's the problem with releasing detailed report?

surely such an act would only attract more depositors and bond-buyers and build up trust in the bank (something it lost)?

what are they hiding and not telling us?


the OP asks for options, its hard to provide options when no one knows how deep the rabbit hole goes

doc_17

There is no way that this will end well. So the best option imo is to end it quick. let Anglo go.

InReality

nesf wrote: »

McWilliams is talking about defaulting on bonds. He doesn't deal with at all the other liabilities that must be paid and the amount of cash needed on hand to deal with this. He's be right if all or nearly all Anglo's liablilities were bonds owed to professional investors, but this is not the case.

Can't we default on the bonds without doing the rest ?
It might only save 6/7 billion but still.

Surely we would never have to pay an extra 6/7 billion in interest on the National debt even if the bond markets did take fright ?
And if AIB and BOI don't get international money well can't we get a loan from the EU for that extra as well .

Every cent going into Anglo needs to be explained/justified.
Seems to be an mindset in govt that we should ignore billions here and there in this new financial landscape !

nesf

InReality wrote: »

Can't we default on the bonds without doing the rest ?
It might only save 6/7 billion but still.

Surely we would never have to pay an extra 6/7 billion in interest on the National debt even if the bond markets did take fright ?
And if AIB and BOI don't get international money well can't we get a loan from the EU for that extra as well .

Every cent going into Anglo needs to be explained/justified.
Seems to be an mindset in govt that we should ignore billions here and there in this new financial landscape !

The senior debt is entitled to the same level of money as the depositors are. We can't pay back depositors and leave the senior debt holders with nothing.

Sleepy

I'd imagine a lot of the deposits are those of wealthy private individuals, their interest rate on deposits goes as high as 3.1% AER at the moment, significantly higher than the rates offered by BOI and not at all bad in a deflationary market. I'd have no problem depositing with them (if I had anything to put aside) since it's a state-owned bank that, for the reasons outlined in the Karl Whelan blog nesf linked to, can't be let default.

ei.sdraob

Sleepy wrote: »

I'd imagine a lot of the deposits are those of wealthy private individuals, their interest rate on deposits goes as high as 3.1% AER at the moment, significantly higher than the rates offered by BOI and not at all bad in a deflationary market. I'd have no problem depositing with them (if I had anything to put aside) since it's a state-owned bank that, for the reasons outlined in the Karl Whelan blog nesf linked to, can't be let default.

your looking at interest without even considering the risk, which is very dangerous

the bank might not be allowed to default but this whole mess (coupled with stubborn unions) might yet push Ireland The Country itself to default, good luck getting your money back then

it all falls down to whether you think the above will happen (keep and eye on Greece now)

Sleepy

No, I've looked at the risk and disregarded it.

I think the chances of Ireland defaulting are extremely low, and looking at Greece, if we do default, it wouldn't be an overnight decision which would leave adequate time to withdraw funds and invest them in something safer.

ei.sdraob

Sleepy wrote: »

No, I've looked at the risk and disregarded it.

I think the chances of Ireland defaulting are extremely low, and looking at Greece, if we do default, it wouldn't be an overnight decision which would leave adequate time to withdraw funds and invest them in something safer.

Fair enough (its your money ) but IMHO its not worth the risk and you are not looking at the full picture:

1. you, me, everyone will be hit with much higher taxes and reduced spending for years to come thanks to Anglo, you can bet this will wipe out any savings you make via investing into Anglo

2. Find an investment fund thats holding Irish bonds (6%) and invest there, identical risk, almost double the interest

3. Ireland's credit rating is AA- and is probably overrated (no pun intended ) and will drop more, Anglo doesn't have a rating its effectively now tied to above, there are safer investments with less risk and more interest

4. as i explained before, if Anglo sank back then, we could now be investing at higher interest on national recovery bonds, at least that would be helping the economy, putting money in Anglo will only suck money out of the irish economy into a bottomless pit that Anglo has become


If i had money to invest/save (im ploughing all my money into own business, so don't have the luxury at moment) i would not put it anywhere near Anglo, anyways this is prob conversation for savings and investment subforum, im more interested in bigger picture here


If there is a bank run on Anglo it most likely would bring the country down, you can bet it will be the little investor that gets burned

InReality

nesf wrote: »

The senior debt is entitled to the same level of money as the depositors are. We can't pay back depositors and leave the senior debt holders with nothing.

What about after the guarantee expires ? I think thats what McWilliams was suggesting in that article. As far as I can see the goverment is all about the reaction of the bond markets. There much be some way of quantifying what that reaction would be. And then to see in a worst case senarion is it more than 7 billion.

nesf

InReality wrote: »

What about after the guarantee expires ? I think thats what McWilliams was suggesting in that article. As far as I can see the goverment is all about the reaction of the bond markets. There much be some way of quantifying what that reaction would be. And then to see in a worst case senarion is it more than 7 billion.

Senior debt's rank in the getting repaid scheme of things applies even without the guarantee in place.