Anglo’s dizzying giant shell game is now owned by you and I, it’s our bank so here’s ten things you need to know about it in sequence to understand the trickery;
- At the top of the boom it made €1.2 billion in profit to September 2007 on a loan book of about €70 billion with its share price peaking at €17 per share in March that year, a few weeks after Anglo’s Chairman Sean Fitzpatrick tells it’s AGM that he has no concerns about its exposure to the construction sector and is happy with its risk management. David Drumm who took over from Fitzpatrick as CEO announces that its €1.2 billion profit might “silence a few people”.
- In March 2008 Anglo warns of slower lending and drops 15% in value on Paddies day but in July Sean Quinn buys a 15% stake. The collapse of Lehmann Bros in Sept leads to a halving of Anglo’s value on Sept 29th. Next day the Government announces the bank guarantee scheme.
- On October 4th Sean Fitzpatrick tells Marian Finucane that only 20% of Anglo’s loans was for development, that there was no run on its deposits, that it had not loaned money recklessly, that there were no 100% loans ever and that they covered loans with belt and braces – just ask any of their customers.
- In December 2008 details emerge of 8 years of dodgy accounting to hide personal loans totalling €87 million to Fitzpatrick involving swaps in and out of Irish Nationwide to escape the attention of the auditor. Fitzpatrick resigns. Drumm follows. The Government announces a plan to recapitalise Anglo with €1.5 billion but in January 2009 is forced to fully nationalise the bank, burning the shareholders. The board resigns en bloc except for Donal O’Connor who joined the board in June 2008. He is made chairman.
- On February 10th 2009 a deposit support scheme is revealed involving a gargantuan €8 billion transfer from Irish Permanent to dress up Anglo’s balance sheet in September 2008 and hide a run on its deposits. The regulator is implicated having been notified of the arrangement.
- Ten days later Donal O’Connor in Anglo’s annual report reveals an astonishing €451 million in loans to ten customers to buy Anglo’s shares to support its share price in 2008 of which €300 million is expected to be lost. So much for belt and braces.
- Tuesday Feb 24th the Garda Bureau of Fraud Investigation joins the Director of Corporate Enforcement to raid Anglo’s head office as part of a criminal investigation into the bank.
- In May 2009 the Government announces that Anglo Irish Bank will now need €4 billion in fresh capital to offset losses of €4.1 billion with further losses expected to rise to €7.5 billion by 2011.
- On June 9th Anglo’s Chairman responding to questions from The Public Accounts Committee states that Anglo may need a total of €7.5 billion in cash but it could be higher depending on property price falls and reveals that 84% of its loans are linked to property.
- Among its impaired debts include large loans to members of staff. Just how the bank can expect to operate while it’s suing its own staff remains unanswered. The Government hope to avoid a orderly wind up that would see corporate bondholders hammered with a tiny return on their €4.9 billion subordinated bonds and €2.8 billion in floating bonds that would further damage Ireland’s international credit rating already downgraded twice to AA. At stake is Ireland's ability to service the huge national debt needed to cover the public service deficit and support NAMA, Ireland's bank rescue agency.
Sidebar
AIB already has received €3.5 billion but may need another €1.5 billion if it fails to sell its own bonds. AIB has identified €15 billion in distressed loans, €6 billion of which is at high risk of default. Bank of Ireland has received €3.5 billion and has estimated bad loans at € 6billion to 2011. In both cases taxpayers capital injections are commutable to equity.
Nobody knows the extent of the total level of capital needed to save the Irish banks, including Permanent TSB, EBS and Irish Nationwide and whether full nationalisation is avoidable. Everything pivots around to what price property and development land finally falls. But the total butcher’s bill for taxpayers is unlikely to be less than €20 to €30 billion – all of it borrowed.
The money a bank owes depositors is mostly out in loans of various durations from overdrafts to forty year mortgages. In the event of a wind up, even where these loans can be sold, there would still be a huge shortfall between what is owed to depositors, subordinated bondholders and floating bondholders and how much cash can be raised. That’s why the Government strategy is to keep Anglo alive. To walk away from Anglo now and stop propping it up with capital will crystalise this gap leading to losses calculated at tens of billions.
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