Gavin Sheridan – Page 51

Week of the banks

Last week I wrote that the interview with Anglo chief executive Mike Aynsley in the Irish Times to me marked a shift in the PR strategy underlying the bank recapitalisation/nationalisation schemes. David McWilliams yesterday talked about it in similar terms. I warned that the next week would see a miasma of news and spin, and so it appears to be coming to pass with several speeches planned this week around the issue.

Today we are given page one stories all about the impending banks scheme. While all of them cover it, it was Emmet Oliver’s lead in the Irish Independent this morning that struck me most. Headline:

Accept my deal or quit, Lenihan to tell bankers

Let us get this very straight. Many commentators and economists argued a long time ago that nationalisation should happen early, and if it didn’t, it would happen eventually. Now this is coming to pass. As Constantin writes:

Since May 2009 I have consistently supplied estimates as to the eventual state ownership in both AIB and BofI. Depending on various scenarios:

* assumed Nama haircuts,
* the actual current risk weighting on the loans being transferred,
* share price at the time of announcement and the willingness of the banks and the Government to recognize future expected losses on the loans not transferred to Nama

RVF approach to valuing AIB and BofI balancesheets suggests that at the end of the current crisis, the state will outright own around 85-90% of equity in AIB and 50-60% in BofI. This eventual outcome, for political reasons, will come in two stages:

* post-Nama injection of capital (with AIB placing around 60-70% of its equity with the State and BofI placing around 40-45%), plus
* second stage recapitalization to correct for continued deterioration in the books over 2010-2011 (adding another 20-30% of equity for AIB and 10-15% for BofI)

The problem with this two stage recapitalization is that the taxpayer will end up paying three times for the same equity:
Having injected €7 bn into two banks at the time when they were worth less than €2.5 bn for the entire lot,

* we are now be left on the hook for some €20 bn worth of largely worthless loans – to be purchased at ca 30-40% discounts (against the real market discount of 65-90%),
* plus €7-8 bn in fresh capital post-Nama
* plus the margin of ca 10-15% for further deterioration in non-Nama loan books (requiring another €7-9 bn of fresh capital).

Thus the Irish state is now likely to use up to €20 bn to buy up equity and loans from a bank that is currently worth around €1.5 bn… In the world of finance, even the most reckless bankers never managed such margins.

Now without personalising this against Mr Oliver (and the headline would have been written by a sub), what part of this particular story is positive? When was Mr Lenihan screaming “Iceland!”, what was the Government’s view 12 months ago on de facto nationalisation? How much has all this waiting cost us? Does anyone remember the last 12 months?

When you use sentences like “Finance Minister Brian Lenihan is going to seize control of the country’s biggest bank, and tell its top executives to leave if they cannot work under the new regime”. Eh?

Add in words and phrases like “uncrompromising” “momentous” “pump” “state of the union” “uncompromising” (again) “forced” “fall on their swords” and you would be left with the impression that the Government knew exactly what it was doing all along. Sadly this was never the case.

A bit like backdating the NAMA values arbitrarily to November 2009, when prices have fallen significantly since then. Backdating the values has likely cost more to the State than the entire public sector cuts will save the economy this year. But remember, in September Mr Lenihan said we were very near the floor:

No, nowhere near it. We do have “further to go down, and further and further and further”. Even Friends First agrees prices will fall nationally another 10% this year.

And do not forget how the system reacted to the letter by economists nearly 12 full months ago.

OVER THE last number of months extraordinary changes have occurred in the Irish banking and financial scene. We believe that we are now at a critical stage in Irish economic history and that it is crucial that the Government take the right course of action to deal with the problems in our banking sector.

The banking system is widely perceived to have seized in terms of lending, and whether correct or not this perception needs to be addressed. We believe that the correct action to take now is nationalisation of the banking system, or at least that part of it that is of systemic importance.

Their professionalism was called into question, and they were vilified for railing against the prevailing views. And how do you go back on all that and nationalise now? You make it sound as if you’re taking on the evil bankers.

Deflection I guess, is a good remedy.

DDDA Reports

We have obtained a copy of the three DDDA reports by Niamh Brennan from the Fine Gael press office. The reports have been scanned, OCRd and uploaded and can be searched or download from the interface below.

The reports run to 216 pages, this is the only soft copy available it is therefore possible (but unlikely) that some pages are misordered.

The details were first covered by David Murphy, Business Editor with RTE, this morning.

Fine Gael have accused of John Gormley of a cover-up over the reports. As per The Irish Times: “The reports deal with matters to do with finance, planning and the board’s reaction to these matters. [Fine Gael Deputy Phil] Hogan said the planning report raises questions over the status of planning permission for some of the most well known buildings.”

Amongst the main issues detailed in the report are revelations that the Irish Glass Bottle site was never formally valued. It was purchased by the DDDA and a number of developers and financial entities in 2006 for more than €400m but quickly fell drastically in value. Those involved included Bernard McNamara, who has sued the DDDA claiming they didn’t deliver on promises relating the deal. Sean Dunne was also involved and also took the authority to court over the now-near-abandoned Anglo site. He won his case.

Labour says the issues of corporate governance can be put down to, amongst other things, Anglo – which had an interest in the site through its loan portfolio – having two members of its own board, Sean FitzPatrick and Lar Bradshaw, sitting on the board of the DDDA.

Further issues are also covered relating to the DDDA granting planning permission for structures which could be considered non-compliant and the absence of value-for-money audits being carried out.

DDDAreports

The Anglo spin begins

It is extremely important that the events of the past few days, today, and in the near future are watched extremely closely. There are a number of reasons as to why this is the case, and I am going to explore some of them.

I will look at this chronologically, and some of what I am writing is based on things I have been told by a source in the past few months (yes fellow hacks, one source who has proved reliablity in the past, but no second source – add your own provisos). I am publishing now because of the main story in today’s Irish Times – an interview with the current chief executive at Anglo.

According to a source, on the night of January 25, 2010, exactly two months ago, there was an urgent meeting of the board of Anglo, where I am led to believe senior Department of Finance officials may have been present. At this meeting the likely figure for the recapitalisation of the bank was discussed. The recap figure was put in the region of “double figures”: i.e. €10bn or more. Originally we had been told in 2009 that Anglo would likely only need another €3bn-€6bn on top of the €4bn already given to the bank. So remember this, Anglo Irish Bank, and its board, have known about the need for over €10bn in taxpayer monies for two months – at least.

February 4: I write this lengthy blog post. Some of it is based on the information outlined above, while other parts are based on the impending closure of ECB emergency lending. As I said in early February, emphasising myself:

In November the ECB announced it would begin the process of winding down the emergency funding. In December the last 12-month repos were sold. We are now approaching the next phase. Next month, the ECB will close the 6-month window. The 3-month and 1-month repos will close after that.

In June, Anglo received a €3.5bn recapitalisation from the State. At the time it said it might need a further €3.5bn. This is money to rebuild the bank’s capital base due to bad loans.

However, these figures are likely much higher. Anglo will likely need up to three times that figure. Combine that with AIB, INBS and Bank of Ireland’s funding needs, and the taxpayer will likely be handing over more than €22bn to our banks over 2010.

When you combine the shutting of the discount window, with the delays in NAMA transfers and ultimately our own State borrowing (indeed we have already borrowed €6.5bn so far this year – 33% of our bond issuance for this year was done in January) and with the likely writedowns of not 30% but 50% on the loanbooks, we are facing a serious crisis. And of course the other factor is the ECB raising interest rates at a time we need them to stay low.

March 18: Former Anglo chief executive Sean FitzPatrick is arrested. Lots of headlines, but a reasonable person might ask why press releases were issued, why Mr FitzPatrick was arrested at all. Is it not normal practice to schedule an interview, before any arrest?

March 24: Former Anglo executive Willie McAteer is also arrested. Again the headlines say something is being done. But is that the case?

March 25: The chief executive of Anglo gives an interview to the Irish Times. In the interview he makes a number of claims:

A liquidation would cost the State between €27 billion and €35 billion, he said, while running it down over 10 years would cost between €18 billion and €22 billion.

Anglo has asked the EU for approval to split the bank into a good bank and a bad bank and to restructure the good operation as a commercial lender.

Mr Aynsley said this would cost between €10 billion and €13 billion, including the €4 billion invested by the State last year.

…

Reinventing Anglo would minimise further State bailouts and create “exit options for the Government”, such as a future sale of the bank, a merger with another bank or refloating on the stock market.

He confirmed that Anglo would report the biggest loss in Irish corporate history when it publishes its results for the 15 months to the end of 2009 next week. The bank will post losses of almost €12 billion after writing off bad loans.

Anglo would transfer €35.6 billion of loans to the National Asset Management Agency – about half of Anglo’s loans, said Mr Aynsley.

He defended Anglo’s decision to pay salary increases to 70 of its 1,240 employees. As staff left, other employees had taken on increased workloads, he said.

“I am appalled and outraged at a lot of the stuff that had gone on in here but there are some facts of life in terms of running a bank – you can’t do it without appropriate people,” said Mr Aynsley.

Back in December I blogged, along with some writing in the media, about the rumoured “New Anglo Irish Bank”. The plan being to split the bank into two, to create a new commercial lending arm and rename and rebrand the new part. For short this is known as “New Anglo”.

I believe the chronology outlined above (but perhaps excluding the arrests, but you never know in this country), shows a careful PR strategy by the Bank against the public. The affects of the arrests is to lead us to believe that something is being done in terms of accountability. The timing of Mr Aynsley’s interview is very interesting – just after arrests and just before we hear about the full extent of losses at the Bank, and preparing the ground for the coming recapitalisation – another €10bn – while offering us hope about the future potential of the bank. The timing and method of events over the coming weeks will certainly be very interesting.

And remember: the Bank needs such a massive recapitalisation because of reckless lending that led to the losses in the first place. We are paying for the massive failures of the Bank and the Regulator, and possibly the collusion of the two.

I will be writing in more detail about Anglo over the coming days.

Cabinet Agendas April, May 1998

As previously mentioned, I am continuing the process of sharing agendas for all Cabinet meetings for 1998 and 1999. I am adding several agendas together for each set of documents, so I am now including all agendas for April and May 1998. These documents were released as a result of the expiry of the 10 year exemption on Section 19 of the FOI Act, and I believe this is the first time they have been made available publicly, in any form.

Cabinet a Gen Ads Apr May

Anglo leases and flights

Some time ago I received a tipoff surrounding details relating to executives at Anglo Irish Bank. I was told that the Anglo chief executive, who is Australian and whose salary is capped by Brian Lenihan at €500k, is having his house accommodation rented out for him at the taxpayers’ expense to the tune of upwards of €90k per year. Apparently this falls under re-location expenses. It was claimed on radio today that the figure is €72k.

I was also told that when the chief executive moved to Ireland, his family stayed in Australia, but that he has flown them here on numerous occasions at taxpayers’ expense, and that he and other executives (who he apparently hired from Australia) had flown there, also at taxpayers’ expense. I wonder what class they flew. However, such procedures might be considered normal in the banking industry, though not so much in the public sector. Since Anglo are not under the FOI act I have little recourse in these circumstances to seek information related to any expense claims.

However back in early February I sent a request for information concerning this to Mr Aynsley directly, by registered post. I have failed to receive a satisfactory reply, and a followup request is currently with the bank.

But at lunchtime today I heard Senator Dan Boyle speaking about the pay rises at Anglo. While he was speaking, I put the following questions to him on Twitter:

@sendboyle can you tell me how much it costs to lease any homes for Anglo executives, including the chief, over and above their salaries?

@sendboyle and can you tell me the number of flights taken by Anglo execs at taxpayer expense, and carbon footprint which resulted?

Dan Boyle replied: Will have to find that out

After lunch on Joe Duffy, a woman claiming to be the wife of an Anglo employee, put specifics on the tipoff I had received two months ago… the house is leased by the taxpayer to the tune of €6,000 a month and that the house is located in Glenageary.

There is more in this story, and I will publish the results in the coming weeks. As it stands I cannot verify the veracity if the above remarks related to properties or flights, since I have not received verification or denial. It is an expression of an opinion and speculation following similar remarks made on radio that I am asking questions as to the substance of these allegations in the public interest, both of Anglo and of a Senator.

Anglo shareholders December 2008

A commenter on my previous Anglo post asked a question surrounding who the shareholders in Anglo were pre nationalisation in January 2009. I have explored this issue previously, but am returning to it now to examine in more detail.

I am going to take December 2008 as the measure, since Anglo was nationalised in January 2009 (but not the entire month had passed). But I may update with January names. Here are the 41 major shareholders as at December 2008, where percentages are given they are known, where they are not simple N/A applies, since the total shareholding is not known.

Name, country of origin/base, shareholding

Janus Capital Group Inc via its funds (US) 7.47%
Invesco Limited (Ireland) 7.14%
Janus Capital Corporation (US) 7.12% direct ownership)
Invesco Perpetual (UK) 6.89% direct
Allianz SE and Dresdener Kleinwort Securities Limited 5.96% total
Invesco Ltd via its funds (Bermuda) 5.83% total
Janus Capital Management LLC (US) 5.44% direct
Lehman Brothers International Europe (UK) 4.81% total
Barclays Global Investors UK Holdings Limited (UK) 3.02% direct
Invesco PLC via its funds (UK) 2.22% total
Credit Suisse Securities (Europe) Limited & Credit Suisse International <3% direct ownership Dresdner Kleinwort Securities Limited (UK) <3% direct Sun Life Financial Inc via its funds (Canada) 1.59% total FMR LLC via its funds (US) 1.27% total Schroders PLC via its funds (UK) 1.21% total UMB Financial Corporation via its funds 1.16% total Carmignac Gestion via its funds (France) 1.06% total Skandinaviska Enskilda Banken AB via its funds (Sweden) 1.05% Government of Norway via its funds 0.92% total Alpine Woods Investments via its funds (US) 0.88% total Barclays PLC via its funds 0.88% total Nordea Bank AB (PUBL) via its funds (Sweden) 0.82% total Massachusetts Mutual Life Insurance Company via its funds (US) 0.72% total Fitzpatrick, Sean 0.65% direct ING Groep NV via its funds (Netherlands) 0.65% total Dekabank Deutsche Girozentrale via its funds (Germany) 0.64% total Allianz SE via its funds (Germany) 0.63% total Deutsche Bank AG via its funds (Germany) 0.63% total JP Morgan Chase & Co via its funds (US) 0.62% total AXA via its funds (France) 0.60% total New Star Asset Management Group plc via its funds (UK) 0.52% total Vanguard Group Inc via its funds (US) 0.52% Fortis via its funds (Belgium) 0.50% total Jupiter Investment Management Holdings Limited via its funds (UK) 0.50% total Bradshaw, Lar 0.03% direct Aurora Investment Trust PLC (UK) Drumm, David, McAteer, William Mercer, Natasha The Premier Money Market Fund (UK) Whelan, Pat

What did we buy when we got Anglo?

I have previously blogged about the various subsidiary companies that Anglo Irish Bank involved themselves with, I am going to return to this issue in light of the impending largest loss in Irish history. The Government have yet to publish any details about how Anglo is structured, or just how many companies are under its umbrella. Today we will start a process of trying to uncover the entire structure of the body.

Firstly, Anglo Irish Bank has 39 subsidiaries (mostly wholly owned, some part owned and some appear no longer owned), as follows:

Anglo Irish Bank Corporation Limited.
Stephen Court, 18/21 St Stephen’s Green
Dublin 2

Ultimate owner: Brian Lenihan, Minister of Finance (Definition of ultimate owner: path of min 25.01% of control, known shareholders):

Subsidiaries:

1. Anglo Irish Bank Corporation PLC
2. Anglo Irish Capital Funding Limited (Cayman Islands)
3. Anglo Irish Capital UK (2) LP
4. Anglo Irish Capital UK (3) LP
5. Anglo Irish Capital UK LP
6. Anglo Irish Covered Bonds LLP
7. Proodos Funding Limited
8. Anglo Irish Asset Finance PLC
9. Anglo Irish Property Lending Limited
10. Steenwal B.V. (Netherlands)
11. Anglo Irish Mortgage Bank
12. Anglo Irish Bank ESOP Limited
13. Anglo Irish Bank Limited
14. Anglo Irish Capital Partners Limited
15. Anglo Irish Corporate Bank Limited
16. Anglo Irish Equity Limited
17. Anglo Irish Financial Services Limited
18. Anglo Irish Funding 1 Limited
19. Anglo Irish Funding 2 Limited
20. Anglo Irish Funding 3 Limited
21. Anglo Irish Funding 4 Limited
22. Anglo Irish Funding 5 Limited
23. Anglo Irish Funding 6 Limited
24. Anglo Irish International Finance
25. Anglo Irish International Financial Services Limited
26. Aragone Limited
27. Buyway Group Limited
28. C.D.B Investments Limited
29. CDB (UK) Limited
30. Fitzwilliam Leasing Limited
31. Modify 5 Limited
32. Sparta Financial Services Limited
33. Tincorra Investments Limited
34. Anglo Irish Assurance Co Limited
35. Anglo Aggmore Limited
36. Pagnol Limited
37. The Anglo Aggmore Limited
38. Aggmore Europe I SA
39. Oak Acquisitions Limited

Anglo losses

Inspired by a visualisation done last year of $1 trillion, I spent a little time playing with Google Sketchup to try and understand just how much money Anglo (ie the public) is expected to lose in its latest fiscal year. So I started with the average male as used in Sketchup (let’s call him Seanie) and drew him next to €1 million in €100 bills, to scale:

Next here’s Seanie next to €10 million:

And now Seanie next to €100 million, on a standard euro sized pallet:

And oh yes, Seanie next to €1 billion, in cool hard cash:

And finally, Seanie next to the lower end projected losses for Anglo: €11 billion:

Nice.

Cabinet records

Effectively, that is the same as the historical position on records. One could get any record if the period was reduced to five years. That is too short although I accept that 30 years is too long. I have little involvement with the 30 year papers but they are organised in my Department each year. To do that for five year papers would be wrong and I will give an example with regard to that. Later today, I am dealing with Northern Ireland matters and the Good Friday Agreement which was negotiated five years ago. If the papers were available about the same issues being negotiated today, there would be major difficulties. It is not possible to reduce the period to five years when one is dealing with the same people, process and issues.

I am not arguing that the period should be 30 years. The Act came in and I did not take issue with it at the time but five years is too short. On all other matters, no matter how inconvenient, such as how many telephone calls I made or what restaurant I went to, if I had lunch with somebody, or how much petrol my car uses..

So said former Taoiseach Bertie Ahern in 2003, during the change to the FOI legislation. He is referring to an amendment that made significant changes to the legislation, one of which was the increasing by five years of the expiry of Section 19 of the Act – records relating to Cabinet and interministerial communications.

It would appear that not only have the opposition failed to see the political import of the availability of Cabinet records from 1998 and 1999 (and now January/February 2000), but so have the media. Section 19 of the Act no longer applies to records that are over 10 years old. This 10 year limit started on April 21, 2008, and is a rolling process. For every day that passes in 2010, another day of records becomes available from 2000.

The Government that is in power now is more or less the same that existed in 1998, 1999 and 2000. Some new ministers, some old, musical chairs on the rest. Why would it not be political interesting for journalists and the Opposition to look back at decisions made in 1999 for example? The Redress board scheme was planned in 1999, the apology to victims was made in May 1999.

The Opposition in 2003 were quite vocal about the changes being made to increase the five year rule to 10 years. Enda Kenny even penned an Irish Times opinion piece, arguing that Bertie Ahern was increasing the limit in order to save embarrassing documents being released surrounding Ray Burke (the Fitzwilton payment came to light in the summer of 1998) among others.

I started the process of examining the issue of Cabinet records some months ago, and have requests pending with the Department of the Taoiseach. It is important to try and understand how such records are held in order to more accurately request information – this also involved trawling what made the headlines in 1998 and 1999, to remind myself what was scandalous, and what was newsworthy over that period.

Of course it is also important to read the Cabinet handbook to understand exactly what the records are called and what their purpose is. As a result of this process I have requested, and received, some initial records from that period. I will begin publishing them today, and all of next week. First up is the agendas for all Cabinet meetings between April 21, 1998, and December 31, 1999. These agendas only became FOIable after the 10 year rule had expired in 2008. I will upload them as I scan them, which will take some time.

Agenda for Cabinet, April 21, 1998:

Cabinet April 1998

Two videos relevant to making official data available

I hope to attend Farmsubsidy.org‘s datafest in Brussels in May. I am also in the process of appealing a decision by the Department of Agriculture to refuse a request I made for details of all CAP payments made to Irish farmers from 1999 to 2009. This is a video about what farmsubsidy.org is doing:

Next up is the campaign by the Sunlight Foundation for the POIA (Public Online Information Act)

Ireland, and indeed Europe, needs this.