Category: Finance

As part of an ongoing process we will be publishing the company accounts of all State-owned companies. Some of these accounts may be published in some form already, but we have gone to the CRO to get the most recent set of accounts and B1 certificate. This will involve dozens of companies but should make a useful reference archive. You will see the accounts under the “Finance – State-owned companies” category above.

Oireachtas Report covered it…

Mike Aynsley, Anglo Irish Bank chief executive, explains how the taxpayer will not get €22 billion back.

Just for emphasis, Aynsley speaking:

We get a big thank you from Mr Aynsley and Anglo, for the €22 billion we will never see again:

Alan Dukes (our supposed public interest director) refuses to say whether he interviewed new members of the board.

Aside from the clear issues surrounding the dumping of information by the HSE last Friday (we are working on that in the meantime) the banking reports are also clearly an important issue. We will try to cover both of these issues over the coming days.

I am initially particularly interested in one small part of the Honohan report:

While there was eventually a broad consensus, including among CBFSAI officials, that the guarantee scheme for all institutions was the best approach, the idea of nationalising Anglo Irish Bank (implying an associated change in management) as an accompanying measure was also on the table. As a contingency (and highly confidential) precautionary measure, legislation to nationalise a troubled bank and/or building society had been in preparation for some time.

It was felt by some that nationalising Anglo Irish Bank – which was facing by far the most serious liquidity crisis – would reduce the reputational damage that it was causing to the Irish banking system. This bank‘s business model was also thought by many to be irrecoverably broken; although few participants were even beginning to think it might have actual solvency issues.

Among the arguments against an overnight nationalisation was the fear that it could present undue operational risks and that it might have a destabilising effect on markets. In the event, by the end of the week, the inflow of liquidity took the matter off the agenda.

10 Other options mooted included extensive use of Emergency Lending Assistance (ELA) from the Central Bank and/or the creation and use of a domestic fund drawing in addition on resources from the NTMA. The possibility of temporary support from the two largest banks was also envisaged. None of these options could be expected to do more than buy a few days – say until the following weekend.

11 This planning was first inspired by the experience of the UK Government in relation to the failure of Northern Rock one year earlier.

Northern Rock was nationalised in September 2007, a full year before the bank guarantee. So is the entire narrative about an emergency guarantee now defunct? As Finance Minister, how much did Brian Cowen know about Anglo before the bank guarantee, and indeed before the St Patrick’s day massacre, before the CFD deal with Sean Quinn. How much did Bertie Ahern know? How much did the Cabinet know? How much did the Department of Finance know? How many investigations were carried out into the loan book of Anglo over the period September 2007 to September 2008? Why, exactly, did Mr Cowen repeatedly refer to Lehman as the the core cause, when in fact his Department and the Central Bank were surveying problems for 12 months, and why did they solely concentrate on liquidity issues, and not include issues of solvency?

Further down the report, Honohan is critical of the night of the guarantee itself:

A detailed review of the ensuing discussions is hampered by the absence of an extensive written record of what transpired. Although the minutes of meetings of the CBFSAI Board and the Authority during the period contain references to various options, there is an absence of documentation setting forth the advantages and disadvantages of possible alternatives and their quantitative implications. While CBFSAI Board members expressed some broad views on possible approaches, no decisions were taken, as the solutions would need to be found at Governmental level. The key discussions took place via the very many informal contacts and meetings between senior officials of the DSG agencies, the NTMA, and consultants; what follows relies to a very large extent on the personal recollections of participants.

And:

There is no doubt that from mid 2007 onwards Ireland increasingly faced a potentially serious financial crisis. Although the deteriorating international environment was what finally set the flames alight elements had been building for some considerable time beforehand. The overly sanguine, even complacent, view presented in the 2007 FSR and the resulting ensuing conviction that whatever problems that might arise would only be one of a liquidity led to two missed opportunities; first, to convey a strong message to the banks that they needed to build up capital urgently to be able to handle contingencies, or even to require them to do so; and second, to undertake comprehensive preparatory work to analyse quantitatively policy options available in the event the unthinkable might transpire.

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.

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

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