# Shotgun Mergers Between Our Banks



## Raskolnikov (20 Nov 2008)

Once again, it looks like Brian Lenihan is taking his advice from David McWilliams ()

According to RTÉ, it looks like there will be a shotgun marriage of our banks. This will of course have huge ramifications for our banking industry. Will Anglo/ILP shareholders be completely wiped out, or will they be given a significantly diluted stake in the new entities? Will we see an even greater clamp down by the new banks on lending? 

It'll be very interesting to see the movements of banks share prices over the next week.


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## Afuera (20 Nov 2008)

Wow. This basically means that the more "prudent" banks could end up with lots of the toxic loans that the less scrupulous ones made. Hardly confidence inspiring is it?


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## NorthDrum (21 Nov 2008)

Ok, can I ask you to spell it out to us all . . 


Shotgun mergers . . Something, along with capitalisation which are probobley going to happen. Whats the downside.

Now, why should any taxpayer care about shareholders*?* 

You see most shareholders or rational capitalists would argue that the whole "bailout of banks" is really a non event. Its never going to come to this, yadda yadda yadda.

The fact of the matter is that the govt had to guarantee the banks. Why is this if they are self sufficient*?* 

Had the govtnt not done this what would of happened, would there still be a share price *?* 

All usual practises and bets are off once a govt has to guarantee your debts. Nobody, including any shareholder, should have the right to any say in what happens going forward and none of these people should have any protection. Shares are basically betting. Not one person who takes a share doesnt take a gamble. I cant understand why people keep quoting shareholders as people who are important in this whole discussion. So what if you are a shareholder. You decided who ran the company, you voted on what direction the company took, you took the risk on investing in a company that totally bombed, why should anybody else care about your "rights".


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## Afuera (21 Nov 2008)

NorthDrum said:


> I cant understand why people keep quoting shareholders as people who are important in this whole discussion.


I don't disagree with your sentiment however many pension funds, insurance companies etc are among the shareholders of these institutions.


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## NorthDrum (21 Nov 2008)

Afuera said:


> I don't disagree with your sentiment however many pension funds, insurance companies etc are among the shareholders of these institutions.


 
Seriously though, we are all shareholders in funds we invest in. Arent investments about risk v reward! And when does the question of "responsibility" come into force, surely we are all responsible for our own investments, are is it a case that its the governments job to make sure that we are actually capable of making these decisions!".

Its like people think that they are the only people who are affected. Well nearly everybody knows somebody who will be affected by what has happened. 

But on the other side of things, we all should of made it our priority to know what the potential downside could be with regards to pension investments.


My mum and dad, along with myself are being hard hit by this current situation but I know that any shares I have ever had, are just that, Shares that are a "bet" that they will raise in value (keeping them simplistic forgetting about dividends or rise in share value) according to their demand.

Nobody could of seen what was going to happen but how can you actually defend people (like myself) who had extra money to spare who "took a punt" on them raising in value and or dividends.

I really dont see how anybody can defend shareholders in the current economic climate. Facts are, without the Taxpayer there possibly wouldnt be an AIB or a BOI today. Why in the name of god should any shareholder have any say given these FACTS . . .


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## Brendan Burgess (21 Nov 2008)

I don't see the point of these mergers at all. 

Let's take Bank of Ireland and Irish Life and Permanent. 

Both appear to be undercapitalized. Merging them doesn't solve this problem. 

They are the largest and second largest home loan lender. I know that competition issues can be laid aside for the moment, but in the long term, there will be one company with around 40% of the market.

They own the largest and possibly the second largest life insurance operations. Again, devastating for competition.

It would take at least two years and a huge level of management resources to merge them. They do not need this distraction. 

I wouldn't object to the competition issues, if I saw any advantage. But I don't. 

Now, let's look at AIB and Anglo Irish Bank.

AIB is probably solvent. There is a great deal of uncertainty over Anglo. So the merged entity would be even less safe. 

The only advantage is that the exposure for the taxpayer would be reduced. If they are left separate and Anglo goes bust, the taxpayer would have to pay off the creditors. If they merge, Anglo can quietly go bust within AIB and no one will notice and the taxpayer will be off the hook. 

The only time a consolidation should take place if there is a very strong, well capitalized bank which takes over a solvent, but poorly capitalized bank. We don't have any very strong capitalized banks. 

Brendan


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## Rigoletto (21 Nov 2008)

Brendan said:


> I don't see the point of these mergers at all.


 
maybe i am wrong but i would have thought the first point would be rationalisation. if you merge 2 banks you will shed a truck load of jobs due to duplication etc. banking unions are very strong and this is a way of forcing through large amounts of redundancies and radically restructuring management. i suppose the idea would be to cheery pick the best staff of 2 banks and cut loose tons of deadwood (no disrespect to banking staff)

i.e 2 HR departments/2 advertising and marketing departments etc if you lessen the payroll it might help the bank to bounce back.


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## MentalNote (21 Nov 2008)

Brendan said:
			
		

> The only time a consolidation should take place if there is a very strong, well capitalized bank which takes over a solvent, but poorly capitalized bank. We don't have any very strong capitalized banks.



But isn't the government and/or some foreign equity group going to re-capitalise them as part of a number of measures that will happen in the same time? Perhaps no one will be willing to re-capitalise the smaller banks on their own? So a merger and overall re-capitalisation is a better alternative than letting the smaller bank collapse, which will result in less cimpetition anyway.


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## Duke of Marmalade (21 Nov 2008)

_Boss_, it certainly is a strange solution. I suppose the logic went inexorably as follows.

1. We want to minimize the taxpayer taking equity.

2. Hence we need this private equity involvement.

3. But we have to find a model for all six banks.

4. Private equity not interested in either the smaller or more exposed of the six.

5. Ergo two biggies is the only solution involving private equity which will cover the whole picture.

Who could ever have seen this? What a huge mess! I see Davy suggesting AIB/ILP and BoI/Anglo as more logical.

And what about the IN and EBS? Will I get some humble carpetbagging pay-off?

_Crossed paths with MentalNote who seems to see the same reason for this bizzarre move._


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## Guest128 (21 Nov 2008)

I wonder what happens your savings in say Anglo if they merge with AIB.....are they just seamlessly transferred to an AIB account with similar rates (as Anglo offer the market leader in regular savings of 8%) or will they be trimmed down to AIB's rates?


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## z109 (21 Nov 2008)

I don't see that the government can shotgun and recapitalise some of the banks without making the position of the other ones untenable. All the banks are going to need capital (if the rumours swirling about the PWC report are true). So if only the worst cases were made good, the remainder would he still on the scaffold with the noose around their necks. Politically and practically, no bank can be allowed to fail - should that happen to one of them, there would be an instant run on the rest of them.

Having said all that, I have a bad taste in my mouth at the thought of handing over the banking system to the likes of JC Flowers at an 8 or 10% yield. I really don't see what the benefit to the country is of private equity that is more expensive than public equity. My cynical view says that the government and their advisors would rather we kept our money on deposit at a reducing 5% than participate in preference shares or bonds.

Keep dancing monkey, keep dancing. There's be a bowl of nuts for you at the end of the never-ending tune.


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## Brendan Burgess (21 Nov 2008)

I have to stress again that all 6 banks are different. 

Anglo and the Irish Nationwide should just be allowed to go quietly and if there is a deficit, the Irish tax payer picks it up. 

Bank of Ireland and AIB need to get back lending, whether with private equity or government equity. 

Rationalization takes years for a payoff. 

The proposes mergers can take place later. They are not a priority.


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## Raskolnikov (21 Nov 2008)

yoganmahew said:


> I don't see that the government can shotgun and recapitalise some of the banks without making the position of the other ones untenable.


I'm guessing that the government are going to throw a sweetner into the deal. i.e. AIB take Anglo and their toxic balance sheet. In return, the government will promise to recapitalise the bank

I agree though, the last thing we need is a foreign private equity firm. They will only be interested in extracting their pound of flesh by sweating the assets.


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## Brendan Burgess (21 Nov 2008)

AIB doesn't particularly want to be recapitalized unless the government gives it money very cheaply.

Under the terms of the guarantee, the government can tell AIB to acquire Anglo, and they must both agree. There is no need for sweeteners.

Brendan


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## DerKaiser (21 Nov 2008)

Brendan said:


> I have to stress again that all 6 banks are different.
> 
> Anglo and the Irish Nationwide should just be allowed to go quietly and if there is a deficit, the Irish tax payer picks it up.
> 
> ...


 
I suppose the point at the moment is not mergers for the sake of rationalisation but to ensure that the taxpayer is not forced to take the losses at one bank whilst allowing the shareholders of another profit. 

The gamble of the state guarantee is a lot less if it only kicks in when total shareholder equity in all banks has been exhausted.

One solution for stimulating the economy is for the state to effectively buy a controlling interest in say bank of Ireland (clearing out and replacing the current management) and recapitalise the economy through this bank. It may even stimulate the economy enough to reduce the prospects of the other banks going bust.

The point on Anglo and Irish Nationwide makes sense. Any recapitalisation does not have to be done through them.


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## webtax (21 Nov 2008)

Brendan said:


> I don't see the point of these mergers at all.
> 
> It would take at least two years and a huge level of management resources to merge them. They do not need this distraction.



This is the baffling part of the proposal. Merging the banks, who would then probably have to be broken up again after the crisis passes to bring about proper levels of competition, would be a monumental waste of resources. Any cost savings would take years to kick in, a redundancy package would have to be funded, and it would lengthen the dole queues while reducing income tax levels. 

The gains in term of reducing the government exposure would be largely illusory. Which ever bank takes over anglo or inbs will end up with a crater in their balance sheet which will require more capitalisation funds.


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## DerKaiser (21 Nov 2008)

NorthDrum said:


> Nobody, including any shareholder, should have the right to any say in what happens going forward


I respectfully object.  The shareholders own the bank.  They do have to adhere to a number of conditions as part of the guarantee scheme.  Other than that and meeting their regulatory requirements, the business is their's to run as they wish


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## DubGus (22 Nov 2008)

Brendan said:


> I don't see the point of these mergers at all.
> 
> Let's take Bank of Ireland and Irish Life and Permanent.


 
BTW, there have been no talks between BOI and IL&P as confirmed by the respective CEOs, so we could drop this specific topic now instead of fuelling it.



Brendan said:


> *Both *appear to be *undercapitalized*.


 
False allegations, again.



Brendan said:


> AIB is *probably solvent*.


 
Allegations again.

All of the above is also known as FUD, for more information please see: FUD 

Brendan, I hope this time the message is clear and doesn't "need" to be removed.

Cheers,

DubGus


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## webtax (22 Nov 2008)

I don't think its correct to call any of the above allegation or 'FUD'. The fact that the banks are all in difficulty is common knowledge, but the extent of their problems cannot be known exactly as the government is not publishing the PWC report.

The media reports on it indicate that some merger activity is high up on the government agenda. The consequences of this major financial decision that will impact on all shareholders, taxpayers & consumers should be freely discussed by whoever wishes to.


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## webtax (22 Nov 2008)

From media reports today it look like the barbarians are at the gate:

http://www.independent.ie/business/irish/boi-shareholders-seek-legal-advice-over-deal-1549284.html

I wonder are the Irish fund managers taking action to protect pension holders interests here? And what stake does the NTMA have in each of the banks? Will they act in the long term interest of the taxpayer or follow the short-term decisions of a very poor quality government?

The govt is being advised by Merrill Lynch - who would have a more natural inclination to big private equity deals than government intervention (do they deal with any of the foreign equity parties?).

There is one reason that private equity are getting involved - they see that there is a killing to be made. How the government can't see that borrowing €10bn from the market at 5% and investing it in preference shares at 10% convertible to equity when the banks recover, while having a proper say in how the banks are run is the correct approach is beyond me.

I remember Charlie Haughey saying that Berties government was the worst in the history of the state - he spoke too soon!


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## Duke of Marmalade (22 Nov 2008)

Let us remind ourselves.

AIB Hi 23.69 Now 2.11 -91%
Anglo 17.53 to .91 -95%
BoI 18.25 to 1.22 -93%
ILP 22.69 to 1.09 -95%

Maybe this is all due to FUD or just maybe there is something wrong. The banks are undercapitalised if the markets think they are as the term is a subjective assessment of future possible shocks.

I know we cannot discuss individual stocks but one of the above remains an enigma as its CEO keeps protesting:

a) It has "capital in spades" and indeed its ratios appear far above even the current market demands. What gives here?

b) It has no exposure to commercial or resi development.

c) It has a life company asset which appears even on conservative assumptions to have a value many times the market cap of the group.


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## TonyD (22 Nov 2008)

Page 2 on Ths Sun(I know the Sun) states the staff at Anglo Irsh Bank are to receive Xmas bonuses from 5k to 8k. 

Our banks must be ok after all. (If it's true of course)


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## DubGus (23 Nov 2008)

webtax said:


> I don't think its correct to call any of the above allegation or 'FUD'. The fact that the banks are all in difficulty is common knowledge, but the extent of their problems cannot be known exactly as the government is not publishing the PWC report.
> 
> The media reports on it indicate that some merger activity is high up on the government agenda. The consequences of this major financial decision that will impact on all shareholders, taxpayers & consumers should be freely discussed by whoever wishes to.


 
Webtax, I didn't say everything in th message is FUD. If you look at the parts of Brendan's message that I quoted you will understand what I refer to.

Thanks,

DubGus


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## Duke of Marmalade (24 Nov 2008)

webtax said:


> From media reports today it looks like the barbarians are at the gate.


Everybody is agin' these private equity folk. 

Labour as an ideological knee jerk, Enda trying to score cheap points, the bank executives out of self preservation. 

We can dismiss the above objections but the media is universally opposed, the _Sunday Tribune_ went so far as to scream "*No, No, No*". 

Are we missing sumfin'? Anybody got anything good to say about the involvement of private equity?

BTW are we really interested where Sam Maguire was born. I'll throw up the next time I read that.


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## webtax (24 Nov 2008)

Duke of Marmalade said:


> the _Sunday Tribune_ went so far as to scream "*No, No, No*"...
> Anybody got anything good to say about the involvement of private equity?



You'd have plenty good to say about it if:
1. you are a bank director hoping to hang on to your job which won't happen if govt provide the funding
2. you are a member of govt so obsessed with national debt as to be blind to seeing that borrowing at 5% and getting 10% back from the bank makes sense
3. you work on managing the national pension reserve fund and would not like to have attention drawn to the losses on the funds under management which could be used in the bail out
4. you are the private equity sharks about to get a nice big feed in Ireland

Besides that the Sunday Tribune has it right...


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## Alex (26 Nov 2008)

does this mean that if boi and ptsb were to merge ptsb would be gone altogether and all accounts would be transferred to boi? would there be no more ptsb operating in this country at all? i like ptsb. if i am forced to switch to boi in this way i will close all of my ptsb accounts and go elsewhere. there will still be foreign banks here. i am not going to do business with boi by the way, i don't like them at all. my family have said the same. if people like me do this they will loose a lot of business...


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## MortgageGuy (26 Nov 2008)

merging banks is not in the banks interest, the taxpayers interest or the states interest, the only groups that would want this are the private equity groups who want to capture as much market share as possible with the input that they have.

merging companies isn't as simple as waving a wand and saying 'now it's done' it would take a long time, the changing systems would have a paradox of people getting fired while service grinds to a halt as well, at any time at least 50% of the people doing the job would be doing so on unfamiliar systems.


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## webtax (27 Nov 2008)

Two contrasting views on private equity:

[broken link removed]

http://www.independent.ie/business/...ing-as-private-equity-firms-loom-1554662.html

Including the following worrying comment:
"When the dust has settled in a few years, [broken link removed]    will have experienced one of the largest property booms and busts on record.The downturn in property will be associated with one of the largest cumulative    drops in national income in an advanced economy since the Second World War.    This contraction will have coincided with the worst global financial crisis    and economic recession since the Great Depression. How could it be even remotely plausible that Irish banks will escape this    economic and financial carnage with losses comparable to those experienced    during normal recessions?"


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## upport (29 Nov 2008)

Is the proposed combined investment of the group of Irish Fund Managers and Irish Government as an alternative to private equity in the bid for Irish Banks an option that would protect existing shareholders and provide the possibility of recovering some of the lost shareprice ?


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## Askar (29 Nov 2008)

upport said:


> Is the proposed combined investment of the group of Irish Fund Managers and Irish Government as an alternative to private equity in the bid for Irish Banks an option that would protect existing shareholders and provide the possibility of recovering some of the lost shareprice ?


 
UK experience suggests that Government intervention will be at shareholders cost.


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