Anglo to be split in two

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callybags

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On first reading of this, it doesn't make sense to me.

The "good" part, or "funding bank" will not lend but will continue to take deposits. How is it going to make money to pay it's staff and other expenses?
 
callybags said:
[broken link removed]

On first reading of this, it doesn't make sense to me.

The "good" part, or "funding bank" will not lend but will continue to take deposits. How is it going to make money to pay it's staff and other expenses?
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It was a loose comment. It will not seek out new lending. But it will lend to NAMA (NAMA bonds) and to the Asset Recovery Bank.

The net effect seems to be that depositors have now been elevated to a super senior position in the creditor ranking.
 
I guess it's a case of it's cheaper to pay depositors interest (Minus DIRT!) than seek & repay money from the market? Edit - I mean, Demand Deposit is 3.1% versus 10yr Bonds going for 6%+ today.
 
Is this not exactly what happened NR in England ? Not sure if it has worked with them but I don't hear anything to the contrary. At least if something does we have a slight window to try and avoid the same.
Update: OK it appears that the 'good' bank will only be a savings bank and will not be loaning money out commercially but just to the 'bad' bank arm for capitalization purposes. I don't think NR has this same restriction but I'm open to correction.
 
darag said:
Sounds quite similar to what I proposed in this thread last March.
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You suggested that deposits should be moved to a separate institution. Okay, you got that right, but the similarities end there. You then proposed that Anglo be liquidated and that the deposit bank share in the losses on liquidation. Anglo is not being liquidated, it is expected to run for 15 years. The Deposit Bank will have its assets guaranteed by the government.
 
My claim is that the idea I suggested was similar not that I predicted the announced structure exactly.

The non-deposit part of Anglo is not "being run" for 15 years; it is being wound down - it will issue no new loans or engage in any real banking activity except to try to recover some value from the stump of a loan book.

I had also suggested that the the government had the option of separately providing protection to the depositors which it is doing with this structure.

Arguably it is a question of timescales; I would have preferred a quick wind-down or liquidation but while some of the initial suggestions were that this "split" was a version of the good bank/bad bank plan that the Anglo management are so keen on, the reality is that it is anything but. Anglo is being shut down and this structure allows this to be done in an orderly fashion. And the government always has the option of liquidating the non-deposit part in a year or two.
 
very interesting that the FT editorial today recommended that bondholders in anglo take the hit. This is the FT speaking here - one of the worlds most read and influential financial newspapers - not David McWilliams!! The editorial makes it clear that in their view ireland's fiscal problems are manageable, but the uncertainty around Anglo is more damaging than a crystallised loss would be for bondholders, who will take the hit and move on.

They acknowlegde that things have changed and "it is time to let losses fall where they should: on unsecured creditors"

quote from editorial: "Dublin fears that cutting loose Anglo’s bondholders will kill demand for Irish sovereign debt. The opposite is true, as record-high sovereign spreads show. Its huge fiscal deficits are manageable – just. It is the open-ended exposure to private liabilities across the banking system that drives up sovereign yields. Dublin must get its priorities right."

Interesting that the FT has changed its tune
 
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