Why would it cost so much to close down Anglo?

Hi DerKaiser; yes we cannot wind down Anglo right now because the guarantee would kick in and the state would be liable for the huge hole in the balance sheet; as described in an earlier post, we have to put Anglo on life support until the guarantee expires and then wind it down.

Csirl, indeed. I heard a figure of 300 million a year in running costs for Anglo but I cannot back it up and it's probably less now that they've reduced the head count.
 
Look at it this way. If we had let Anglo fall, it would have had a knock on affected on the other Irish Banks. Looking at them today, they are not exactly in great shape, with the shares worth F/A and the government pumping money into them as fast as they can raise it. (If only we could print it!) But, would the entire financial system and the economy collapse? Probably not, it may have brought down the euro, which would not be allowed happen. Even looking at Iceland today, things seem to have recovered somewhat. So, would letting Anglo fall have saved each Irish family the €[broken link removed]+ and rising cost to keep Anglo going? I know from talking to a couple of Anglo employees, that at the time of nationalisation they thought there was still a chance of the bank surviving. I am afraid to mention the A word when I meet them now...
 
DerKaiser said:
Once the uniformed decision to nationalise had been made (uninformed because of the incompetence and dishonesty of a small group) the only question was how long we could hold on to the funding from depositors and bondholders.
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If the decision to nationalise was based on dishonesty (or worse), then all bets are off. The Govt is not obliged to continue to provide funding or to fulfil the guarantee which was obtained fraudulently.

We should be looking for the best route to get out of this situation, without the guarantee in place. This might involve some freezing/limited withdrawal periods to prevent a run on the bank, and after that, leave it to the market.
 
csirl said:
I dont get the connection between selling a loan and a collapse in the property market?
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Transparency.

Banks tend to bury their heads in the sand regarding non-performing loans. They might be happy to take the losses on the drip over a number of years.

Selling on the loans capitalises the loss upfront, meaning bust customers being suddenly outed.

The increased scrutiny triggers the repossessions all at once and will lead to mass disposals (and hence a dampening of the market) unless the owner of the repossessed properties has an ability to stay in the game for the longer term rather than being forced to transact immediately.

Property valuations will probably end up in the same place longer term, that doesn't mean that we can't have large wealth transfers in the short term
 
See [broken link removed] for what may be one of the real reasons for not shutting down Anglo.

DerKaiser said:
Transparency.

Banks tend to bury their heads in the sand regarding non-performing loans. They might be happy to take the losses on the drip over a number of years.

Selling on the loans capitalises the loss upfront, meaning bust customers being suddenly outed.
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Forgive my naievity, but are there not tight accounting rules in place about reporting and recognising bad debts?
 
Complainer said:
Forgive my naievity, but are there not tight accounting rules in place about reporting and recognising bad debts?
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From my limited knowledge the banks could know well that a developer will never be able to pay off their loans but only have to classify them as impaired subject to certain repayment conditions being breached i.e. short term actions such as repayment holidays, interest only repayments, etc can mean that the loans are not being impaired when they should be

I'm forming an opinion based on articles such as this:
 
[broken link removed]


IRISH BANKS will require up to €22 billion to cover losses on property loans moving to the National Asset Management Agency (Nama) and higher future losses on other loans as they meet strict new rules set by the Financial Regulator, The Irish Times has learned.
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I presume this €22bn does not include any money pumped into the banks prior to NAMA.
 
Alan Dukes on PrimeTime this week mentioned that a further reason for keeping Anglo open was to provide a third banking force in Ireland, keeping AIB & BOI from regaining the duopoly they had previously
 
Duke of Marmalade said:
Csirl excuse my looseness of language. Under a liquidation Anglo would have to turn its assets (loans) into CASH. No point turning to NAMA, it doesn't do cash, it only deals in long term paper. Nobody is going to buy the loans, so only way to raise cash is to pursue the borrrowers i.e. repossesss and sell etc. etc.
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Not true, I'll start the bidding - I'll buy their entire loan book for €1 - and I'll buy it as is - I dont want cash. I'll even promise not to repo a single property for at least 10 years. I'm bound to make a profit as I'm sure they must have at least one customer who's going to pay at least €1 more off his loan.

So there you are, Anglos entire loan book has been turned into cash, albeit a small amount. Anyone else out there going to outbid me?

I think you misunderstand the concept of turning loans into cash - as my bid above illustrates. In a liquidation, the loans are sold for cash to the highest bidder. The loans are NOT cancelled and the borrowers forced to pay back everything. The borrowers terms and conditions stay intact. And borrowers do not have to be up to date with repayments for a loan to be sold - loans can be sold as is.
 
My read of Lenny's speech is that winding down Anglo would cost €70Bn.

But we are also told that in addition to the 8.5Bn already flagged in the media a completely new 10Bn will be needed to keep it afloat. We're talking here another €20Bn into Anglo which Lenny himself agrees we would all prefer to see "obliterated". I agree with Richard Curran of the Sunday Business Post (on RTE) that we are at the stage were the Minister really needs to show that a liquidation/wind-down would really cost more than €20Bn. I am dissappointed that he said it would cost €70Bn, that implies a complete wipe out of the asset base, I feel there must be a bit of exaggeration there.

Recalling my earlier metaphor, the "financial war crimes" commited at Anglo are now at least twice has heinous as we thought yesterday.
 
Duke of Marmalade said:
I am dissappointed that he said it would cost €70Bn, that implies a complete wipe out of the asset base, I feel there must be a bit of exaggeration there.
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I can't make it out at all.

From my understanding there's €70bn in total liabilities i.e. deposits, ecb, bondholders, etc so that's the max loss if all assets were worthless.

Are the assets really worth €40bn to €50bn more by working through the loans/collateral over time? I don't think so.

They should stick to one set of figures e.g. they hope to save €10bn by working through the loans/collateral over time rather as opposed to engaging in an immediate fire sale.

Some good comment on Prime Time now.

We want to largely protect depositors (maybe the €100k guarantee would do this?)

It will be interesting to see who the bondholders are (can we burn them or are they mainly the ECB and other Irish banks - in which case propping up Anglo is most certainly a means of propping up the system)

Are the government secretly playing it cool until september when they will pull the plug?
 
Duke of Marmalade said:
We're talking here another €20Bn into Anglo which Lenny himself agrees we would all prefer to see "obliterated".

Recalling my earlier metaphor, the "financial war crimes" commited at Anglo are now at least twice has heinous as we thought yesterday.
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€20Bn = €20,000,000,000

How much infrastructure would that buy - probably two of these www.spiritofireland.org to put things in perspective!

What an absolute waste of money!
 
Complainer said:
This is based on the assumption that the guarantee holds. Given that it was based on a tissue of lies, we should walk away from the guarantee.
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Fully agree - Anglo should be told "you're on your own mates, deal with it". Let all those who were involved in this mess fight over the carcus.
 
Complainer said:
This is based on the assumption that the guarantee holds. Given that it was based on a tissue of lies, we should walk away from the guarantee.
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The problem is that the depositors, bondholders, ECB etc. didn't tell lies. Those who told lies should be pursued for "financial war crimes" but the creditors are innocent civilians.
 
Duke of Marmalade said:
The problem is that the depositors, bondholders, ECB etc. didn't tell lies. Those who told lies should be pursued for "financial war crimes" but the creditors are innocent civilians.
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But we're not guaranteeing anyone other than Anglo - its up to all these people to do their own due diligence before investing in a bank.
 
Regarding subordinated debt and Anglo Irish Bank.....

To argue, as Lenihan has done, that to default on this aspect of Anglo's debt would inhibit our ability to borrow in the future.....

a. Subordinated bondholders are the vultures of the financial prairie. Right? They rely on the sweat of others to make a buck. When times are good they do well, when times are bad they starve. Correct?

b. To say that we would at best have to offer more for government bonds issued (if we defaulted on the subordinated bondholders) and at worst be unable to borrow at all is to, effectively, rank the good name and intent of 4m people as pari passu with that of the dozen or so gougers who sat around an overpriced mahogany table on St. Stephen's Green. This is surely nuts?! Look at the reaction this week to BofI's shareprice to its intention to seek money abroad (by the way, it has come as no surprise to many of my friends that the one bank that has come out of this smelling of roses - relatively speaking! ;) - is the one with the tradionally Protestant culture. Food for another debate.)

On This Week on RTE radio a few weeks back, when someone from Fine Gael was discussing the issue of not defaulting and saying "Follow the money trail" (i.e. to Frankfurt), Mary Hannafin said (almost sotto voce) "But, other countries are doing the same." This is kernel to this entire lunacy, in my view. Why are Spain, Portugal and Greece along with ourselves, lining up like good ducks in a row? I believe it is because if any of us decided to tell the Euro denominate bondholders to take a hike then the other three would do so, and this would endanger the entire Euro project.

I suspect that we would risk expulsion from the EU (or some equally serious sanction) if we reneged and that this is the real reason for flaunting one of the traditional rules of capitalism and saving the skins of the bondholders.

We've been down a similar road more than once before with Allied Irish Bank (a shower who should have been put out of their misery a generation ago.) and didn't learn the lesson then. We should stand firm and honour our debts in the normal way letting the gamblers lose their stake.

D.

ps. Anyone for joining Sterling? :)

pps. If developers aren't paying Anglo even the interest on their loans, there isn't a hope in hell of them paying NAMA.
 
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