Nationalisation Watch / Govt. rethinking 3.5 billion bailout for the banks?

johnfás wrote:

I know someone in Kildare who got 2 million for not alot of land. I know people who got several hundred thousand for a couple of feet of a back garden that you couldn't do anything with anyway when the Luas was built.

I don't rule it out, as the system is inconsistent and only transparent up to a point. Different negotiators in different regions.

Well, we ae now the proud owners of the Anglo-Irish Bank.

Sounds like it's not a bad deal from just listening to Lee on the 9 news. ~500m in dividends every year and loads of control over stuff and the banks giving 100m to the environment and promising to re-inflate the property bubble by increasing their provision for lending to first time buyers by 30% ... Plus we'll be in a nice big bed with Sean Quinn who owns 15% of it already. Ah yes.

Quote :

Mr Fitzpatrick used a curious procedure of off balance sheet financial gymnastics to hide money he borrowed from his own bank as CEO. This practise is called Warehousing. It reminds me of Warehouse John, a nickname given by the late Veronica Guerrin to another small businessman who made good John Gilligan. The electorate who are going to inject €1B into Anglo Irish should be told why Warehouse Sean needed to borrow money, whether credit committees in Anglo or INBS knew and if so what did they do and if not why not? What would the significance of the bed and breakfasting of €87M have had on Anglo Irish had it been reported at the time?

A final thought which perhaps should be the first one, where are the garda? About 4 years ago when the Republican movement robbed the Northern Bank of £26M before Christmas a major investigation took place. So where is the fraud squad, Harcourt St Garda station is about 5 minutes walk from Anglo Irish HQ and perhaps the best thing is for the intervention by the garda. Joan Burton was right when she saID that an inspector should be appointed to investigate what went on before the bank gets as much as a cent

http://cllrjoeryan.blogspot.com/2008/12/best-little-warehouse-at-xmas.html

Auditor #9 wrote:

Sounds like it's not a bad deal from just listening to Lee on the 9 news. ~500m in dividends every year and loads of control over stuff and the banks giving 100m to the environment and promising to re-inflate the property bubble by increasing their provision for lending to first time buyers by 30% ... Plus we'll be in a nice big bed with Sean Quinn who owns 15% of it already. Ah yes.

Quote :

Mr Fitzpatrick used a curious procedure of off balance sheet financial gymnastics to hide money he borrowed from his own bank as CEO. This practise is called Warehousing. It reminds me of Warehouse John, a nickname given by the late Veronica Guerrin to another small businessman who made good John Gilligan. The electorate who are going to inject €1B into Anglo Irish should be told why Warehouse Sean needed to borrow money, whether credit committees in Anglo or INBS knew and if so what did they do and if not why not? What would the significance of the bed and breakfasting of €87M have had on Anglo Irish had it been reported at the time?

A final thought which perhaps should be the first one, where are the garda? About 4 years ago when the Republican movement robbed the Northern Bank of £26M before Christmas a major investigation took place. So where is the fraud squad, Harcourt St Garda station is about 5 minutes walk from Anglo Irish HQ and perhaps the best thing is for the intervention by the garda. Joan Burton was right when she saID that an inspector should be appointed to investigate what went on before the bank gets as much as a cent

http://cllrjoeryan.blogspot.com/2008/12/best-little-warehouse-at-xmas.html

I only heard a part of it: I wonder if there is a press release from the Department of Finance.

Joe Ryan said
The Quinn shareholding in Anglo raises some disturbing questions. How was his purchase of shares in Anglo funded? If the money was borrowed did any of the money come from Anglo? How much do Sean Quinn and his companies owe Anglo? What security does Anglo hold over any money it has lent to Quinn? Quinn’s €1B investment in Anglo is now worth about €35M!
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I would like to know what collateral AIB has for the CEOs 75 million loan and what the terms of repayment are. I would also like to know how much he took out of the bank just before the Bank Guarantee and how, when and from whom he knew the Guarantee was coming.
The Gardai would be the very ones to look in to that.

cactus flower wrote:

I would like to know what collateral AIB has for the CEOs 75 million loan and what the terms of repayment are. I would also like to know how much he took out of the bank just before the Bank Guarantee and how, when and from whom he knew the Guarantee was coming.
The Gardai would be the very ones to look in to that.

Great questions. Are CEOs and Chairmen or whatever they're called subject to different regimes of repayment and different levels of interest on those loans ? They probably are but should they be ? Maybe they're not ?

The Regulator seems to have had most of the year to ask these questions. Now he is being given another three weeks to think about why he didn't do anything about it. In the meantime, the deal has been closed with Anglo-Irish. It seems the CEO, according to the Sindo, is a close friend of Brian Cowen.

Does our 75% share give us full control I wonder, and do the two 25% shares in AIB and BoI give us any real control?

I suppose this is being done under the Bank Guarantee legislation.

75% of voting rights gives you pretty much full control over everything at shareholder level. It gives you full control on a day to day level if you can get a majority on the board, which I would imagine they have secured.

A bit off topic (yeah right) but are Brendan and David Drumm related ? Séan Fitzpatrick resigned from the Boards of Smurfit Kappa, Greencore, Aer Lingus all at the same time as Anglo last week - is it normal that a fella has so much sitting to do on Boards ?

machine nation

There are alot of professional directors... they do nothing but sit on boards. Most of them are people who have recently retired.

Are David and Brendan related ?

Don't have a clue on that one. I tend to go by the Dublin phonebook to see how common a name is, there are only 27 Drumms in it so you would imagine a fair chunk of them are related somehow... that said there are about 40 of my surname in the phonebook and we're only related to one of them,my grandparents.

Week in Politics - Gilmore and Brendan Smith, Minister for Agriculture and Fish (?). Gilmore doesn't like it. He says the Govt. buys 1.5 billion Anglo shares @27c each and if the shares recover then the bank can buy them back later at .... 27c a share

Maybe that's how these things are supposed to work though

Auditor #9 wrote:

Week in Politics - Gilmore and Brendan Smith, Minister for Agriculture and Fish (?). Gilmore doesn't like it. He says the Govt. buys 1.5 billion Anglo shares @27c each and if the shares recover then the bank can buy them back later at .... 27c a share

Maybe that's how these things are supposed to work though

the anglo deal stinks (from the taxpayers point of view), but the aib and boi ones seem alright.

Are the gov getting pref shares or ordinary shares ?

Preference shares so they will get a higher and preferential dividend cumulatively valued at €470m per annum. They can be purchased back by the bank within 5 years at the rate at which they were bought or after 5 years with a 25% premium.

zakalwe wrote:

Auditor #9 wrote:

Week in Politics - Gilmore and Brendan Smith, Minister for Agriculture and Fish (?). Gilmore doesn't like it. He says the Govt. buys 1.5 billion Anglo shares @27c each and if the shares recover then the bank can buy them back later at .... 27c a share

Maybe that's how these things are supposed to work though

the anglo deal stinks (from the taxpayers point of view), but the aib and boi ones seem alright.

Shane Ross said the the Government effectively get no extra control over AIB and BOI.

Some commentators are giving out that the fact that the dividends are "optional", however this is done for legal and classification purposes. if the dividends were mandatory, then the dividends would be classified as interest repayments and the entire capital injection as a loan, not capital (equity is defined as the residual interest in the business when all expenses are paid). currently the injection is a tier 1 capital injection (under basle 2) but if the injection is a term loan then its tier 2/3, which is no good for the purposes of salvaging the banks.

its quite a good deal for the govt from an investment point of view, but can understand, when infrastructure budgets are slashed, people are angry the banks are getting funding. it is important to remember that this is more important than roads etc as if there is a complete banking collapse then it would be 20-30 years before ireland gets bank on its feet again. there was a banking crisis like this in the 1850s (before the existance of a lender of last resort) and bank of ireland stepped in and lend money (it also issued legal tender) to keep irish banks afloat. it was the defacto central bank until the currency act when it was given a choice stay private or take over as central bank, it chose the latter.

cactus flower wrote:

zakalwe wrote:

Auditor #9 wrote:

Week in Politics - Gilmore and Brendan Smith, Minister for Agriculture and Fish (?). Gilmore doesn't like it. He says the Govt. buys 1.5 billion Anglo shares @27c each and if the shares recover then the bank can buy them back later at .... 27c a share

Maybe that's how these things are supposed to work though

the anglo deal stinks (from the taxpayers point of view), but the aib and boi ones seem alright.

Shane Ross said the the Government effectively get no extra control over AIB and BOI.

it can appoint 25% of the Board, thats enough to drive policy if it chooses. if it chooses not to (and i suspect it won't) that won't be due to the substance of the deal.

however, given the govts propensity for appointing friends to high office i suspect a pile of biffos will be resting their ample behinds on the leather of head office and bank centre!

zakalwe wrote:

cactus flower wrote:

zakalwe wrote:

Auditor #9 wrote:

Week in Politics - Gilmore and Brendan Smith, Minister for Agriculture and Fish (?). Gilmore doesn't like it. He says the Govt. buys 1.5 billion Anglo shares @27c each and if the shares recover then the bank can buy them back later at .... 27c a share

Maybe that's how these things are supposed to work though

the anglo deal stinks (from the taxpayers point of view), but the aib and boi ones seem alright.

Shane Ross said the the Government effectively get no extra control over AIB and BOI.

it can appoint 25% of the Board, thats enough to drive policy if it chooses. if it chooses not to (and i suspect it won't) that won't be due to the substance of the deal.

however, given the govts propensity for appointing friends to high office i suspect a pile of biffos will be resting their ample behinds on the leather of head office and bank centre!

Did I hear the name Joe Walsh?

LINK: Morgan Kelly slaughters decision to recapitalise Anglo

"Some simple arithmetic shows the hopelessness of what the Government is trying to do. In the typical property bust over the last 30 years, US banks have lost on average about 20 per cent of what they lent to developers.

Let us suppose that Anglo Irish is no more incompetent or dishonest than the average bank and will also lose up to 20 per cent of what is has lent.

Then, given lending of about €80 billion to developers, it follows that Anglo Irish is facing losses on the order of €15 billion. The true figure could easily turn out to be twice as large.

With likely losses of this magnitude, the Government's proposed investment of €1.5 billion will vaporise in months, forcing it either to continue pouring good money after bad, or to repudiate Anglo Irish's liabilities. For all it will achieve, the money might as well be piled up in St Stephen's Green and incinerated."

Zhou_Enlai wrote:

LINK: Morgan Kelly slaughters decision to recapitalise Anglo

"Some simple arithmetic shows the hopelessness of what the Government is trying to do. In the typical property bust over the last 30 years, US banks have lost on average about 20 per cent of what they lent to developers.

Let us suppose that Anglo Irish is no more incompetent or dishonest than the average bank and will also lose up to 20 per cent of what is has lent.

Then, given lending of about €80 billion to developers, it follows that Anglo Irish is facing losses on the order of €15 billion. The true figure could easily turn out to be twice as large.

With likely losses of this magnitude, the Government's proposed investment of €1.5 billion will vaporise in months, forcing it either to continue pouring good money after bad, or to repudiate Anglo Irish's liabilities. For all it will achieve, the money might as well be piled up in St Stephen's Green and incinerated."

The greens may have a problem with the carbon emission of such an event!

I don't agree with Morgan Kelly entirely. US banks always lose FAR more money than European banks, something to do with non-recourse mortgages. This may also apply to commercial loans with collateral as well, but nevertheless, the US is notorious. For example, our property slump started maybe 6 months after theirs, but are 10% of our mortgages in default yet?? Don't think so! This was the situation in the US in September.

Secondly, our Government is now following a similar path to the Scandinavians in the early 90s... we have a painful few years ahead of us, but they did get their money back and I hope, so shall we.

I still contend, after borrowing money from UK and Irish banks galore over the last few years, the banks here seem much more conservative in what they will lend relative to our incomes at the time than the UK banks. I say this from personal experience.

Finally, although the situation does look dire, there is some very positive stuff happening at the moment that people aren't (in the midst of panic) paying enough attention to. 1) floor level interest rates, many of those who took out mortgages in 2002 and since will be experiencing huge savings right now and after recapitalisation, I'd like to bet the banks will be made to pass on a lot of the rate drops in their SVRs. The government is now on the boards. The ECB rates have further to go, and our mortgage is already about 400 yoyos cheaper than it used to be. That is either extra money to buy more stuff, or to save, which means the banks get more deposits or the economy gets more loot. Or investors help push up share prices.
2) Property prices have dropped a lot, there may be a few people who may be prepared, at substantial discounts, to pop the toes back in the water if they need a place to live. The summer might see a bit more interest. I'm not suggesting prices will go back up, but the rate of decline might slow. After all, according to Morgan Kelly himself, the worst declines in a housing bust are in the 2 years post peak
3) the NDP, national recovery plan and Barack Obama's Save the World plan.... am I the only one seeing the similarity here?? This might be one instance where having a similar plan to invest in technology and insulation might work quite well..oil is finite, anyway
4). Sterling has got to have overshot. The howls of pain from all the expat Brit second homers in France and Spain are all over the UK papers... if many come home, that's more money in the UK and less in the Eurozone...they may be deliberately devaluing, but it would be dangerous to risk much more decline. Finally, when the German car industry realises it still has surplus inventory after mothballing factories another 2-3 months.....the chances are the Euro might slump too. Meanwhile, the accesion of the Savious du jour to the American presidency in January.might boost the dollar a bit. Result: euro down vis a vis the other two, and our exporters might start to feel a bit better

Is it possible we might see the nadir in Feb-March and then things might stabilise?? Getting back to 0% growth would feel good right now

The problems are that much of the bad loans were for land, not buildings and also for property across Europe, for which there notoriously was an Irish price even higher than the inflated boom prices.

It was the last two years that saw the real damage done. 1.5 billion could be mopped up by one bad default on commerical property.

Interesting post Expat Girl.

I worry that, whether the loans are non-recourse or not, if the money is not there then the banks will lose it. I think this will be the case with a lot of smaller developers and Johnny come latelys and there is a lot of them.

Eamon Ryan is saying that the bank managements will be changed by Government. How that is going to happen with only 25% or shares I'm not sure.

David McWilliams today says the whole deal is a disaster and a disgrace.

http://www.independent.ie/opinion/columnists/david-mcwilliams/botched-bank-job-is-the-economics-of-noddyland-1584699.html