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

eoinmn wrote:

There is a good thread on the Pin about this report that led to Neary's retirement.

One of the points that stood out for me is that the regulator essentially doesn't bother reading the quarterly reports sent in from financial institutions.

Years ago a bank/credit union/building society would return an annual report to the Central Bank (the "Registrar of Friendly Societies" for a Building Society or Credit Union). Then IFSRA came into being and it introduced quarterly reporting.
Fitzpatrick's loans *were* on the quarterly reports! So clearly the quarterly reports were being filed in the bin, unread, and Fitzpatrick knew this.

https://machinenation.forumakers.com/economy-business-and-finance-f8/chairman-and-chief-executive-of-anglo-irish-bank-resign-t1692-150.htm#60323

The country might end up using Quinn according to the Irish Times/The Pin

Seán Quinn group is largest debtor of Anglo Irish -- Irish Times

Quinn larges Debtor of Anglo -- The Pin discussion

Quote :

The Quinn Group has net assets of €3.4 billion and the bank would not be able to take ownership of the charged shares unless there was a default on the loans against which they are charged.

The Quinn family is understood to have lost close to €1 billion on so-called “contracts for difference” in Anglo Irish Bank shares. Loans advanced to the family by the group in relation to the investment have now been written off.

What's it all about

News on Morning Ireland - freezing of deposits idea to be dropped.

The government were making noise about freezing deposits of those who owed more than 20 million but has dropped that idea because of potential legal issues surrounding constitutional law on property ... The Attorney General .... something ... can't really understand what Emma is saying ...

There is some noise about such a clause turning off new depositors (!) or the more reasonable excuse - locking up sums of 20 million or more into an economy which needs a cashflow kick is somewhat unwise ...

Yeah right

Dáil Debate tomorrow

Quote :

RTE

The Government has amended proposed legislation dealing with the nationalisation of Anglo Irish Bank.

The change relates to the right of large investors to withdraw funds.

The Bill will come before the Houses of the Oireachtas tomorrow.

The Dáil and the Seanad will debate the proposed legislation that will give the State ownership of Anglo Irish Bank, the country's third largest bank.

However, it is widely reported this morning that the Government has been forced to change the proposals relating to those individuals who both owe the bank large sums of money and have substantial funds on deposit.

It had been planned to include a restriction that would prevent customers who owe more than €20m reducing their deposits below that amount.

It is understood that this clause is to be dropped.

http://www.rte.ie/news/2009/0119/banks.html

Meanwhile the British have this morning announced new measures, including an insurance scheme for banks' debts, which banks will have to pay (not in shares, in real money), plus the Government will buy up about 50bn in safer debt, including mortgages.

Quote :

Under the insurance scheme, banks will agree with the government the amount they expect to lose from particular debt.
The Treasury will then sell insurance against about 90% of the institutions' additional losses from the debt.
The government describes the assets involved as being those "most affected by the current economic conditions".
Most of the debt involved is very difficult to value because the market in it has collapsed.
The questionable value of the assets has meant that banks do not know how much money they are in a position to lend.
The government hopes that by insuring them against additional
losses, it will encourage the banks to resume normal lending to
businesses and individuals.

http://news.bbc.co.uk/2/hi/business/7836782.stm
They are presenting this as stage 2 of the banks rescue, the necessary post-bailout move to get credit flowing again. Does our Government any longer have the wherewithal to mount a 'Stage 2', or has it blown its money, plus considerable national debt, already?...

toxic avenger wrote:

Meanwhile the British have this morning announced new measures, including an insurance scheme for banks' debts, which banks will have to pay (not in shares, in real money), plus the Government will buy up about 50bn in safer debt, including mortgages.

They are presenting this as stage 2 of the banks rescue, the necessary post-bailout move to get credit flowing again. Does our Government any longer have the wherewithal to mount a 'Stage 2', or has it blown its money, plus considerable national debt, already?...

Well we had to put an interest rate of 4.7% on that last 6 billion of bonds when Germany only paid out 3.2% on its bonds so if we want to get more money it's going to cost us. Does anyone really know how much is left in this national pension reserve fund ? The AIB and BOI were trying to raise capital privately but seem to have run into trouble on that....

Quote :

State faces funding crux in country’s two biggest banks
Sunday, January 18, 2009 By Cliff Taylor and Richard Curran
-Main banks unlikely to raise private cash

-Anglo freezes deposits of €20m-plus borrowers

The government is facing the prospect of effectively nationalising large parts of the banking system, following the state takeover of Anglo Irish Bank last weekend.

Bank of Ireland and AIB look unlikely to be able to raise extra cash from private investors to top up proposed state investment, meaning the government may have to fill the gap.

Both banks are currently talking to investors about raising €1 billion in cash to accompany a state preference share investment of €2 billion, but market sources believe there is little prospect of private investors coming forward with extra cash.

SBP

The UK can, of course, simply print its own money, we can't. They could experience inflation but probably won't to any critical degree anytime soon, if managed right, but our option is to look for ECB bailouts for our banks. With the state of our Regulation which reflects badly on the then Dept. of Finance's management which may have left a black hole of bad debts - we don't know - not to mention the shenanigans of Seanie, I certainly won't be surprised if Trichet or whoever's in charge will just scoff through his hand.

And why wouldn't he.

Indeed, David McWilliams was saying on Saturday morning that there was talk of France and Germany "cutting Ireland adrift".

Government is saying that Anglo Irish Bank was "systemic" and essential to the Irish economy, whereas several commentators have suggested that as a property development bank with no local branch network, it was more of an issue that it was systemic to Fianna Fail.

The Bank Guarantee was rushed through because Anglo Irish was unable to repay its borrowings (broke) and because of the Guarantee it was impossible for Government to let it go bankrupt. Bankruptcy would have been costly in terms of perceptions, but would have left Government with some resources to deal with the other banks.

The Guarantee and state of the banks has reduced Ireland's credit ratings and driven up the cost of borrowings by Government.

An interesting comment was that it took the Bank of Ireland 200 years to build up a loan book of 100 million and four years to double it to 200.
There are a couple of 100 billion across the three banks that look unrecoverable.

cactus flower wrote:

An interesting comment was that it took the Bank of Ireland 200 years to build up a loan book of 100 million and four years to double it to 200.
There are a couple of 100 billion across the three banks that look unrecoverable.

If David McWilliams said that maybe he's really Sidewinder in disguise.

Jim Power was just on Ryan Tubberty giving an explanation of the whole shebang from Ninja Mortgages to Sub-Prime to Libor and Overnight rates via Bear Stearns, Lehman through fractional reserve banking back down home to the state guarantee last year and overbought land lying idle here now among other (apparently unrelated) overspends - Fás blows €4.98m on construction training centre.

Systemic indeed.

Noel Whelan losing it on PK.

toxic avenger wrote:

Meanwhile the British have this morning announced new measures, including an insurance scheme for banks' debts, which banks will have to pay (not in shares, in real money)

Exactly like our guarantee scheme so, no?

The British Government is constantly coming up with bold new initiatives while withdrawing their predicitions of a recovery this year.

The idea of bad debt insurance seems to be an innovative measure to try make the banks come clean and identify bad assets (i.e. loans). However, like the rest of their solutions, it is not comprehensive or definitive. Perhaps they are pursuing a complex and holistic approach. The Brits do have some clever guys in their civil service so there is some reason to be hopeful. On the other hand, it is quite possible that they are willing to try anything and that they want to be seen to be taking action in a Sarkozy kind of way.

I suspect that the bad bank idea will take root in the USA, Ireland and the UK very soon. The question will be how to ensure that all the toxic assets go into it. One would have thought that it would be easy enough as the surviving good banks should be anxious to off load these exposures. However, it is not apparent that banks are competent to carry out this work.

A logical approach might be to arbitratily set criteria that can be readily assessed to judge whether a loan is toxic.
1. Is the borrower servicing the loan?
2. Is the borrower servicing capital and interest or interest only?
3. Is the loan a property loan?
4. Is the loan an investment loan rather than a working business loan?
5. Is the loan cross collateralised?

If the loan is a property loan and the debt cannot be serviced then it goes to the bad bank.

If there is cross collateralisation then the bank keeping good loans for that borrower keeps the benefit of the original cross collateralisation and the bad bank gets nothing.

If there are guarantees then the benefit goes to the good bank and not the bad bank. The idea is to keep profitable businesses running.

If a borrower denies a loan is toxic or high risk then he/she should be able to appeal the arbitrary decision to a board of assessors for a quick decision (such board to be exempt from liability save for corruption and/or cronyism).

The second aspect of the problem is how to get the good loans out of Anglo. Again, tough criteria should be set and tranches of loans should be transferred as non toxic. Any borrower whose loan remains behind but who wants it moved to a healthy bank could appeal to the said board of assessors. The borrowers must be motivated by penalties for staying in. The most obvious penalty is that their security will not be available for cross collateralisation in the bad bank so it will lessen their ability to borrow off good banks. If practicable the Government could insist on a combination of higher interest rates and higher bank charges in the toxic bank.

The UK Telegraph and many others are saying it has been a catastrophic day for the Irish banks. Meanwhile RTE News is whittering on about celebrities at Obama's Inauguration.

Quote :

Irish bank shares plunge to lowest since 1993 on nationalisation fears
Ireland's entire banking system may have to be nationalised after the country's six-member financial index fell the most since 1993, according to a leading economist.

By Rowena Mason
Last Updated: 4:38PM GMT 19 Jan 2009

The share price of Allied Irish Banks crashed 72pc and Bank of Ireland plunged 48pc in midday trading, but recovered slightly by mid-afternoon – down 46pc and 36pc respectively.

"It's the worst day in Irish financial history and the government doesn't seem to be saying anything," said Brian Lucey, associate professor of finance at Trinity College, Dublin.

Professor Lucey said the Government needed to act quickly to prevent a total collapse, with total nationalisation a real possibility.

"I don't see how they can delay any further," he said. "The Government is going to have to do something soon. They can't let it spill over any longer."

The market reacted badly to the news that Brian Goggins, chief executive of Bank of Ireland, would step down in the summer. There was also speculation that the two lenders need cash immediately, rather than waiting for the Irish government's recapitalisation plans set for April.

Both Bank of Ireland and Allied Irish are set for €2bn capital injections, giving the Ireland government 25pc voting rights later this year.

"No one trusts the government's promises at the moment," said one trader. "People are concerned that there is not enough capital and waiting is not an option."

Earlier, the Irish government was forced into a U-turn, abandoning plans to freeze the deposits of customers with accounts at Anglo Irish Bank. The country's third-biggest lender was nationalised on Thursday after a "mini-run" of people withdrawing money.

It was also revealed that all five board members of Anglo Irish Bank would step down immediately, in the wake of a scandal over secret loans for directors. Noel Harwerth, Anne Heraty, Michael Jacob, Gary McGann and Ned Sullivan wrote to newly appointed chairman, Donal O'Connor, after angry shareholders demanded their resignation on Friday.

Former chief executive Sean FitzPatrick left the company last month after he admitted secretly borrowing €129m to spend on shares, property, pensions and film projects. Three other directors had already lost their positions.

Over the weekend David McWilliams, a leading economist and former official at the Irish central bank, called on Dublin to threaten withdrawal from the euro unless Europe's big powers do more to rescue Ireland's economy.

"If Ireland continues hurtling down this road, which is close to default, the whole of Europe will be badly affected. The credibility of the euro will be badly affected," Mr McWilliams told RTE radio. "It is essential that we go to Europe and say we have a serious problem. We say, either we default or we pull out of Europe."

One thing to remember about the property assets is that in the medium to long term some of them may come good. If they are all sold at once they will be sold at rock bottom fire sale prices. The longer some of them can be held on to the better.

I heard it suggested that the "Skip" bank should hold all the bad property debts and that the profits of Allied Irish and Bank of Ireland should be fed into it until the debt was gone. Is that in any way feasible?

If we create a skip then we will want BoI/AIB to lend to businesses to sustain employment. this won't happen if we commandeer all their profits.

Zhou_Enlai wrote:

If we create a skip then we will want BoI/AIB to lend to businesses to sustain employment. this won't happen if we commandeer all their profits.

Well who will pay off the debts then? We don't have a lot of choices. We either default or we pay. Either way, we will be a lot worse off than we have been for the last ten-twenty years.

I think perhaps this thread should be renamed nationalisation watch

Talking heads on the UK C4 news saying the UK should nationalise all or most of its banks immediately

it's not just us, darlings. Can't wait to see what the cross border price differential is when the UK is forced into the Euro....

expat girl wrote:

I think perhaps this thread should be renamed nationalisation watch

Talking heads on the UK C4 news saying the UK should nationalise all or most of its banks immediately

it's not just us, darlings. Can't wait to see what the cross border price differential is when the UK is forced into the Euro....

Any thoughts on what kind of level they could or should be able to go into the Euro at?

that might depend on the level of the UK banking black 'ole. Don't feel qualified to guesstimate, but at a guess, parity??

Irish Examiner reporting tomorrow that AIB and BOI could/may also be nationalised.

I expect AIB to regain some of those losses tomorrow. Not sure about BOI. Unless that story in the Examiner gets legs.

is it worth buying shares at 30c?

EvotingMachine0197 wrote:

Irish Examiner reporting tomorrow that AIB and BOI could/may also be nationalised.

I wanted to reply to Zhou's point but I didn't have the knowledge. He says the country can't afford to nationalise them but do they really need money to do that ? Well, presumably they don't - they have a fair chunk of shareholder's money which they've presumably used to pay off their own debts or some of them anyway plus they'll save themselves or ourselves the estimated 5 billion to recapitalise them.

Maybe there's nothing in that pension fund now....

Frightened Albanian wrote:

is it worth buying shares at 30c?

How do you mean FA ? If the bank makes it out of the mire over the next couple of years and things stabilise and debt recovery is good then it could be well worth it. But it could quite easily be a bloody disaster too. Anyone's guess really ...

I think expat girl is right, nationalisation watch is more appropriate, given the scale of the crisis.

Is it possible to expect utilities to start toppling and coming under public ownership next?

What Irish utilities, bar Eircom, are not already under public ownership?

Damn it, even the chickens have stopped laying for the past 2 days

Whoo - Tories up 5%, Labour down 5% - Tories on 44% Labour 30%.

johnfás wrote:

What Irish utilities, bar Eircom, are not already under public ownership?

Well I'm talking about internationally. I'm thinking about the 30s and particularly with FDR and utility regulation with consumers and workers and the price being planned. It's after looking at Vincent Brawne and JHiggins's and others point about democratic regulation....

Speaking of Eircom it seems to go into perennial change of ownerships. Can't see who'd buy it apart from the state next time around.