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

Let's make it clear, their internal auditors, were aware of the loans. Their internal auditors will not be the people who prepared the accounts to be submitted to the CRO and as a matter of public record. There will now be an issue as to whether the internal auditors witheld information from the auditors.

Just a reminder of what Government was doing on September 30th - whilst Anglo was shoring up its books with phony loans.

[quote="cactus flower" 30 September 2008]

Quote :

I thought the Paulson Bailout at two pages was short. This seems to be the Government hand out.

Government statement on guarantee arrangement
"Government to guarantee all deposits in Irish banks | 30/09/2008The Government has decided to put in place with immediate effect a guarantee arrangement to safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II), with the following banks: Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society and such specific subsidiaries as may be approved by Government following consultation with the Central Bank and the Financial Regulator.

It has done so following advice from the Governor of the Central Bank and the Financial Regulator about the impact of the recent international market turmoil on the Irish Banking system.

The guarantee is being provided at a charge to the institutions concerned and will be subject to specific terms and conditions so that the taxpayers’ interest can be protected. The guarantee will cover all existing aforementioned facilities with these institutions and any new such facilities issued from midnight on 29 September 2008, and will expire at midnight on 28 September 2010.

The decision has been taken by Government to remove any uncertainty on the part of counterparties and customers of the six credit institutions. The Government’s objective in taking this decisive action is to maintain financial stability for the benefit of depositors and businesses and is in the best interests of the Irish economy.

The Financial Regulator has advised that all the financial institutions in Ireland will continue to be subject to normal ongoing regulatory requirements.

This very important initiative by the Government is designed to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets."

"senior debt and dated subordinated debt (lower tier II)", - what are these? And what I wonder are the terms and conditions? Any bets they are writing them now?

Link to Brian Lenihan speaking on RTE this morning: http://www.irishtimes.com/newspaper/breaking/2008/0930/breaking7.html?via=rel

[/quote]

Paulson's bailout legislation was only two pages... what you posted above is only the press release. The legislation for the Guarantee Scheme was the Credit Insitutions (Finance Support) Act 2008 and it is about 10 pages . You can download it in pdf here:

http://www.oireachtas.ie/documents/bills28/acts/2008/a1808.pdf

johnfás wrote:

Paulson's bailout legislation was only two pages... what you posted above is only the press release. The legislation for the Guarantee Scheme was the Credit Insitutions (Finance Support) Act 2008 and it is about 10 pages . You can download it in pdf here:

http://www.oireachtas.ie/documents/bills28/acts/2008/a1808.pdf

That was posted on the thread the day it came out. The debate was followed live here. I said handout, not legislation. If you look at the quotes on the thread from Joan Burton, even the opposition didnt get the legislation until just before the debate started.

The reason I posted it was because of the new light that the content can be seen in now we know more about what Anglo Irish were up to. The Regulators role imo should be looked into a lot more closely.

A number of people, particularly tonys, have said that we don't need to worry too much about the level of indebtedness as loans are asset-backed.

Are they?

I've been posting about the issue of what collateral or personal guarantees exist, and whether Government did anything to prevent them being reduced or removed since the Guarantee went in place. This is a critical question for the Guarantee, along with the extent of "due diligence" carried out by Government before committing to the Guarantee and subsequent Nationalisation of Anglo Irish.

This is part of the answer:

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS-qqqs=news-qqqid=39392-qqqx=1.asp

Quote :

Anglo will provide unprecedented levels of disclosure on the make-up of its deposit base later this month, when it publishes its annual report for the year to September 2008. The move is designed to provide greater levels of detail on Anglo’s finances for customers and other banks.

The regulator and the Anglo board are also already examining the way in which about ten investors bought a stake of around 10 per cent in the bank, around the same time businessman Sean Quinn unwound a stake of around 25 per cent he held through contracts for difference.

Their investment, worth upwards of €300 million, was funded by loans from Anglo and, as revealed in last weekend’s Sunday Business Post, a number of these loans were only secured on Anglo shares. These are now virtually worthless.

In some cases, the loan agreements were also adjusted in favour of the investors after the state guarantee on bank liabilities was introduced last September

Government is now in touch with some of these borrowers to see if the position can be recovered.

What, if anything, did government do when the Bank Guarantee was brought in, to stop the banks writing off loans, allowing personal guarantees to be removed, allowing real assets to be replaced by paper junk, or in other ways reducing the collateral for loans ??????????

P. O'Neill on the Bank Guarantee, I L and P's 3 a.m. statement, and why Anglo-Irish wasn't nationalised back in September.

http://www.irishelection.com/02/why-wasnt-anglo-nationalised-on-30-september/

Shane Ross on Morning Ireland is indignant that Anglo is nationalised yet Fitzpatrick refuses to answer questions in public. The Independent says the Anglo report due out this week will be heavily censored to protect 'commercially sensitive' information.

Finance Minister Brian Lenihan came under increased pressure last night to publish the bulk of the report into the banking system -- which he didn't fully read -- to protect the country's reputation.

The key report on Anglo Irish Bank will be heavily censored before it is published later this week, despite protests from the opposition.

The Department of Finance will censor swathes of the PricewaterhouseCoopers report on the embattled bank before it publishes it on Friday.
http://www.independent.ie/national-news/financial-crisis/lenihan-urged-to-publish-uncensored-anglo-report-1641123.html

As I said on the Questions and Answers thread he is quite right not to attend. No solicitor in their right mind would allow their client to attend a committee like that when there is no legal obligation on him to do so.

FT/SBP - Patrick Honahan - What next for the restructuring of Irish banks?

P. Honahan wrote:

Perhaps it was inevitable that this month’s announcement of the Irish government’s bank recapitalisation package was a bit of a damp squib.

What the government, and the public, look for comes down to two things: a resumed flow of credit, and the banks financially restored to the point where they can stand on their own two feet and are not going to be a continuing burden on, or threat to, public finances.
These are not unrelated: the flow of credit is unlikely to move reliably until the banks are healthy, although the connection is far from immediate or strong.

Allied Irish Banks and Bank of Ireland (to which the government provided €3.5bn each) are certain to incur severe loan losses over the next few years. These losses will absorb much of the capital reported in their accounts. It has been clear for some time that they would need an injection of replacement funds by investors prepared to take risks that losses would be higher than expected. Given present uncertainties, there are no private investors willing to take this elevated risk.

Indeed, the market price of bank shares, a mere 3 to 4 per cent of where they were a couple of years ago, indicates that the market expects loan-losses to be far higher than the banks have themselves projected.

No wonder the injection of funds fail to boost bank shares.

Under these circumstances, it seems impossible for banks to sell equity to the private sector and others are unwilling to lend to them without government guarantee. The banks are wholly dependent on the government guarantee for their continued operation.

So what would it take to return the banks to financial independence and self-reliance? Templates can be found in the parallel efforts of governments in other countries to restructure their own banks and restore them to health. So far, no single model prevails. There are essentially three techniques, which have been used in different combinations .

The first restructuring technique is to inject enough government equity to ensure that any conceivable losses can be absorbed without threat to other lenders. (This is what the British government has been doing with Royal Bank of Scotland).

Second, provide the bank with some form of government insurance against extreme losses in the bank’s loan portfolio. (This was done for Citigroup and UBS).

Third, transfer the deposits, the performing assets, the branch network and most of the staff into a new bank (or they could be sold to a foreign bank, for example), and transform what’s left (the bad assets on which bank bondholders and shareholders have claims), into an AMC to be worked-out over years. (This is the nuclear option; it was used for Washington Mutual and Bradford and Bingley).

These techniques have a different impact on the allocation of losses. The public does not want to absorb costs that they believe should fall on bank shareholders and others.

The task of getting a reasonable allocation of losses is made more difficult by the wide discrepancy between the market’s pessimism over future loan-losses and the statements by both the banks and the regulator.

The latter, insiders as they are, have better sources of information than the market, but their conclusions may be coloured by over-optimism and cognitive dissonance.

Injecting government equity dilutes the claim of existing shareholders, though how much dilution depends on the price at which the shares are provided.

Providing insurance benefits the shareholders, because it frees them from the risk of extremely bad outcomes. But again, this depends on the pricing and other terms of the insurance. Both these techniques are great for the other lenders to the bank, the holders of unguaranteed bank bonds.

The third option – removing the good bits, and leaving the rest for an eventual liquidation – may seem theoretically to be the cleanest and it can be the fairest; it also moves the incentives for bank management in the right direction. It imposes losses in the first instance on the shareholders and then on other unguaranteed creditors.

But applying this third option to either of the two biggest banks in Ireland would be a shock to the economic system. Managing such a transaction without it resulting in alarm and disruption would require exceptional financial and political skills. It would also require considerable preparation.

The government has yet to employ any of these three options. It has been reluctant to take a controlling equity stake (fearing, as do other governments, heightened political pressure to provide relief to borrowers from a nationalised bank).

It has not wanted to take action that would amount to a hand-out to bank shareholders (though other bondholders do benefit from the injection). And it has certainly set its face against any step that could be disruptive to financial markets and to the credit of the state. These constraints are understandable. But their combined effect has been to limit policy action to what can only be described as a half-measure.

Although it is risky to allow undercapitalized banks to operate, because they will be tempted to gamble for resurrection, the government guarantee has in practice reduced the urgency of recapitalisation.

They can access funds to lend, even though not always in the most convenient form or at appropriate maturities. This month’s injection of funds is insufficient in itself to restore the banks to financial independence. Fortunately, it does not preclude more decisive action in the future.

Patrick Honohan is professor of international financial economics and development, Trinity College Dublin. A version of this piece originally appeared in the Dublin Sunday Business Post

A neat potted summary of where we stand.

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/livewebcast/DailFlash512KB.htm

Private members motion in the Dail now. Bruton talking about cleaning out the regulatory system.

Auditor #9 wrote:

http://www.oireachtas.ie/viewdoc.asp?fn=/documents/livewebcast/DailFlash512KB.htm

Private members motion in the Dail now. Bruton talking about cleaning out the regulatory system.

Richard Bruton wants a better Regulatory system;

Coveney wants to know why the Govt. knew all about the share deals and didnt' tell anyone before anglo nationalised;

naughton wants the government kicked out;

Lenihan is reading his script very well. He has the 'don't shoot the messenger' look about him

Are they rehearsing for the National Government ?

Joan Burton talking about the Toxic Ten. She's saying the whole thing is a joke and that everything was done in the wrong order around the Nationalisation of Angola.

They're going through the motions - some motions about something.

More horror on the Pin on the NTMA thread. The Govenment will apparently run out of cash next week or month Good God will it ever stop ?

Lenihan looks like a man who has a ticket for Ganley's conference himself - or maybe somewhere nearby - or further...

http://www.thepropertypin.com/viewtopic.php?f=19&t=19123

Post from Swiss:

Quote :

I know that Irelands CDS rating has reached almost 400bps, meaning that it costs €400,000 to insure €10m of Irish soverign debt. While we still have a triple A liquidity rating from the likes of S&P, this to me seems ludicrous in the face of such figures. From the calculations I have seen, and forgive me if I'm wrong, 400bps implies an almost 1 in 3 chance of default as a compounded probability over 5 years. So I think the market will treat this AAA rating with derision at best.

Now, if a bond issue does take place, how exactly does this factor into the bond? Does it increase the interest rate payable by such a bond, if the markets feel that the investment is riskier? It would seem to me that this would inevitably be the case. If so, what would the likely increase be? Would there be a risk that the markets not accept the bond offering at any interest rate, or at usurious interest rates? What could this do to our CDS spreads?

I'm asking this because I have a rather sinking fear that if this bond issue is unsuccessful, it could precipitate a snowball effect whereby the Irish state could be much more likely to default. Is this concern founded?

This is what I was trying to say Zhou - its not a question of wanting default, I was just pointing out that it may not be possible to avoid it.

The consequences - (3 options)
Euro bailout with austerity measures
IMF bailout with austerity measures
No bailout. Empty supermarket shelves, mass migration, uproar.

cactus flower wrote:

The consequences - (3 options)
Euro bailout with austerity measures
IMF bailout with austerity measures
No bailout. Empty supermarket shelves, mass migration, uproar.

No bailout but bail out of the Euro ? Start printing money again, clear out what's on the shelves ....

The EU will bail us out and the German Ambassador Christian Paul's words will ring in our ears again.

Paul Conaughton in the Dáil TD FG Galway East laying it into the Govt. now. He's saying these bankers looted the country for the past 10 years and have got off scott free.

Central Banks in the EU are mutinying according to Ambrose Evans Pritchard who hates the EU anyway doesn't he ?
http://www.thepropertypin.com/viewtopic.php?f=19&t=19107

My local Fianna Fáil TD Timmy Dooley. He's saying there's an atmosphere of consensus building in the house about what should be done; that a realisation is forming about just how grave it is but that we need balanced statements about the economy now (spin?) i.e. if we have 10% unemployed we still have 90% employed ... if there are cuts he thinks social welfare should be the last thing cut.

twenty minutes later he's talking about the banks now. jaysus. he's talking about bank renumeration .... why are they all calling it renumeration isn't it remuneration ?

He's pooh-poohing the fashionable belief that FF + Developers got us into this mess - "this couldn't be further from the truth"

I missed that there but I think he's doing the revisionist bit - that FF did try to put some water on the housing bubble - through some report (Bacon?)

He's moved on to individuals and the levy and people who have committed wrongdoing and ...

I've just realised that Timmy speaks quietly and with full assurance the way a priest would speak to you

Some comment here on where Government is gettng its advice and the very evident conflicts of interest -

Even the Irish have had enough of PwC
February 16, 2009 by Dennis Howlett

Quote :

Ireland is one of Richard Murphy’s favourite punchbags - most recently talking about the parlous state of their banking system. My friend Tom Raftery who decamped to Sevilla last year recently said Ireland is in such a state that house prices could decline 80%. Wow.

This morning, John McManus of the Irish Times has a pop at PwC over the banking crisis arguing:

IT IS probably unfair to pick just one example of the conflicts that are rife among the people advising the Government on the recapitalisation, so let’s pick two.

The most obvious one being PricewaterhouseCoopers. They are the auditors to Bank of Ireland who are desperately trying to avoid being taken over by the State. At the same time they were hired by the Financial Regulator to asses the quality of the banks’ loans books, the bottom line being will the Government have to take them over.

Equally, Arthur Cox are advising the Minister for Finance while at the same time they are the lawyers for Bank of Ireland.

The stock response from professional firms is that such conflicts are unavoidable and they have robust rules for dealing with them which fundamentally rely on the integrity of the individuals involved. Quite so. Unfortunately, even though this may be the case, it can lead to bad decisions and poor advice.

How can PwC really take a view as to whether there is something systemically wrong with the way Irish banks are run without having to confront the possibly that there is something systemically wrong with PwC who audit one of the big two?

Equally, how can Arthur Cox advise the Minister that Bank of Ireland may have done something it should not have, without having to deal with the possibility that it was Arthur Cox that gave them the advice they could do it?

http://www.accmanpro.com/2009/02/16/even-the-irish-have-had-enough-of-pwc/


Comment on this from Richard Murphy - "How on earth could the Irish Government not notice this massive conflict of interest...Head Teachers should be appointed to run the Banks"

http://www.taxresearch.org.uk/Blog/2009/02/16/conflicts-of-interest-are-destroying-our-economies/

Sure Joan Burton used to work with PWC so I guess we couldn't have her as Finance Minister either? I believe she might even have been in the same year as a trainee as the newly appointed Chairman of Anglo.

Engineers lads. Engineers running everything. Including PWC.

EvotingMachine0197 wrote:

Engineers lads. Engineers running everything. Including PWC.

Hear hear.

Unbelievable column in today's Irish Examiner - online edition doesn't say who wrote it:

http://www.irishexaminer.com/irishexaminer/pages/story.aspx-qqqg=opinion-qqqm=opinion-qqqa=general-qqqid=85242-qqqx=1.asp

In recent months, the capacity of the human mind for denial and self-delusion has never been more in evidence. The entire banking and 'free market system' has just imploded under the weight of its own stupidity and greed - and still there are those who would rather cling to the splinters of its life rafts rather than admit that transparent public control would obviously be better. Thereis so much about this article that is so wrong I hardly know where to start. It appears to assume we will always have a Fianna Fail government, it conveniently forgets that not all governments would be corrupt like Fianna Fail, it ignores that accountability and transparency can be made features of a nationalised banking system - and on and on.

David Begg can hardly feel he's been done a favour though: to be described as a 'responsible union leader' by a capitalist shark will only confirm the views of a growing number of trade union members that he is only a patsy.

Auditor #9 wrote:

EvotingMachine0197 wrote:

Engineers lads. Engineers running everything. Including PWC.

Hear hear.

I'll third that. But we need to be careful we can tell our Seán McCarthys from our Eddie O'Connors.

I am not sure. Engineers don't always make the best managers. Add in a few systems analysts and make sure at least 35% of the engineers are women and I'll go along with it.

Zhou_Enlai wrote:

I am not sure. Engineers don't always make the best managers. Add in a few systems analysts and make sure at least 35% of the engineers are women and I'll go along with it.

Of people you mean maybe. I'd suggest that people can manage themselves and the Political Engineers can manage policy.

Maybe if our elected folks just listened to the engineers that are there now there'd be less of a problem with policie concerning land rezoning in Clare, the road network, water pollution, the sewage system, public transport in Dublin, high-rises in cities, the Eirgrid, a zillion local planning issues that happen everyday where someone with money and influence builds something which a planner prescribes should be half the size but the advice is ignored.

Good managers are hard working people who know how to organise, motivate and work with a team. That automatically excludes self serving little moneygrubbing do-nothings who are using their position to extract benefits and cash at every turn, instead of doing their jobs.

Their trade or profession is immaterial.

*phew. Feel better after that *