Ready to default? September 5, 2010
Posted by Scandalcentral in Banking & Finance.Tags: Anglo Irish Bank, Brian Len, Michael Noonan, Richard Bruton
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The crisis at Anglo Irish Bank has reached new dizzying heights over the past few weeks and now has commentators wondering if it may actually end up bankrupting the state. The Government plan on Anglo has now been found out as a “make it up as we go along idea” and nothing more. To claim Brian Lenihan is in control at this stage would be fatally inaccurate. He has steered this state into a position where our viability has to be questioned. International markets continue to punish us for our perceived vulnerability and indecision over the direction to be taken on Anglo. Lenihan himself is still suggesting we have turned the corner, I was lead to believe we turned that corner 6 months ago! Our credibility is now at stake and tough, decisive decisions must now be taken to restore some form of confidence to the Irish people.
Today Brian Cowen claimed that an immediate wind down of Anglo Irish Bank would cost €70 billion. He failed to offer any insight into where this figure came from. In fact, so far it appears he made this figure up himself off the back of an envelope. Glad to see his educators in UCD thought him basic addition, they just failed to teach him common sense. Cowen today offered us nothing more than scaremongering, for fear that the Government policy of the past two years is shown up to be flawed and at a huge cost to the taxpayer. Which it will be. The EU are the one’s with the final say (Thank God) and they are expected to rule within weeks that the Governments “Good/Bad bank split off idea” is not going to work and that an orderly wind-down is required. This is the exact idea which Fine Gael’s Richard Bruton proposed 20 months ago. At the time, he was almost publicly stoned for suggesting such a thing, today it appears that if that route had been taken it would have potentially saved the tax payer billions. However it is the people who elected the Government in 2007, until 2012 we must accept the wish of the people. There is no doubt today, that Anglo is a zombie bank. Most economists have now concluded that Alan Dukes is now nothing more than delusional in his belief that Anglo can still be saved. I’m sure his massive salary has no impact on his decision-making. (Game theory if I ever saw one) However the time for mature decisions has come, even the Greens are now awaking to the reality that it’s now endgame for Anglo. Throughout this week Fianna Fáil played down suggestions that there is a cabinet split on how to deal with Anglo. However what ever the cabinet feeling there is now clear indecision over the” next steps “to be taken. This dithering is costing us on the international markets where Ireland’s sovereign borrowing costs continue to rise. The premium over German bonds now stands at a startling 344 basis points for 10 year bonds. Our bond prices have soared since the demolishing downgrade by Standard & Poor’s last week and now stand at levels unseen since the Greek crisis earlier this year. The Government has stated that S&P’s analysis was flawed. This is not entirely true. While S&P did perhaps understate the sale value of NAMA’s assets, the point must be made that some of NAMA’s assets will have to be flogged for near to nothing. S&P assumed that these assets are not immediately liquid and on the short-term can’t be counted on to bail us out. This is largely accurate. Most of these will only return cash back to NAMA after quite a number of years, if a case arrives where we need cash fast, a fire sale will yield very little in a market which isn’t buying. The NTMA even took the bizarre decision of criticising the actions of S&P describing their views “Extreme” However the markets are correct. There never before has been such a chance of Ireland defaulting. The pressure of a huge national deficit, NAMA and Anglo on the national balance sheet are huge and only time will tell if we actually can withstand the mounting strain. Therefore Poor’s are right to predict a worst case scenario where Ireland would be left with a choice between the wolves or the EU bailout scheme financed by the Germans. S&P also were the one’s who predicted that the cost of Anglo would be €35 billion, far higher than the €24 billion predicted by the Government and in another life to the original €4.5 billion predicted by the Minister! Fine Gael Finance spokesperson, Michael Noonan has accepted the figure will now more than likely be in excess of €30 billion, leaving him a huge crisis to deal with after the next General Election.
Furthermore by 2012, 20% of our National Income is to be paid on interest repayments. Surely this can’t be sustainable? The millstone of Anglo Irish Bank is still hung around the tax payers necks and continues to absorb Government capital at an astonishing rate. The Anglo crisis began two years ago and yet still today the Government doesn’t know what it wants to do with it! Anglo is nothing more than a white elephant zombie bank which Lehihan can’t bare to just let go. While the depositors should have been always protected, it’s now clear that it’s time to tell the Anglo bondholders to go to hell. Anglo is pulling us down, failure to cut ties could leave us issuing junk bonds…followed by a devastating default. All the while the poor Germans are seeing their savings go up in smoke, Irish Smoke!
A Nation of Banks. July 29, 2010
Posted by Scandalcentral in Banking & Finance, Current Affairs.Tags: Anglo Irish Bank, Arnotts
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The news the Anglo Irish Bank is now in the department store business has shocked the roots of our society this week. My initial reaction was exactly that- total shock. I then followed this up with disgust and finally landing with anger. I’m still horrified that we are in a situation where a bank which can’t manage itself is now managing one of Ireland’s most iconic and long-standing department stores. This is the same Angle which has no purpose or reason of existence other than to get good “value for money” for the tax payer over time. There is no blue print of what Anglo will do over the next 10 years. There is no vision of where Anglo will be. Will it be fighting with AIB and BOI as a wholesale bank? Or will it return to an almost private bank for the wealthy or famous?
The idea of this entity getting control of Arnott’s must be very worrying for the 900 staff and their families. It’s not as if everything Anglo touches turns the gold, in reality its the converse. The figures themselves are quite frightening for all involved. The Arnotts Group has debts of 300 million euro, most of which came from the proposed redevelopment of the area around the existing store. An idea that a few years ago was hailed as ingenious but today looks like an idea from a different era. The “Northern Quarter” development was to cost up to €1 billion creating 5,000 jobs. It now appears that this is dead in the water. For Arnotts the writing has been on the wall for some time. In 2007 the firm made a loss of nearly €5 million, arising due to funding costs for the land-bank. In fact this development has been like a rope wrapped around the stores arteries for some time. The reality is that it was not rich enough to fund a development of that size. Arnotts simply bit off more than it could chew. Ambition is to be admired, greediness is punished. The free market has spoken and the banks have taken over.
While the workers at the department store are not under immediate threat, their long-term futures has to be in doubt. Their employment essentially is insolvent! While Arnotts might be profitable (When one excludes the redevelopment), the current situation is perilous to say the least. Pundits are suggesting that Anglo will look for a foreign buyer as quickly as possible to take the store off their hands. (As opposed to an Irish buyer, as there’s none) The big question is whether there is International interest for Arnotts? The land-bank and potential residential and commercial plans all look great. However the reality is that demand for property is quite low. It’s going to stay low for some time to come. For Anglo off loading this particular firm is going to be tough than one would expect. This may result in Anglo and Ulster Bank running this store for quite a while. Anglo showed during the boom that it couldn’t run itself, how in Gods name will it run one of Dublin’s biggest and most iconic stores? Very badly I would assume.
Key banks pass stress test: 2 years on! July 25, 2010
Posted by Scandalcentral in Banking & Finance, Current Affairs, European Affairs.Tags: Allied Irish Bank, Anglo Irish Bank, Bank of Ireland, Banking & Finance, Stress Tests
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The key story of the week was the news that AIB and BOI had both passed the EU’s stress test. Really it’s no surprise. BOI has forced new shares on existing shareholders to ensure the bank was fully capitalised. AIB is planning to sell its Polish arm in order to achieve the same position. Hence it isn’t really any surprise that both banks were passing on the criteria of the test. Just for the record, I think it’s sad that AIB will be selling a very profitable Polish arm, especially considering the potential link up and further business possible considering the increased links between Ireland and Poland.
Many have criticised the tests, suggesting that they were set up to allow most banks to pass to increase confidence in European markets. Critics have also noted that many banks were excluded from the test including our very own Anglo Irish Bank. One point I would like to make is why were these tests not done 1 2 or even 3 years ago before they all collapsed? Today the crisis itself is over. All that’s left is the bill. A bill which is being picked up by the taxpayer. A taxpayer who never agreed to fund the mistakes of our bankers.
One should also be aware that the assumption was made that AIB will raise the 7.4 billion it needs in capital reserves. This is a task which will be very difficult for them. While there is no disputing the value of their assets that they are selling, there are questions over whether they will fetch their market values in a time of depressed prices. At the end of the day an “asset” is only worth what someone is willing to pay for it. (Pity this wasn’t remembered during the boom, people always assumed values and then assumed resale values) Can AIB actually find someone to buy their Polish arm? So far, a lot of companies have announced that they aren’t interested. AIB must also offload MT in the US and its British arm. Many see it as a sad end for the successful flag that was Irish banking internationally. Others retort by suggesting our banking success was based on nothing more than a national property obsession fueled by taxation policy from our Government.
The test also found that AIB was exposed to many of the high risk European markets including Spain, Portugal and Greece. This clarifies the reasoning of why Irish bonds have been rising every time matters in those countries take a turn for the worst. It also highlights how interdependent banking has become.
Something which many are unaware of is that AIB’s capital raising programme is underwritten by this sovereign nation. In plain English this means that the taxpayer will pay any difference between what us raised and the 7.4 billion figure. Once again it’s the same people who are paying for a small few individuals mistakes.
SME package, too little, too late! July 14, 2010
Posted by Scandalcentral in Banking & Finance, Current Affairs, Politics.Tags: Anglo Irish Bank, Bank Recapitalisation Scheme, Credit Crisis, Ec, Economics, Economy, NAMA, SME
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The Government has announced yet another plan to get credit flowing to SME’s this week. In my view, this plan is yet another miserable, failed attempt by this Government to get credit flowing. It comes 18 months too late, late as per usual. Why is it now the Government reacts when the situation reaches desperation point? Over the past year, while the Government has been fixated by the banking crisis, it has ignored SME’s and their dire inability to access credit. It has ignored the indicators which suggested that jobs were at risk, due to Government incompetence and ignorance over this issue.
The sad reality in relation to this plan is that it still, may not get credit flowing. The banks are out for themselves, they always have been and always will be. This Government seem’s to only be waking up to this reality around now, a shocking indictment of a failed coalition. The banks have cared little up to now to what the Government has ordered, so why now should anything change? The Minister seem’s to think that our endless bailouts will compel the banks to act, a foolish assumption by a Minister of Finance who now carries very little respect or authority.
The Minister himself has been found to be bluffing so often in relation to Government banking and fiscal policy over the past 24 months, it’s truly shocking. The Minister claimed that the bank guarantee scheme would prove to be the cheapest of its kind in any country, this has now proven to be the total opposite. We were also told that very scheme would get credit flowing around the economy once again, a promise we are still awaiting to turn true. We were guaranteed by Minister Linehan that NAMA would beckon the banks to resume business as usual, this sadly has also fallen through. Even more recently we were told that the vision of profit for NAMA was a total delusion. The common consensus is now that Linehan is out of his dept and is now making one last attempt to kick-start the credit. It’s very clear that under the current administration things have got a lot worse before they have got any better. At every hurdle, this Minister has failed to deliver on his promises. His word now rings very hollow indeed. Hence this weeks announcement must be taken largely with a sizable pinch of salt and holds little water in my eyes.
It is simply too late and is not enough from a Government which has been chromotised by an ever growing banking crisis. We now lie in ownership of a zombie bank, in the form of Anglo Irish Bank, for which the Government all along denied that it would end this way. We also own must of the rest of the banking system, which must be threatened to engage in business. It’s clear to me that we can’t trust the banks. It’s only this week the Minister appears to have realised that simple fact, for which the dogs on the street have known for some time, after the initial performance figures quoted by the banks were found to by grossly under stated.
Sadly this package is far too late for the thousands of firms who have ceased trading while the Minister dithered. On a day in which the ERSI confirmed that by next April 120,000 more will have emigrated and that employment will remain stagnant until at least 2011, it is sad that the threat of that double dip recession remains. For it’s quite clear that Ireland and the Minister is finished if that particular doom’s day scenario does come to light.
What this nation has needed and is still in need of, is real decisive action. The banks should have been forced to lend a long time ago. Or the Government could have listened to Richard Bruton and provided €2 billion for businesses through the existing wholesale banking system as he suggested a long time ago. Instead we are now placing the gun on the banks, the sad situation is if they turn the barrel back on us. Your play Minister.
