The Anglo spin begins

It is extremely important that the events of the past few days, today, and in the near future are watched extremely closely. There are a number of reasons as to why this is the case, and I am going to explore some of them.

I will look at this chronologically, and some of what I am writing is based on things I have been told by a source in the past few months (yes fellow hacks, one source who has proved reliablity in the past, but no second source – add your own provisos). I am publishing now because of the main story in today’s Irish Times – an interview with the current chief executive at Anglo.

According to a source, on the night of January 25, 2010, exactly two months ago, there was an urgent meeting of the board of Anglo, where I am led to believe senior Department of Finance officials may have been present. At this meeting the likely figure for the recapitalisation of the bank was discussed. The recap figure was put in the region of “double figures”: i.e. €10bn or more. Originally we had been told in 2009 that Anglo would likely only need another €3bn-€6bn on top of the €4bn already given to the bank. So remember this, Anglo Irish Bank, and its board, have known about the need for over €10bn in taxpayer monies for two months – at least.

February 4: I write this lengthy blog post. Some of it is based on the information outlined above, while other parts are based on the impending closure of ECB emergency lending. As I said in early February, emphasising myself:

In November the ECB announced it would begin the process of winding down the emergency funding. In December the last 12-month repos were sold. We are now approaching the next phase. Next month, the ECB will close the 6-month window. The 3-month and 1-month repos will close after that.

In June, Anglo received a €3.5bn recapitalisation from the State. At the time it said it might need a further €3.5bn. This is money to rebuild the bank’s capital base due to bad loans.

However, these figures are likely much higher. Anglo will likely need up to three times that figure. Combine that with AIB, INBS and Bank of Ireland’s funding needs, and the taxpayer will likely be handing over more than €22bn to our banks over 2010.

When you combine the shutting of the discount window, with the delays in NAMA transfers and ultimately our own State borrowing (indeed we have already borrowed €6.5bn so far this year – 33% of our bond issuance for this year was done in January) and with the likely writedowns of not 30% but 50% on the loanbooks, we are facing a serious crisis. And of course the other factor is the ECB raising interest rates at a time we need them to stay low.

March 18: Former Anglo chief executive Sean FitzPatrick is arrested. Lots of headlines, but a reasonable person might ask why press releases were issued, why Mr FitzPatrick was arrested at all. Is it not normal practice to schedule an interview, before any arrest?

March 24: Former Anglo executive Willie McAteer is also arrested. Again the headlines say something is being done. But is that the case?

March 25: The chief executive of Anglo gives an interview to the Irish Times. In the interview he makes a number of claims:

A liquidation would cost the State between €27 billion and €35 billion, he said, while running it down over 10 years would cost between €18 billion and €22 billion.

Anglo has asked the EU for approval to split the bank into a good bank and a bad bank and to restructure the good operation as a commercial lender.

Mr Aynsley said this would cost between €10 billion and €13 billion, including the €4 billion invested by the State last year.

Reinventing Anglo would minimise further State bailouts and create “exit options for the Government”, such as a future sale of the bank, a merger with another bank or refloating on the stock market.

He confirmed that Anglo would report the biggest loss in Irish corporate history when it publishes its results for the 15 months to the end of 2009 next week. The bank will post losses of almost €12 billion after writing off bad loans.

Anglo would transfer €35.6 billion of loans to the National Asset Management Agency – about half of Anglo’s loans, said Mr Aynsley.

He defended Anglo’s decision to pay salary increases to 70 of its 1,240 employees. As staff left, other employees had taken on increased workloads, he said.

“I am appalled and outraged at a lot of the stuff that had gone on in here but there are some facts of life in terms of running a bank – you can’t do it without appropriate people,” said Mr Aynsley.

Back in December I blogged, along with some writing in the media, about the rumoured “New Anglo Irish Bank”. The plan being to split the bank into two, to create a new commercial lending arm and rename and rebrand the new part. For short this is known as “New Anglo”.

I believe the chronology outlined above (but perhaps excluding the arrests, but you never know in this country), shows a careful PR strategy by the Bank against the public. The affects of the arrests is to lead us to believe that something is being done in terms of accountability. The timing of Mr Aynsley’s interview is very interesting – just after arrests and just before we hear about the full extent of losses at the Bank, and preparing the ground for the coming recapitalisation – another €10bn – while offering us hope about the future potential of the bank. The timing and method of events over the coming weeks will certainly be very interesting.

And remember: the Bank needs such a massive recapitalisation because of reckless lending that led to the losses in the first place. We are paying for the massive failures of the Bank and the Regulator, and possibly the collusion of the two.

I will be writing in more detail about Anglo over the coming days.

6 thoughts on “The Anglo spin begins”

  1. Can taxpayers’ and funders of last resort expect Anglo Irish Bank to retain the services of a professional public relations firm to explain (or spin) the record losses that are about to be announced in respect of the year to 30 September 2009?
    When the Interim Results for the six months to 31 March 2009 were announced the services of Drury Communications were retained to explain the pre-tax loss of €4.1 billion after what had been “a most difficult trading period” in which the Bank “clearly made mistakes in some of the lending decisions”.
    There was only a single shareholder when these results were announced on 29 May 2009, the Minister for Finance. The founder of Drury Communications, Fintan Drury, was a former director of Anglo Irish Bank during the era when the Bank clearly ‘made some mistakes’.
    The Bank employed an average of 1,864 personnel in the year to 30 September 2008 at a cost of €206 million. That is an average of over €110,000 per person. Are we to accept that not one of these amply paid individuals was capable of briefing the shareholder? Incidentally, the average number employed in the year to 30 September 2007 was 1,714 and the average cost per person was over €137,000 – three times the per person cost of their counterparts in Irish Nationwide Building Society.
    If Anglo is convinced that 70 of its staff now need further pay rises, can it be anticipated that those who have borrowed billions from Anglo will also seek to pay themselves higher levels of remuneration to reflect the additional responsibility of putting their debts on a handcart and wheeling them from St Stephen’s Green to NAMA on Grand Canal Street? The Board of NAMA, of course, have also had their remuneration augmented upwards to reflect their ‘additional responsibilities’.
    If Irish society, as a whole, is burdened with the ‘additional responsibility’ connected to an attempted economic recovery, does this form the basis of additional remuneration for all concerned which might also take into account any additional qualifications particular claimants’ might have accrued?

  2. Keep it coming Gavin. This is wholesale theft of the wealth of the state. The biggest bank robbery in history.

  3. Apologies if this is a stupid question or one that requires too long an answer but can anyone tell me what would have been the consequences for ‘normal’ people in ireland if anglo irish had been allowed go tits up, and having already put billions is this just throwing good money after bad or is there an obligation to stay the course, legally or pragmiatically? (I no longer live in Ireland so often miss bits of the different stories, explanations etc)

  4. @cha: If Anglo had been allowed to go to the wall and no blanket guarantee had been given back in September 2008, the state would have had to nationalise AIB and Bank of Ireland that night as Anglo would have taken them down with it. Whether that drastic course of action would have been preferable is the great unknown. I certainly think it would have been, and it would have been a lot cheaper for the taxpayer, but hindsight is 20/20.

    Today, we’re stuck with Anglo because of both the blanket bank guarantee and nationalisation. The state absolutely guarantees the banks deposits and bondholders and would have to pay out if the banks went bust. In addition, the fact that Anglo is nationalised adds a second layer as this means a default by Anglo would be undoubtedly viewed as a default by the state – in other words we would be passing the bond markets’ event horizon – and Ireland have to be bailed out by other EU states or the IMF. We either wind it up, or keep it going, but either will cost billions. There’s no way out 🙁

  5. The stage managed nature of the arrests and the usefulness of dawn raids two years on from the day the cracks first began to show in Anglo is either gross incompetence in policing or good PR.

  6. @rubensni
    Thanks so much for that makes much more sense now, christ. i agree with your second comment either option isnt very reassuring either.

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