PWC’s Stress Tests

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Now that Anglo has officially blown through essentially all of its capital, and given that the government regularly cites PWC’s recent assessment of BOI and AIB’s likely capital needs, I thought it might be a good moment to remind folks of this excerpt from the PWC report on Anglo (released in February, fieldwork concluded on December 10):

Under the PwC highest stress scenario, Anglo’s core equity and tier 1 ratios are projected to exceed regulatory minima (Tier 1 – 4%) at 30 September 2010 after taking account of operating profits and stressed impairments … We used an independent firm of property valuers (Jones Lang LaSalle) to value a sample of 160 properties held as security in relation to the top 20 land & development exposures on Anglo’s books as identified in our Phase II review and report. The results of this work indicated that impairment charges over the period FY09 to FY11 would fall in a range between the two PwC impairment scenarios but closer PwC’s lower impairment scenario.

Hoocoodanode?

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9 Responses to “PWC’s Stress Tests”

  1. Brian Lucey Says:

    so now more billions being poured into a black hole….

  2. Pat Donnelly Says:

    Lucky that no one was relying on that report. Otherwise they might feel obligated to try to get their money back.

    Not to worry, they will all be broke soon anyway.

  3. Pat Donnelly Says:

    http://www.deepcapture.com/the-story-of-deep-capture-by-mark-mitchell/

    Very interesting story of the real, non-academic world, where hardball is played. This also happened in slightly different ways in the 1980′s S&L debacle. Nothing to do with professionals not doing their job correctly, or selling out to vested interests or just hoping that we get to the Rapture before it all hits the fan.
    Robber Baron: the game for the well connected? This was also played in the 1880′s, I do declare!
    Reliving history……

  4. Ahura Mazda Says:

    It’s probably worth noting that for a brief period (late Dec 08), Minister Lenihan proposed Anglo needed a capital injection of €1.5bn. He would have read (parts :) ) of the PWC report at this stage. He might ask PWC for a refund, we might need the money.

  5. Stuart Blythman Says:

    @Ahura
    What PWC will say is that the market has changed dramatically since then. They were very careful to note they took advice from Jones Lang so not their fault. A little like AIB changing their views in a 2 week period.

    No one wants to put the worst case scenario value on the portfolio as it would probably mean curtains for all the banks. And so they hope they’ve hit bottom on their valuations but given no one seems to be trying to sell any of these distressed assets we don’t know that.

  6. Ahura Mazda Says:

    @Stuart,

    Perhaps I was a little unclear. My comment is that this report is out of date (using Anglo recap as an example). The government should not use it. Getting the money back would be a bonus :)

  7. Stuart Blythman Says:

    @Ahura
    I wasn’t defending PWC, merely trotting out their predictable defence. I am an accountant, I worked for KPMG. I know how these guys work, make sure you cover your back.

    The government should never have used the report, not the public one anyway. I’m sure a good banker or accountant could have spotted the trainwreck that was Anglo back in December. No one wanted to. I still wonder how bad it would have been to let them go under.

  8. The Irish Economy » Blog Archive » The Morning After Says:

    [...] values.  If these people are anywhere near as optimistic as previous government advisers such as PWC, then perhaps there won’t be much need to engage in so much long-term value chicanery to [...]

  9. The Irish Economy » Blog Archive » Government Banking Inquiry Proposals Says:

    [...] of the problem facing our banks and the advice they received from outside sources such as PWC (see here and [...]

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