Standard and Poor’s on Anglo

My earlier post on Standard and Poor’s neglected to mention their comments on Anglo Irish Bank. The key passage is as follows:

Anglo has submitted a restructuring plan to the EC as a consequence of the state aid it has received from the Irish government. It has been reported that the management is proposing that Anglo is split up into a good bank and a bad bank. We anticipate that, if such a plan is approved by the EC, capital instruments such as lower Tier 2 may be left in the bad bank. Other options reportedly considered in the plan are liquidation and an orderly wind-down. Anglo’s plan is yet to be approved by the EC; we understand approval may occur in the first half of 2010.

I’d guess that these lower Tier 2 instruments (i.e. subordinated bonds) left in the Anglo “bad bank” (not to be confused with NAMA …) would end up being pretty worthless.

9 thoughts on “Standard and Poor’s on Anglo”

  1. The reference to a “good bank: bad bank” break-up of Anglo sounds uncannily like the solution that Fine Gael was proposing to fixing potentially insolvent banks in a way that ensured continued financial stability and the crystallisation of future losses by both holders of both ordinary equity and sub-ordinated debt. But do I not recall the esteemed Alan Dukes (a director of Anglo) rubbishing the proposal by his former party as “risky, contentious and cumbersome”. It seems he may have changed his mind. The report, if true, raises a number of interesting questions:

    – how will the bad bank be funded?
    – if Anglo is being broken up into “good” and “bad” parts, what is the point of transferring distressed assets to NAMA?
    – why is this approach not also taken with INBS, and perhaps even AIB if they cannot prove that they have adequately recapitalised by the end of the Guarantee period?

  2. Does this mean Anglo’s previous buy-back of bonds was ill judged
    or was it necessary to preserve capital ratios to continue trading
    or were the bought back bonds covered by the guarantee?

  3. @Zhou
    “Does this mean Anglo’s previous buy-back of bonds was ill judged
    or was it necessary to preserve capital ratios to continue trading
    or were the bought back bonds covered by the guarantee?”
    It was perfectly judged, as the new guarantee guarantees anything that was issued as guaranteed debt under the old guarantee. The subordinate debt-holders who opted to take their small lumps have taken as many lumps as they are going to.

    One cannot be too cynical when looking at anything that is done or said with regard to the banks. Past form, probity, service to the state means nothing. There is a coup d’etat in train with the DoF taking effective control of the country. We now have two figureheads of state…

  4. @zhou
    From memory all subordinated debt was outside the guarantee.
    Bondholders who took the money and ran were wise.
    The state were stupid – confusing a book profit with a waste of cash.
    What a pity they didnt buy back some of my family ordinary share holdings on the same basis.

  5. @Maurice O’L
    Undated subordinate debt was outside the guarantee. Dated was within.

    As you say, Anglo (and BoI and AIB) flushed money down the drain by spending where they did not have to for a book profit. Real money disappeared to bolster funny money. (For the dim of thought, the banks, being in receipt of state aid could not pay coupons on subordinate date, as such, it was worthless until such time as the banks had paid back their state bailouts…).

  6. Karl,
    Ugly and worthless, surely?

    Greg,
    Disparaging those who lent us money via our banks is actually going too far! They are in that business and they clearly are not too clever, jeopardizing their capital by lending it to us! They are perfectly OK as people, they just gave us what was in short supply, taking a massive risk for a relatively paltry return. They want it back now that we have shown ourselves to be … well, stupid and corrupt.

    I advocate that they be punished for their stupidity and lose some of it. They do not live down a toilet! They are highly refined human beings who know how to get governments to do what they want. The shame is that our government lacks a spine and a brain. The local banks have corrupted them.

    The economists were ignored or threatened into silence. When the King refuses to listen to warnings of danger he ends up finding the enemy at his gates and the guard fled or helping them!

    Selling the people of Ireland and their children into slavery might merit the term treason. I agree that this is terrible conduct but it is foreseeable when we have all been so greedy. I was lucky enough to lose reason, career and sell my house. Not all of us have been so lucky. We need to look out at the world and realize that getting what you want may not be good for you. Makes you angry, eh?

    AM
    Tell us about yourself? A pseudonym is fine, but why use one? Any expertise at all?
    Anyway, you probably already know the answer to your question? NAMA is there to spend money we do not have and have had to borrow. That is not merely a description it is a purpose. It keeps those who think they own Ireland busy as a lot of $ will be spent on that, while the banks are cut dwon to sixe, say 25% of peak. Dole for the middle classes etc. Also the land, AM. Land is a value token increased by politicians. They need to be able to skim off more value cos they see what is coming……Freezing this land creates demand for more land. Not a lot but a busy pollie can make a lot of very scarce capital out of it!

    Zhou
    Does this mean? …… that you are questioning the commercial and financial nous and ethics of the banks?

  7. @ Pat

    I’m assuming AM is in fact the former (current?) FG economic policy advisor Andrew McDowell. If i’m wrong i apologise, but if i’m right would it not be a bit of an issue that a senior political addvisor to the Opposition is posting under a psuedonym on here? But again, if i’m wrong, i sincerely apologise.

  8. @YM
    I thought that all the dated sub-ordinated bonds were due to mature after the period of the guarantee and as such, under FG approach, would be fully exposed in Sept. 2010.

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