Anglo: What Are The Options?

The public debate of the past number of days has focused on the question of whether Anglo Irish Bank should be wound up and whether that could save the government money. However most of the political discussion and, unfortunately, much of the discussion on this blog, has failed to shed much light on what are the real choices available to the government and what the relevant tradeoffs are.

Both the pro- and anti-windup supporters have produced unhelpful arguments. The government have a stronger case for their actions than most people think but they have undermined themselves by citing cost figures for a windup that are literally incredible. Meanwhile, pro-windup advocates have often given little consideration to the nature of Anglo’s liabilities.

This post is an attempt to describe the issues at hand in a reasonably comprehensive way without trying to fully endorse either government or opposition positions.

The starting point for any useful discussion about what to do with Anglo has to be its balance sheet, reported on page 38 of its report as the “consolidated statement of financial position”. However, the figures from the balance sheet have been mentioned only sporadically and selectively amid all the sturm und drang of the past few days.

So, what’s the balance sheet look like? After the injection of another €8.3 billion by the Irish government, Anglo’s balance sheet reported €85 billion in assets and €81 billion in liabilities. However, these figures value the NAMA-bound assets with a face value of €35.6 billion at €25.5 billion and it seems clear now that the discount will be more like 50%. Applying this, NAMA would be paying €17.8 billion for these assets.

This means that a more accurate picture of Anglo’s current balance sheet is €77.4 billion in assets and €81 billion in liabilities. One of the issues in calculating Anglo-related losses is what will be the ultimate value of the €17.8 billion in NAMA-bound assets but I’m going to leave that aside in the rest of this post and focus on the costs related to what’s left of the bank.

Now, let’s look at Anglo’s liabilities and assets.


Anglo has €81 billion in liabilities, so any talk of the bank costing €100 billion to close as Brian Cowen stated on Tuesday’s Nine O’Clock News, is incorrect. Even if all of Anglo’s assets were completely worthless, €81 billion is the maximum possible cost.

Of that €81 billion, €11.5 billion is money owed to the Irish Central Bank. If that is paid, it is one arm of the arm of the Irish state paying another, so one could consider the net liabilities the state owes from Anglo to be €70.5 billion.

What’s the composition of these liabilities? Let’s take them in order of size.

  1. €27 billion are customer deposits (nearly €8 billion of which is payable on demand.)
  2. €15 billion are debt securities. Most of this debt is due very soon. There’s €1.5 billion in shortish term commercial paper and CDs. Of the €13 billion in medium term notes, at least €7.4 billion is due before the guarantee runs out in September this year and €9.7 billion is due by December this year.
  3. €12.2 billion is owed to the ECB (not the €24 billion figure mentioned by Brendan Keenan on Thursday.)
  4. €9.3 billion is deposits from banks.
  5. €2.3 billion in subordinated bonds, none of which are due before 2014.
  6. And then there’s the usual odds and ends such as derivatives and other random stuff.

Looking at this list, I think there would be widespread agreement that depositors should get their money back and that we don’t want to trigger further instability by failing to pay back deposits from other banks. The ECB loans will be collateralised by a selection of the bank’s better assets, meaning they can grab the underlying assets if they’re not paid back, so no gain there from a wind-up.

The balance sheet also shows less room for cleaning out “professional investors” than you’d think is the case from some of the ongoing discussions. A relatively small amount of the €70 billion is owed in the form of senior debt. And the vast majority of this stuff is covered by the state guarantee.

From these figures, it appears that the only way to save significant amounts of money for the taxpayer would be to declare Anglo insolvent pretty much straight away and then renege on the guarantee. But this doesn’t at all seem like a good idea if we want international markets to continue trusting our other banks, which have significant amounts of debt maturing this year that will need to be rolled over. This point does get mentioned by ministers but tends to get lost amid claims about windup costs and other confusions about “Ireland welching” on debts, which mixes up bank and sovereign debt.

Better news is that Anglo’s subordinated debt does not fall due until at least 2014 with a little over half of it maturing in 2016 and 2017. So there is room for a future government to decide to declare what’s left of the bank at that time insolvent and fail to pay out on these debts. This would require, of course, avoiding a strategy of continually recapitalising the bank to make it a small business lender, in which case we would be putting our money in front of the subordinated bond holders.

In fact, this appears to provide the ideal timeline for an orderly wind-up of the bank. Run the bank as a going concern, not borrowing beyond 2014 and using funds from maturing assets to run down other liabilities. Then tell the subordinated debt holders that there’s no money left. Still, by 2014, if the economy is back on track, it might be considered that the potential reputational damage to the Irish government’s reputation is not worth the money saved from this.


The figures for enormous costs for winding down Anglo cited by the government have relied on the idea that the bank’s assets would practically disappear to zero if the bank was wound down. For instance, Brendan Keenan describes the Minister for Finance’s position as follows:

But closing Anglo without defaulting would cost €70bn, he says — that figure being the difference between the cost of paying back Mr Trichet, other depositors and secured creditors, and the pitiful amounts the bank could raise by selling its loans and assets.

Since Anglo’s liabilities are €81 billion, this would mean that Anglo’s assets would only be worth €11 billion if the bank were closed and assets sold off quickly. Well, let’s look at those assets.

After the NAMA transfers, Anglo will hold €17.8 billion in Irish government-backed NAMA bonds, the €8.3 billion promissory note from the government, €6.2 billion in other government bonds and €1.7 billion in other financial securities. Anglo also has €7.4 billion in loans to banks. Winding the bank down over the next few years would allow time for these loans to be paid back and not rolled over.

These financial assets might sell at a discount if they were sold off very quickly but given their current value of €41.4 billion, there is no way they would fetch as little as €11 billion. So the idea that Anglo’s financial assets would be worth a “pitiful” €11 billion doesn’t stand up to any kind of scrutiny and I think the government are undermining their own strategy by persisting with these claims.

The government have also objected to the idea of winding the bank down over a number of years. However, if, as suggested above, the bank was wound down over four years up to 2014 and the securities were sold gradually and loans allowed to mature, it’s hard to see the bank recouping too much less than their par value of €41.4 billion.

Most of the rest of the bank’s assets are accounted for by its non-NAMA loan book. This doesn’t look so great. €35.6 billion in original value loans are being held on the balance sheet, which is currently held on the balance sheet at €30.8 billion due to bad loss provisions. €9.5 billion of these loans are impaired and €4.7 billion are past due but not impaired (€1.9 billion over 90 days.) I would guess (not necessarily very accurately) that this loan book won’t end up bringing in more than €20 billion in the end.

In relation to a fast wind up involving all creditors being paid back by the Irish government, the uncertainties surrounding the quality of Anglo’s lending would certainly mean that this loan book would yield even less than €20 billion if it had to be sold off very quickly this year. However, most of these loans are likely due to be paid back over the next few years, so the vast majority of whatever is going to come in from these loans is likely to come in prior to a potential wind up in four or five years time.

To summarise, if wound down over the next few years, there’s probably about €67 billion in assets in Anglo to pay off liabilities of €81 billion, €11.5 of which is owed to the Irish Central Bank. However, the vast majority of these losses will stem from the non-NAMA loan book and the fact that the NAMA assets are worth less than currently listed. So these losses will be incurred regardless of whether the bank is kept open or wound down. From my reading, there’s not much evidence that there would be huge losses on gradual sales of the bank’s financial assets over the next few years.

The Bottom Line

Ultimately, the government are now between a rock and a hard place with Anglo. The bank has enormous liabilities but the government is going to have to pay most of them back unless we want depositors to lose out or to renege on the government guarantee, which could lead to serious financial instability. Keeping the bank going over the next few years is likely to generate further losses and I can see why Minister Lenihan has flagged the need for another €10 billion to be injected. It may require more.

I’m sympathetic to the government’s position that Anglo needs to be kept open for now. However, Anglo’s balance sheet does not suggest that there would be substantial losses stemming from winding the bank down over the next few years. Certainly, the huge figures mentioned by the Taoiseach and the Minister for Finance in relation to the cost of winding down the bank cannot be justified.

One way of minimising the cost to the Exchequer stemming from the bank would be to wind it down gradually up to 2014, using maturing assets to pay off maturing liabilities. At some point, once the bank has shrunk in size, the government could decide to stop injecting capital and leave the bank to default on its €2.3 billion in subordinated debt.

Certainly, I hope that future strategy focuses single-mindedly on keeping costs down for the taxpayer. This strategy is probably not consistent with laudable aspirations to rebrand the bank as a small business lender or some other such niche business because this approach would require continuous recapitalisation and rule out any savings from not having to pay subordinated bond holders.

To be honest, I suspect and hope that a wind up over the next few years may actually be the government’s plan but that they have decided to suggest the opposite to prevent bad publicity for the bank that could trigger a disorderly exit of depositors over the next few months.

So that’s my take on it. It’s not pretty but I think the set of good options is more limited than many realise. My hope is that the debate about Anglo will become a bit more reality-based over the coming weeks and months.

105 replies on “Anglo: What Are The Options?”

@Karl Whelan

Very good piece.

One thing I I think you are misinterpreting is the statements about the winding-up costing 70bn. You write:

“Since Anglo’s liabilities are €81 billion, this would mean that Anglo’s assets would only be worth €11 billion if the bank were closed and assets sold off quickly.”

I don’t the think the Government has ever said or implied that Anglo’s assets would only be worth 11bn. The confusion here is that there would be a cost in terms of short-term cash flows if Anlgo was liquidated and, in addition, a cost in terms of the ultimate difference between the value realised from the sale of assets and meeting liabilities. These two “costs” are seperate, but they have got confused in the public debate.

I thought the Minister was quite clear about this on Tuesday when he said in the Dail”

“As the bank’s new management and board have estimated, an immediate wind-up would lead to a fire-sale of assets resulting in a permanent additional and unnecessary loss of upwards of €30 billion. In addition, the State would have to provide a large sum of cash – in the order of €70 billion – up-front to meet the deposits, bondholders and the liabilities due to the Eurosystem.”

So we have two figures. The 70bn is the immediate or “up-front” cash flow cost. The 30bn is the ultimate cost which is higher than a longer-term managed work-out of the assets since an immediate wind-up would mean a fire-sale.

Phew! An impressive piece of work, well done. My comments

“Of that €81 billion, €11.5 billion is money owed to the Irish Central Bank. If that is paid, it is one arm of the arm of the Irish state paying another, so one could consider the net liabilities the state owes from Anglo to be €70.5 billion.” Disagree with the logic of this. Either the State loses 11.5bn at Central Bank level (by writing it off) or loses it at Anglo (by forgiving the debt) – either way this is a cost of €11.5bn to the State.

“From these figures, it appears that the only way to save significant amounts of money for the taxpayer would be to declare Anglo insolvent pretty much straight away and then renege on the guarantee. But this doesn’t at all seem like a good idea if we want international markets to continue trusting our other banks,” But this transports us back to September 2008 when the question of including Anglo in the guarantee was being agonised over. If, as some argue, Anglo should have been excluded back then because the loss in trust would not have been a 100% loss and the loss of trust would have cost less than including Anglo in the guarantee. With respect, I don’t think you have the information to quantify the cost/benefit now any more than in 2008. That’s a scandal that this information has not been even guessed at.

“Looking at this list, I think there would be widespread agreement that depositors should get their money back” What sort of pseudo-socialist nonsense is that? You’ll get €20k back in Switzerland if you’re lucky. What business have we guaranteeing more than that. Sure Joe Average may lose out but some would say if he can afford to save more than €20k he should be exposed to risk over €20k. And what about Joe who sold the farm for €1m for development and put that on deposit. Isn’t he just as much a target for our ire as “bondholders” or “the elite”?

“However, these figures value the NAMA-bound assets with a face value of €35.6 billion at €25.5 billion and it seems clear now that the discount will be more like 50%.” Where did you get that from? The haircut as originally defined was for the Anglo estimated first tranche 34.5% (1-LEV/Loan Value). Remember in terms of assets for the NAMA draft business plan they had a peak value of €120bn, a value at loan origination of €88bn and a value last Sept of €47bn. Zhou may or may not be right with his analysis on the LEV thread a couple of days back – has anyone thought to ask NAMA? Simon Carswell doesn’t even know what he’s talking about in today’s IT when he talks about a haircut of 87% for the bottle factory because he applies the haircut to the asset value at peak, not to the loan (the loan was €260m whilst the asset value was €412m and is now worth €50m apparently).

Notwithstanding your worthy analysis of what is available in the Anglo report, the bottom line is we don’t have anything like the information to have anything other than a Waldorf and Stetler debate of the liquidation option.

1. Who are the owners of the liabilities
2. How much are they owed
3. When is it due.
4. What is it secured on
5. What would the withdrawal of the guarantee cost the rest of the Irish banking sector
6. What would the withdrawal of the guarantee cost the wider economy.

Excellent analysis and it’s good to get hard figures.

I have summarised the liabilities in a table at: and arrived at similar conclusions. Very little would be achieved by defaulting on the bonds at this stage.

Around €50 billion of the liabilities would leave either immediately on in the near future if there is no guarantee, of if the funders get nervous that the bank will be wound down. If that happens, the government will have to find another €50 billion of funding. This is funding and should not be confused with expense.

So the right strategy is to wind down Anglo but to deny that you are so doing. I don’t understand what is being proposed in the “Good Anglo/Bad Anglo” proposal, but it may be an effort to separate out the subordinated debt.

It’s interesting that the government can defer the decision on the subordinated bonds until 2014 and 2016.

Karl – this is a truly outstanding contribution.

Your analysis of the government’s true position is very convincing.

Karl Whelan writes:

“This strategy is probably not consistent with laudable aspirations to rebrand the bank as a small business lender or some other such niche business because this approach would require continuous recapitalisation and rule out any savings from not having to pay subordinated bond holders.”

Not necessarily true. As Brendan Burgess notes above, the new Anglo management have proposed a good bank/bad bank model for the bank. The question is: where do the subordinated bonds end up, in the bad bank or good bank?

Great analysis Karl.

While are options are limited now, what additional options would we have post September?

I also noted elsewhere that there were some very strange movements in the Anglo subordinated CDS market on Thursday.

Price of the CDS plummeted, and down over 30% on the day.

I haven’t seen any announcement but something must have happened for these prices to increase prices so significantly.

Excellent: ’bout time we got some solid facts. You simply cannot believe anything the legislators are saying. The MSM commentators are doing thier bit, but attempting to collate their messages can be confusing.

1. The state spending is considerably in excess of its incomes. How is this situation (in the sense of political and social acceptability) to be remedied? Debt, and associated interest has to be repaid from FUTURE income streams. So, what is the probable scenario here? It is looking a tad iffy.

2. Lots of folk seem to be in search of capital: will increasing demand also lead to increased interest rates? Can the Euro be ‘devalued’ ?

3. Oil is now, again, over $80 bl. This is BAD news for any economy which wishes to trade its way out of a slump in aggregate demand. Oil has to trade consistently in range $65 – $75 bl for us to have any hope of a +ve number in G*P.

4. Anyone got any info on the amount of private debt being retired? If this is increasing, then we are not emerging from a slump anytime soon.

5. Private res mortgage defaults? How’s it looking? This IS a real predicament.

6. Who is the principal employer in IRL? Gov and Loc Authority?? If this is correct, then we are not going to emerge from a slump absent a significant reduction. This is politically and socially impossible.

I mention these ‘side issues’, as there may be some harebrained assumptions doing the rounds that the ability of the IRL taxpayer to service those state debts (NAMA etc) is possible. Its not. We would need aggregate growth of the order of +7% for 10 years in a row!

We are in the midst of a wealth deflation spiral (or a west -> east transfer if you prefer) which is likely to continue for some considerable time , until those dreadful debts can be contained. As your asset values decline so also goes your ability to raise capital. I fancy that this situation has not gone un-noticed. So, how come we continue to raise loans? Who is backstopping this?

Again, thanks to KW for the update.

B Peter

It may warrant a separate post, but the overall quality of the loans going into NAMA is truly shocking.

Taking Anglo’s figures first.
70% impaired
11% past due but not impaired
3% of lower quality but not past due (probably a chunk of interest only in this section)

That means almost 85% of Anglo’s loans heading to NAMA are of already bad.

The other 2 big banks are better but still fairly terrible
55% of BOI’s NAMA loans are impaired and another 5% are of poor quality.

47% of AIB’s NAMA loans are impaired and another 20% are of poor quality.

How the NAMA business plan can stick to its original estimate that 80% of these loans will be repaid is beyond me.


“The 70bn is the immediate or “up-front” cash flow cost.”

As these are guaranteed they do not need to be paid up-front.

Only €8bn of deposits, interbank, centrals bank(s) are payable on demand.

You, well not you obviously (the Minister), cannot be suggesting that the ECB and the Central Bank of Ireland would take a hissy fit and pull the plug.


Excellent analysis as always.

It suggests c. €7.5 billion in potentially unsecured (non-deposit) sub- and senior-debt liabilities when the Guarantee expires. Not a sum to be sniffed at – it’s 75% of the expected future additional capital requirements of the bank. The Government is arguing that we should set aside the normal rules of corporate failure, extend the Guarantee and pay off these liabilities with taxpayers’ money in order to avoid reputational damage, possible contagion (for both the sovereign and other banks) and to avoid losses for local credit unions.

It is up to the Government to validate these arguments by letting taxpayers know exactly whom they are being asked to bail out and why. We can then put an end to the fear-mongering and hyperbole and have a fact-based debate about the least cost options available to us.


(not to be confused with the BW above) @Karl Let me say that I concur with the others that this is at last a comprehensive and non tendentious attempt to get to the bottom of the Anglo conundrum, though the first two contributors have pointed out a few errors and mistatements in your summary.

I have been calling on AskAboutMoney for diagrams. The government supporters, Dukes etc. let themselves down a bit by countering the very populist “to hell with Anglo” lobby by throwing in a few exaggerations themselves.

I subscribe to Jagdip Singh’s theory that there is an “uncertainty principle” here. We just can’t know all the relevant information and if the government was truly to lay its rationale in front of us (in diagrams) it could be counterproductive – sometimes cover-ups are in the national interest. I note your own suggestion that the real plan is for a medium term wind-down but that this simply can’t be stated, that could well be spot on.

In the end it comes down to trust. I think the government want to do what’s best, I think they are getting as good and informed advice as is possible and I do not think that either Aynesley or Dukes are part of a FF conspiracy to protect developers and bankers.

@ Noel

Good point about the good bank\bad bank plan though I ignored it in the post based on lack of any information. I can’t really see any good reason to adopt this approach unless it is intended that some creditors will lose out and the sub-bond holders seem like the ideal candidates.

On the meaning of the €70 bn figure, Keenan wrote

“But closing Anglo without defaulting would cost €70bn, he says — that figure being the difference between the cost of paying back Mr Trichet, other depositors and secured creditors, and the pitiful amounts the bank could raise by selling its loans and assets.”

So Mr. Keenan came away with the impression that the Minister was saying that assets would only be worth €11 billion. But perhaps he got it wrong.

I think the government have had a bad week or so on the Anglo PR front with quite a few self-inflicted wounds. I heard Minister of State Sean Connick more or less admit this on the radio today.

Scaremongering has been a popular strategy for the govenment on the banking issue but it isn’t going to win over the public on this issue.

I’d suggest it’s time to put together some reality-based talking points and perhaps employ Dr. Ahearne to explain them to the Irish public.

This horse may already bolted but a recognition from the government that an orderly wind-up of the bank over the next few years may still have to be considered could also reduce the rage of a public determined to see the back of the Bank of Seanie.

That’s enough of the Terry Prone advice for now.

@ Andrew

I think the 7.5 billion figure for sub plus senior debt expiring beyond September is perhaps a touch high but it’s not clear what the right figure is.

The report is a bit coy on this issue. Page 127 tells us that their are 4.1 billion in nonsub debt securities maturing beyond one year. Combined with the sub debt that’s 6.4 billion. It’s hard to figure out how much expires between September and December because nine months isn’t a category in the table and I couldn’t find any text to clarify this.

@ Karl Whelan

“I think the government have had a bad week or so on the Anglo PR front”

I’m not sure I agree.

Depending on the circumstances it can be fluffy bunny or shock and awe.

It is the result that counts.

We got shock and awe.

It worked. The people are reeling and punch drunk. By the time they get up off the canvass their anger will have turned to resignation.

I know you disagree with my opinion on the origins and methods of PR.

So I will leave it to one expert in the practice of the dark art.

“As soon as our own propaganda admits so much as a glimmer of right on the other side, the foundation for doubt in our own right has been laid.”

Excellent Post – thank you.
If the European Commission decide that the bank can’t lend because it is so state supported will that mean that the bank will be effectively mothballed anyway- ie the decision is taken out of our hands?

@ Noel

“The confusion here is that there would be a cost in terms of short-term cash flows if Anlgo was liquidated and, in addition, a cost in terms of the ultimate difference between the value realised from the sale of assets and meeting liabilities.”

It is no wonder people are confused, and I must include you in that.

You are confusing cost and cash flow.

Cash flow is a matter of liquidity it is not a cost. Remember liquidity? That’s what we were told when the crisis started. It was a matter of liquidity not solvency. The banks were sound they just had “short-term cash flow problems”, or words to that effect. Turned out to be a big porky pie didn’t it.

Though to be fair to the Minister he seems to understand the difference now.

@Karl Whelan
“Anglo has €81 billion in liabilities, so any talk of the bank costing €100 billion to close as Brian Cowen stated on Tuesday’s Nine O’Clock News, is incorrect.”
Well, I would be a little cautious about this. The DoF has proved with the NAMA business plan that they could fail to include reasonable costs when it made their figures look bad. That doesn’t mean they didn’t know that such costs exist and that they wouldn’t use them when it suited them…

So ongoing administrative costs for the wind-down period have to be included. As does the cost of unwinding the derivative book…

Which brings us to the length of the wind-down – if we knew how long the bad bank was due to be wound down over, we’d know that (since the assets of the ‘good bank’ or indeed the ‘good bank’ itself could be sold off.

Um, which rather brings us to the current ‘plan’ for Anglo. If the EU approves the split, I suggest the good bank will be sold off and operate under a different name, perhaps “The Bancassure Formerly Known as Quinn Insurance”. In which case we will get the rest of the 100 bn euro cost in the bad bank.

Lucky us to get what we want…

PS meant to say, the game has moved on. Anglo is a festering sore in one armpit. The other armpit has AIB in it… it’s showing some redness…

@ Brian Woods II

“sometimes cover-ups are in the national interest.” A Platonic lie?

Difficulty is if a habit is made of it, it becomes ignoble and the very intent is undermined.

It also implies that the guardian class, our “betters”, themselves know the truth.

I have my doubts and I certainly do not consider Brian Cowen my better.

When considering the benefit of leaving subbies with nothing it should be noted that we can probably buy the bonds back at a discount. The saving is therefore less than the nominal value of the bonds. Anglo subordinated bonds were downgraded after the first NAMA tranche was transferred.

Also, we should also consider the benefit of having a third bank with HR and IT systems ready for purchase by a foreign bank. It is not easy to set up a bank. It is not something that a foreign bank will take on. A duopoly should be avoided if possible.

“A duopoly should be avoided if possible.”
A tripoly surely? (PTSB…).


Very helpful.

May I add that in all the analyzes about reconfiguring Anglo and the banking sector in general, the IFSC gets left off the list. Quite a number of companies, including subordinated bond holders operate out of the IFSC. Portrayals of Dublin in the UK press as Lichtenstein on the Liffey should be taken on board.

“Also, we should also consider the benefit of having a third bank with HR and IT systems ready for purchase by a foreign bank. ”

Most foreign banks would try and use their own IT systems. Can’t imagine they would place much value on Anglo’s.

The benefit of having a trading bank in place is that it is more saleable than just a book, because it comes with people.

I am very concerned with the idea that is implicitly accepted that banks are simply capital structures. They are not, they are human enterprises, just like shops, pubs, wholesalers and manufacturers. Brian Lenihan has suggested retraining for existing staff, to be fair, but this is a pretty pathetic half-baked approach to turning around failed enterprises.

@Karl Whelan

“a recognition from the government that an orderly wind-up of the bank over the next few years may still have to be considered could also reduce the rage of a public determined to see the back of the Bank of Seanie.”

Not sure that anything short of obliterating that bank would have reduced the understandable public rage. You’re right: it is still seen in the public eyes as the Bank of Seanie, despite having a new management and board.

Not sure the Government ruled out an orderly wind-up. Tuesday’s speech talked about the restructuring being “a complex process” and that “by the end of the summer we will have a clear plan for the future of the bank approved by the Commission.”

I can think of one downside to an explicit announcement that the bank might be completely wound down. Presumably an operation in explicit wind-up mode could find it more difficult to access wholesale funding. If a few billion in funding leaked away, how would it be replaced? More Eurosystem liquidity? Is there a limit to that source? Is it worth the risk? It’s a judgement call.

“[1]Presumably an operation in explicit wind-up mode could find it more difficult to access wholesale funding. [2]If a few billion in funding leaked away, how would it be replaced? [3]More Eurosystem liquidity? [4]Is there a limit to that source? [5]Is it worth the risk? [6]It’s a judgement call.”
Six statements, all of them false, disguised as questions.
[1]No. The guarantee is what is providing funding security. In any case, Anglo can get none, according to our resident bond trader @Eoin. An explicit wind-down would probably make interbank funding easier to obtain as it would be a story with an end.
[2]See 1. In any case, banks in wind-down don’t have to be liquid. They have to be paid for.
[3]That is what the ECB and more importantly the NCBs are there for.
[5]You tell us. A wnd-down would kill off the Anglo CDS trade totally. All debts would be settled and that would be the end of it. Vast speculative fortunes would be lost. It would be a massive derisking of the system.
[6]Eh, no. It is anything but that. There is much we are not being told about Anglo that makes a wind-down, which would normally be an acceptable outcome, a very expensive proposition. Whether this is political expense or economic is still unclear. Few trust that it is economic expense. Trust in the pronouncements of the state (not just the government, but the apparatus of the state) is broken.

This is a serious problem for the state; it has reached it’s Murphy report moment where everyone realises the corruption is endemic, the institution is broken, and we have all lost as a result, but still there is a cover-up.

Factor in the duration of the non-Nama loan book much of which matures within the next five years. Anglo could be run down within 5 years at most. Consider the number of loan customers – Anglo presentation to investors in 2008(16th Sept) listed these as 2500 Ireland, 300 USA and 1500 UK. Given that many are in default and probably bankrupt there’s vey little left for the bank to rebuild with least of all launch an sme proposition. I don’t buy the phoenix strategy of “good anglo” save to wind the bank down.

“The other armpit has AIB in it… it’s showing some redness…”

AIB even set up six major lending groups that were wholly independent from its high street operations which handed out loans to property developers during the Celtic Tiger years.
The value of these special loans and the period over which they were handed out was far greater than Irish authorities first imagined.
Sources within the bank allege that these special units ran up a dangerous level of loans to developers and were one of the key reasons why AIB has been forced to transfer more than €19bn (£16bn) to the National Assets Management Agency – the state body set up to absorb Irish banks’ toxic debts.
AIB insists that while these lending operations were not part of its branches, they were still an integral part of the bank’s business within Ireland.

Thank you for taking the time to think this through rationally and for putting it down in a way that doesn’t come across irrationally biased in favour of one option or other. It is much appreciated. I compaletely agree with your summary of what appears to be the government’s strategy on this. There is one further element that I thought might be worth a mention – as much as we would all like to see Anglo gone, and in addition to the numbers and possible actual cost in winding it up – is it not also the case that if the Irish Govt is seen to let a bank go then this could have a detrimental indeed perhaps a catastrophic effect the cost of funding for the State. Am I right to include this as one of the considerations to take into account in keeping it going for the time being?

@Adam Szabo

I think Karl and a few others have clarified that this would not be the case.

My own thoughts on this are why would it be more difficult to get funding when you are after getting rid of the noose around your neck that is Anglo, in theory this should make it easier to get funding and bring down its cost.

Of course we don’t know if the bond holders in Anglo could be the same bond holders for sovereign debt so how can we judge if there would be backlash if the bond holders were to be hit?

@ Greg

‘Just how “complex” is the theft of the Treasury of a Nation?’

It is complex. Otherwise it couldn’t happen these days. We don’t live in a tyranny, and even kings have lost their heads for doing that sort of thing.

The bust is perceived as GUBU at all levels of our society. Whatever its origins and nature, the effect is that an enormous ‘upward’ transfer of wealth is underway. In the broadest terms, we are headed back down the international pecking order. The consequences for individuals, enterprises, communities are very ugly. The media are reflecting public anger, but cooler heads are surely needed.

Of course it won’t do to explain the collapse by reference to an Act of God, ie ‘events in the global financial markets’. Neither will it suffice to say that ‘we are all responsible’. Although people bought into the boom, Noel will at least have to accept that many now believe there was a conscious and deliberate rip-off. Wise guys.

If there has, as you clearly believe, been a crime, it is a so-called white collar crime. It is the nature of such crimes that there is often great difficulty in establishing a basis for prosecution, let alone conviction. Dawn raids by Gardai look good on the news, but it the obstacles lie, as usual, much further up the ladder.

It is not necessary to believe that anyone set out to ‘steal the Treasury’. The fact is that it is empty. Banks were reckless and regulation was absent. In view of the consequences above, those are very serious allegations. They raise the issue as to how such a hazardous and unacceptable state of affairs could have some about. We are supposed to have government and a civil service.

For the avoidance of such catastrophes in future, and the restoration of trust in government, it will be necessary to establish the nature of the various advices received from civil servants and legal advisors in the years leading up to the issuing of the bank guarantee. Many pieces of that jigsaw are already in the public domain.

The inclusion of Anglo in the guarantee would seem to be the smoking gun, as far as the present government are concerned. Why was it perceived by the Cabinet as systemic ? A lot of effort has gone into blowing away the smoke, but there is still a strange smell in the room. Given that An Taoiseach was MoF at the height of the boom, his position seems a pretty lonely one right now.

The real House of Secrets is NAMA. Without access to those records, the relations between banks, public servants and advisers can never be examined. Auditors are just one of the groups with the most serious questions to answer. No wonder the shutters are locked down.

The role played by leading self-regulated’ professionals and professional bodies in generating, facilitating and buying into the boom is, in my view, a core issue. Is it OK to do something (or fail to do something) just because ‘everyone else is doing it’ ?. It remains to be seen whether any future government will dare to open the ‘self-regulation’ box.


You are correct to highlight the competition issue. The duopoly (assuming AIB escapes majority public ownership) will simply lead the rest of the private sector that has been leaking red ink. The focus is an consolidation and on the rebuilding of margins and profitability. This is likley to take a long time without any signifciant increase in investment or employment.

As Aengus Fanning points out today ( “..[t]he truth is we are heading, surely and not very slowly, in the direction of a state-dominated economy, not a wealth-producing one.”

This is the real context of Karl’s excellent post on the Anglo options and why unwinding state ownership of this mess is so pressing. And, since the balance sheets of so many previously privately owned businesses in the banking, insurance and property sectors are dependent on the taxpayer, it is even more pressing to gain some understanding of the state balance sheet – and how this is likely to develop over time.

@ Paul Hunt

Karl’s analysis is indeed excellent, and improved by subsequent comments. Seesm to me we are facing the consequences of ‘deregulation Irish style’. The implications of putting the state finances into play, per the 2008 guarantee, are now beginning to emerge into public consciousness. Very broadly speaking, it looks more and more like the Quinn story is the Anglo story is the FF story is the story of the Irish state. That’s political economy.

Mr Fanning is not wrong in perceiving an endgame scenario, wwere the state tries to takes the weight of a collapsing private sector. His focus on public sector expenditor is fair enough, but a look at the history books shows that providing decent conditions for public sector workers is not really optional. Secure pay reduces the incentive/need to take bribes, and retards the natural development of localism and other inefficiencies.

Calling public sector workers ‘the new aristocracy’ is a cheap shot. I would ask Mr Fanning to leave his ideology to one side just for a minute and look around. The size of our public sector is such that many ordinary Irish familes have a foot in both camps. Some are already distressed and in negative equity. Why try to divide the citizens in this crisis ?

A proper analysis would recognise the generally underdeveloped nature of our civic society and local government system. Of course, productivity is less than it should be, but that’s not all workers’ fault. A rigid, secretive, Victorian management culture persists within state bodies, and often serves to shield the operation of vested interests. Pay rises without meaningful reform on either management or staff side have led us to this point.

@de roiste
Thank you for that. I also thought that even if the cost of funding the State did go up as a result of letting Anglo go – would that still be less than the cost of keeping it going: it is at least worth a consideration in conjunction with the notion that, as you said, we are relieving ourselves of the enitity most likely to stifle our ability to grow – and therefore seen abroad as doind the right thing in that regard.

I’m beginning to think that the reason for keeping Anglo alive is to allow the Minister use the Promissory Notes as an off balance sheet device at a Sovereign level.

Kicking the can down the road seems to be the only game in town.

Nothing else makes sense.

Sunday Times editorial calls for wind down of Anglo. Here is some of the drivel it offers in support:

“Deposits should be sold to another bank” deposits are a liability!!

“Funds owed to the ECB can be dealt with in the context of the overall EU commitment etc.” Sounds impressive but it simply means that the ECB should lend the taxpayer what it is currently lending Anglo, how does that save anything?

“Bondholders…are almost certainly insured” so there you are the whole calamity has been insured after all, what are we agonising about.


Does Anglo owe the ECB €12Bn as well as the Central Bank €11.5Bn? If so, this is consistent with Brian Lenehan telling Brendan Keenan that it owes the former €24Bn in total. Another expression I have heard is that Anglo owes the “Euro system” €24Bn.

This brings me to another theme. I note in today’s papers some cheap shots against Eamon Ryan of the Greens for suggesting that ditching Anglo is tantamount to leaving the Euro. He didn’t make this up. This must be the expert and inside advice which he has received. And when we see that the Euro system has supported this nationalised bank to the tune of €24Bn I can well believe that ditching Anglo would trigger an exit from the Euro.

@ BW2

“I note in today’s papers some cheap shots against Eamon Ryan of the Greens for suggesting that ditching Anglo is tantamount to leaving the Euro. He didn’t make this up. This must be the expert and inside advice which he has received.”

Brian, April First was three days ago so it’s a bit late for the leg-pulling. Still, thanks for that — best laugh I’ve had all weekend.

@ BP Woods-
Deposit books are traded frequently or deposit taking frequently are sold all the time. A source of cheap funding has a value. Look at Toronto Dominion’s purchase of Commerce Bank in the US in 2008 prior to the crisis. It was bought becasue it could collect depos cheaply and efficiently. These could be used to replace dearer funding.

Eamon Ryan WAS gilding the lilly when implying ditching Anglo would lead to expulsion from the Euro. It would be true to say it would not be a costless solution but he went to far. I believe the exact phrase would be “jesuitical” or “mental reservation”. But then he is a Gonzaga boy.

Excellent post Karl, as a layman, I found it most informative, thank you.
Eamon Ryan, please, as one who has to work under his ministerial remit, my advice to all, ignore any utterance, on any subject, from the man, hopefully he will eventually fade from public life and memory, he is beyond useless.

Note 42 in their accounts is key.

It details the purchase of 2571 subordinated debt that was purchased for 819 to give an accounting profit of 1752 million. 388million was dated 2014; all the rest was undated.

To my mind the 819 million of our real money used to buy back these bonds was a perfect example of confusing accounting with real money.

These people should not have got a red cent (favourite RB phrase) for their bonds.

At least there still is 2383 million of subordinated bonds and similar instruments still there to be used up before we have to start throwing 10’s of billions on this funeral pyre.


The correct word for Eamon Ryan, at least for my 50 something generation, was spoofing. Plain and simple spoofing.

And he is meant to be the brains of the party.

I am sure the secretary general of his department must have great fun keeping him occupied with trivia in the best “Yes Minister” tradition.

“I note in today’s papers some cheap shots against Eamon Ryan of the Greens for suggesting that ditching Anglo is tantamount to leaving the Euro.”
There is no sense of ‘cheap shot’ that could be applied to Mr. Ryan’s assertion. Perhaps rope-a-dope and we are expending our energy in punching lard?

@Karl Not as funny as your suggestion that honouring the Central Bank’s loans doesn’t count coz’ that’s paying ourselves.

@All SBP today

David McWilliams … sometimes he is worth reading …

Editorial – TIME again

& Lots on the Anglo-Irish/Quinn relation …..

I can’t go on. I’ll go on. (Beckett via Carol Hunt in Indo …….. sums it up)

Eamonn ‘Leave the Euro’ Ryan! Give us a break from this petty bought fool – whoever invented this dangerous spin for him is totally reckless – but I gave up on GP many many months ago ……….

I can’t go on. I’ll go on.


“Of that €81 billion, €11.5 billion is money owed to the Irish Central Bank. If that is paid, it is one arm of the Irish state paying another, so one could consider the net liabilities the state owes from Anglo to be €70.5 billion.” Jagdip Singh has already pointed out the fundamental error in this statement.
We can contemplate welching on bondholders, we can contemplate ditto on depositors, we can even contemplate giving the fingers to the ECB and leaving the Euro. What is absolutely meaningless is to consider in any way that we can get off the liabilities to ourselves, these are the one category of liabilities we can’t avoid.
For what it’s worth I fell for your argument on first read but then I’m not a prof econ.

Getting back to topic. I am presuming that Anglo owes the ECB/CB €24Bn as stated by Lenny in his interview with Keenan. If winding down Anglo is to have any meaningful impact, based on your own opening expose, then it must involve defaulting on our obligations to the Euro system. I am no Green, I really detest paying 22c for plastic bags, but Ryan is right – for the Anglo nuke option to have any chance it must be accompanied by our exit from the Euro.

@ BW2

1. On the ECB\CB, the facts exactly are as laid out in the post and I don’t know why you want to confuse them. The bank owes €12.2 billion as part of the standard ECB refinancing operations. It owes €11.5 billion in separate transaction with the Irish Central Bank. These are distinct transactions.

2. As for what Jagdip said: “Either the State loses 11.5bn at Central Bank level (by writing it off) or loses it at Anglo (by forgiving the debt) – either way this is a cost of €11.5bn to the State.”

I’m afraid he only thinks he’s disagreeing with me. It makes my point exactly. The point is that there isn’t any money to be saved from not paying out on these liabilities. So I moved on to looking at the rest of the balance sheet. The “fundamental error” stuff is tedious Brian.

3. I do favour winding down Anglo. I don’t favour the bank defaulting on its ECB loans. In any case, as I pointed out in the post, they are over-collateralised loans, so they can just keep the collateral after a default. I sense here that you’re trying to invent some nonsensical position that you imagine I might hold.

4. On the leaving the Euro. Note that I’m not advocating the bank failing to pay back the ECB but if it we’re to happen we would not have to leave the Euro. We’ve been over this already. You probably missed it.

Tried to provide link to Eamon Ryan post but software seems to be rejecting comments with links right now. Anyway, post titled “Ryan: Save Anglo or Leave the Euro” on March 27. Incidentally, in a number of media appearances since, Minister Ryan himself has been backpedalling from this suggestion.

@Karl On the CB thing, I read it that you were dismissing it as a “contra” and I think so did Jagdip. But you now say that what you meant was that this was one liability we couldn’t escape,if so then we are in agreement, let us leave it at that.

Ryan was countering the nuke option of ditching Anglo immediately, and he is right to identifty this with leaving the Euro.

That leaves the option of a slow and meaured wind down of Anglo and here the government have not provided a convincing argument that it is wrong. I think your suggestion is right, this is the plan but they dare not articulate it.

“€11.5 billion is money owed to the Irish Central Bank. If that is paid, it is one arm of the arm of the Irish state paying another”

Was this a bookkeeping transaction or an actual cash flow? If the latter, then the CB reserves at that much poorer. Does this matter? Irrespective, why was it necessary to offfer security for the amount?

“Of that €81 billion, €11.5 billion is money owed to the Irish Central Bank. If that is paid, it is one arm of the arm of the Irish state paying another, so one could consider the net liabilities the state owes from Anglo to be €70.5 billion.”

Sorry Karl but I didn’t make my original post just for the sake of disagreeing with you. If you remove that 11.5bn from Anglo’s liabilities then you need remove 11.5bn from the Central Bank’s assets ie the Central Bank has a hole of 11.5bn in its balance sheet that it would have expected to be a cash asset once Anglo repaid the debt. That 11.5bn is a loss to the central bank and the State. That’s why I said it needed to be added back in when considering winding Anglo down – perhaps I’ve caught the wrong end of the stick in what you are saying but I understood you to be saying there was no overall cost to the State in writing off the debt owed by Anglo to the Central Bank. If that is what you are saying then I disagree for the reasons given and I assure you I’m not doing it to be contrary – you produced an important analysis and I gave you a plainspoken comment.

@Maurice O’Leary:
“Note 42 in their accounts is key.”

Well, I mean, it would be, wouldn’t it?




“AIB even set up six major lending groups that were wholly independent from its high street operations which handed out loans to property developers during the Celtic Tiger years.”

There needs to be some separation of Celtic Tiger from ‘Bubble. It’s important from a PR point of view to attract foreign investment. The government needs to be able to say: “These companies: Kerry Group, Elan, Smurfit, DCC etc. are the real economy and they are doing well. The uncertainty needs to be removed as much as possible. Haircuts have to be realistic to attract investment. Should NAMA give heavy discounts on commercial property rent and purchase. This would stimulate small and medium enterprise growth. Also, personal, and commercial discounts could be given to SME’s on residential property.
Ireland offers low corporation tax, maybe they need to refine their inward corporate investment strategy and off the whole package – low tax, low rent/purchase price on premises, lower cost of living than before.

Excellent analysis from Karl Whelan.

The Annual Report notes taht when the voluntary redundancy plan is coomplete the payroll total will have fallen by 500 from above 1,800 in Sept 2008.

A staff of over 1,300 seems still very high.

The UK Revenue Commissioners have always taken a harder line with those directors and shadow directors, who helped themselves to company funds, even when they actually owned the company. The philosophy is that they chose to take the advantages of incorporation, creating a seperate person. By so doing, they have to take the disadvantages. A prosecution for theft follows.

To my no longer comprehensive knowledge, their Irish counterparts have never done this. Yet.

A good time to start?

Very good evaluation of the published accounts. (as an aside, I don’t see why the minister can speak of 10bn additional required at the same time that it’s not reflected in the annual report).

To me, an orderly wind down should have a similar cost as leaving the bank open. The main difference should be the new loans it makes. Most banks suffer poorer performance on new divisions or distribution channels. And that holds for well run banks.

If we look at anglo, you would have to conclude they face two major obstacles: 1 they are not expert in sme sector 2 they’re not good at assessing credit risk.

In today’s Irish Times, by Simon Carswell AIB and BOI were asked to help out Anglo on the night of the government guarantee in Sept 2008.

I was reviewing some ‘Late Debate’ podcasts yesterday and I noted one economics commentator say that nationalisation of Anglo was a mistake. Because, that nationalisation of Anglo Irish in addition to the government guarantee had the effect of blurring the distinction between sovereign debt and private company debt. If one takes that point to contain some amount of sense, then how does one get one’s head around a situation, in which Anglo was nationalised the weekend after September 30th 2008, with the Irish government repaying €10 billion to AIB and BOI? ? ? BOH.

And also, if you add to the above, the complexity of a situation whereby Anglo Irish bank gets a stake in Quinn Insurance, and by definition, Anglo then becomes some kind of ‘life boat’ for the health insurance system underpinning the health care system in Ireland. As John McManus discussed in his column today.

I thought that deputy Phil Hogan’s accusation of the DDDA being a downtown branch of Anglo was far out. But now we are really getting an idea of the skeletons in Anglo closet, which will not see the light of day, as long as most of us are young I imagine. BOH.

Could we focus on the issue of the 25bn in deposits and the Lucey/McWilliams theory that these are sale-able?

Is this a viable proposition at all? (And perhaps for the purposes of the thread exclude Brian’s claim that they could be sold at a discount)

I am curious and maybe it is something to think about. I was reading Simon Carswell’s story in today’s Irish Times, Government asked AIB and BoI to help save Anglo.

Following the Government’s announcement of the system-wide deposits and funding guarantee early on September 30th, deposits flooded into the Irish banks.

Is there any chance, those deposits which flowed into Irish banks after the government guarantee, were bought and sold on the markets? I mean, as the value of Irish bank assets went down, I presume the value of guaranteed funding went up. Maybe I am not seeing this correctly, but doesn’t the quote from Simon Carswell’s piece in the Irish Times, bear some relationship to what Robert Merton talked about in a talk linked below. The asset-value insurance contract, whereby if the price of the assets go down, then the value of the guarantee goes up. I mean, it wasn’t too hard to bet in September 2008, that the price of Irish property assets was on the way down. Why wouldn’t deposits flow into Irish banks after the guarantee, if you look at it from Merton’s point of view.

@ Sarah

Deposits appear on the balance sheet as liabilities. It’s money people have given to you that you owe back to them, often on demand. So, on it’s own, talk of “selling deposits” doesn’t make too much sense to me.

Perhaps those who mention this idea have in mind carving out part of the bank so that a certain amount in assets is sold off along with a certain amount in liabilities, perhaps with a discount applied to the assets or else a discount applied to the liabilities because you’re purchasing the right to take over these people’s funds and lend them out in future.

In normal times, banks generally sell on the market for more than the gap between assets and liabilities, so there is often a franchise value to the bank whereby passing on the part or all of the bank’s retail deposit chain could require not having to pay over the full amount of the liabilities.

@Sarah Brian Lucey has stated in the Indo that Anglo could exchange its 28Bn of deposit liabilities for 21Bn of assets. That’s what he said and amazingly others are jumping on the band wagon including the Sunday Times and the Irish Times. KW is correct, one might sell a deposit book, i.e. 28Bn of deposit liabilities BACKED by 28Bn of assets. Net Asset Value 0 but maybe a small franchise value for the customers, topside a few 100 million.

So BL magically produces a windfall of 49Bn. What does he propose doing with it? Surely that is all our problems solved. Nope he suggests paying 16Bn to NAMA in exchange for them extinguishing their 18Bn bonds, i.e. a 34Bn frictional adjustment the other way. I am not telling a lie, look elsewhere on this site for a link to the professors grand scheme as explained to the Indo.

Deposits are pershibale assets and Anglo has a deposit book not because it is viable but because it pays higher rates than competitors and has the backing of a guarantee.

I assume the EC will put some restrictions on its activities.

Irish depositors are unlikely to deal with a bank without a local operation.

@ Sarah,

Santander bought Bradford and Bingley’s deposit base (₤21bn) and branch network (197 branches) for c. ₤150m. It’s not clear if there were staff costs or other admin costs might have weighted down the price.

Factors that would make B&B’s deposit base attractive is that it consists of millions of small savers (whose deposits tend to be sticky and a cheap source of funds). I don’t think such attributes would apply to anglo depositors. I don’t know how banks price such purchases – Anglo has large depositors (there due to gov guarantee) on relatively high interest rates. I’d be surprised if you got 50m.


As I thought. It’s just amazing how insistent some are that this is money we can miraculously knock off our Anglo-bill.

That 2bn sub-debt is one of the few cards left to play, and it doesn’t arise for a few years yet.

Rock/hardplace – with knobs on.


@ Ahura

The Telegraph article you linked to has an unfortunately worded headline. People may use the phrase but in reality you don’t “buy” deposit books.

You’re only describing one part of the B&B transaction here. The key point was that while the UK government kept B&B’s assets, it paid Santander to take over the deposits.

See here:

“FSCS has paid out £14 billion to Banco Santander in order for it to take on those deposits covered under the FSCS scheme. The government has had to put up an additional £4 billion to cover those assets not protected under FSCS.”

The transaction you’re referring to is Santander paying for the bricks-and-mortar aspect of B&B — the branches and whatever intangibles came with the brand name (not much, it appears.)

@ Karl,

The way I read this is that the FSCS and UK gov replaced customer deposit liabilities with their 18bn on B&B’s balance sheet. This enables the transfer of (excess) funds to Santander. I do not see any link between B&B’s assets and the liabilities being taken by Santander. To me, this is buying a book of deposits.

To relate this to Anglo, the CB and NTMA could possibly replace customer deposits with funds from debt issues (probably short dated stuff). The customer deposits could then be sold, but I don’t think it would fetch much money. However cheaper funding might be attractive, though it’s not without its risks.

Yep, that’s how I see it too. That’s how the FDIC operate aswell – they give cash with the deposit and swallow the losses on the assets themselves.

Selling the deposit book/giving it away/paying someone to take it will mean there is no realisable asset for sale at Anglo. The way I see it, the current plan is a wind down. The good/bad split is a presage to the deposits and some good assets being sold off. The bonds and the NAMA bonds will sit in the bad bank with the ton of junk and continue the wind-down.

Before anyone says “that isn’t a wind down”, what do you think a wind-down is? To me it is where you sell off all the bits you can and pay off the rest as efficiently as you can.

The argument with the EU, I believe, is about whether they will support the government spoof that it is not a wind-down so the money pumped in is called ‘investment’ rather than wind-down aid. Wind-down aid appears on GGD…

Off topic:

Would the Supreme Court recognize the value in saving Ireland by a judicious interpretation of Article 45, 2 iv “That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole.”

Anyone for a constitutional challenge? 🙂

@ Ahura Mazda,

Factors that would make B&B’s deposit base attractive is that it consists of millions of small savers (whose deposits tend to be sticky and a cheap source of funds). I don’t think such attributes would apply to anglo depositors.

Heck, I’ve said it here before. The shareholders at AIB and BOI were the ‘stick-iest’ people of the lot, and numerous and small. I would say they made Bradford and Bingley’s depositors look positively race-y. Seriously though, we need to move pensioners away from equities fairly sharp-ish in this little island of ours. That scheme involving the pension funds and the Construction Industry Federation to launch ‘infrastructure bonds’ cannot happen fast enough in my view. There is no good whatsoever, in all Irish pension funds being stuck in equities helping companies half way around the world, when we can’t even fill potholes here. Albeit, if you are a bit shareholder such as Liam Carroll or Sean Quinn, you would best not invest in something across the street. Safer to invest in something at the other side of Europe, like BL’s point about AIB’s polish branch and so on. If we learned anything from Ireland’s two richest men during the Celtic Tiger, is to diversify investment like that, out of Ireland. Cliff Taylor gave the equity pensioners a mention in his Sunday Business Post article. Thanks Cliff for trying. BOH.


I’ve one in my head at the moment, based on an oft-repeated lament of my parents.

“You’ll never have in your pocket only what you earn yourself after a day’s work”.

Indeed we won’t 🙂

@ Sarah Carey,

On that subject of a day’s work. I guess if you look at communism, they had zero unemployment. I found George Lee’s documentary series on the Berlin Wall quite good. Recall for instance the young lady whose parents could not compete with the price and quality of flowers being imported from the Netherlands after the wall came down. That is in a situation where the product the people were producing was needed in the market, they could not compete with the Netherlands. Imagine for instance, in Poland it was the only country the USA could buy vacuum tubes for their ancient air traffic control systems up until the 1980s. It was not economical to produce vacuum tubes anywhere else in the world except in Poland. I was talking to Michael Hennigan and company on the other thread about a paper produced for antitrust institute in the USA, by Albert A. Foer. Here is one quote from it.

Such a system has long had a name: administered pricing. And it has implications, as the fallen socialist economies crushingly demonstrated, for generating the right products and services in the right quantities in the right places at the right time. But these implications of the departure from market pricing are not mentioned.

If you think about it, all of the large builders and banks in Ireland during the Celtic Tiger were strongly integrated, like the ‘keystone’ strategy described in Iansiti and Levien’s book The Keystone Advantage. However, take a look at Simon Kelly’s article from the Sunday Tribune on April 4th 2010, Thank you, Anglo, for being there for business. What Kelly’s article reveals is how Anglo did play a crucial part in Ireland’s economic regeneration during the Celtic Tiger – the Ireland of Lemass, as George Lee would say. That is, if one waited for a multinational company to land on the shores of Ireland, there wouldn’t be the time to build the factory or office building. In other words, it made sense to build square footage of office space speculatively, to prempt the process as it were. Of course, the bankers worked hand-in-hand with developers, as part of a whole ecosystem, to use the leased square footage of office space to create collateral for further borrowing. This model worked as long as Ireland needed to build more factories and office space, financed by Anglo, as outlines in Kelly’s Sunday Tribune article. And if Ireland didn’t have that builder-politician-banker process set up, many multinationals might have moved on. But of course, if you bear in mind Albert A. Foer’s comment in the antitrust paper, what we set up in Ireland was state authorised production of something, and we ended up with excess inventories very, very quickly. Frighteningly quickly. And as other commentators have suggested, John Fitzgerald in Sunday Tribune October 4th 2009, Shock therapy needed sooner rather than later to spur recovery, for instance, the industry set up by Anglo actually drew labour away from other parts of the economy. I think some intelligent economist here should analyse the Celtic Tiger experience, with Anglo and all of the multinational companies in Ireland, as a kind of exercise in central planning – 10, 20 years after the collapse of the Berlin wall. What we have in Ireland today, is another kind of collapse of the Berlin Wall. Bearing in mind, many multinationals might have been drawn to Ireland as a result of the enlarged access to trading with the eastern block countries. BOH.

Something very puzzling has happened in our public life recently:
1. Long public debate over scale of losses by Anglo/Nationwide.
2. Minister/Anglo confirm what critics have been saying.
3. Universal chorus of, “At last we have confirmation of the shocking scale of Anglo/Nationwide’s losses”.
4. Story completely disappears from major media within 6 days, even though there is nothing else happening except teachers/Quinn Group.

Does this mean:
1. There is nothing more to say? And if it does, WHAT?
2. That the scale of the losses wasn’t shocking but for whatever reason major media held back from actively covering and have now resumed holding back from actively covering? And if it does, WHY?

@Oliver Vandt:
“Does this mean: […]?”

Neither of the above. It just means that the major media (I presume you mean the *Irish Times* and RTE Radio 1, although I admit I know nowt of what others there might be) have:

(a) failed to rid themselves of the notion that important things happen only when the Dáil is sitting, and it isn’t, so clearly nothing political could be happening, so RTE Radio 1 has abolished its three-nights-a-week politics programme

(b) an insane notion that the bolshie views of low-level educational operatives are important enough to be allowed to dominate the news every year after Easter

(c) many of their senior people off holidaying in their villas in the Dordogne (or Achill, or wherever) for a week and a half.

Any revolution occurring at Easter will not be televised.


I am referring to the news headlines on RTE Radio and TV. Quinn is a big story and the teachers conferences are very important. But we now have the first official confirmation, after a campaign of relentless official denial, that our banking system imploded. It didn’t just collapse. It imploded, due to a Japanese scale lending bubble. The government announced this on the eve of the Dail and school holidays but that doesn’t explain why this story completely disappeared. I fear that our civic society is still deeply cowed by our secular establishment bishops – and by the government’s Alastair Campbells.

hmmm I think there are two factors driving it.

One is that the Dail has risen and yes, senior people have gone on holiday. (the much talked of choreography probably at hand there…)

But another might be a bit more human and less conspiratorial issue – which is that you have a very intense period of shock and awe and attempts to grasp the scale of the story – and after that you feel a bit deflated. All that analysis and anger..for what? All the commentary in the world won’t change the figures and won’t change the strategy. We were informed of the recapitalisation. We weren’t being consulted. [we being everyone outside the Dept]

And there is a consciousness that people tire very quickly of a story and tune out completely. You have to wait a few weeks, or until the next turn of the screw, or find a new angle, if you want people to tune in again. Everyone here is interested, but “normal” people are exhausted and can only handle so much. They have their own problems to deal with today, never mind having to deal with the abstract doom of fixing the banks…

Also, in fairness, Quinn is a huge story. How many billion of the Anglo bail-out is due to him? I’m still trying to figure out exactly how Quinn/Anglo developed. Anyone with any light to shed contact me!

In other words, there is no cowtowing, just a natural human cycle….

Also, you do have to acknowledge that this story has been parsed and analysed for 18 months. The recapitalisation is simply the latest turn….

@Sarah Carey

I briefed a couple of students on Quinn being ‘in play’ a couple of days ago.

My view is that there has been a deliberate attempt from the start to inject the cash cow that is Quinn into the heart of Anglo (some kind of debt-for-equity swap) so that the government has more solid arguments for not winding Anglo down. I don’t know what dark and dirty secrets also lie in the heart of Anglo that a wind down would reveal but there is more going on here than meets the eye.


Keep asking!

With regard to Quinn/Anglo winding down perhaps you are putting cart before horse.

Rather than starting out with the motive to keep Anglo alive and therefore injecting Quinn into it, maybe they want to keep Quinn alive so he can pay back his debts to Anglo and therefore us. Wouldn’t that make more sense?

oh on the bondholders, there is an argument that since bonds are traded, technically you don’t always know who they are. When negotiations with bondholders take place, a notice is issued asking the bondholders to contact the institution.

Joan Burton did put down a question in the Dail, and did get an answer showing bondholders for most of the institutions at the moment. I don’t think it showed them all, but was some category..perhaps those who’d bought them since the beginning of the year? Anyway, she’s got something. I’ll drop her a line and see what she has.

btw, should we open a separate thread on Quinn? Lots of deconstruction to be done there…

@Sarah Carey:
“With regard to Quinn/Anglo winding down perhaps you are putting cart before horse.”

Going a bit further back, can you clarify the timeline? Was Quinn a major borrower from Anglo while he was attempting to build a large stake in Anglo?



I was just trying to figure that out! Did they lend him the money AFTER it was clear he was going to default on the CFDs. If so, did they have an alternative? Would we have ended up picking up the tab in any event?

Again, lack of information…

Re Quinn Group (and an angle I haven’t seen covered),

As far as I’m concerned the taxpayer has already bailed out Mr Quinn & Co. via anglo’s Golden Circle. I can’t recall the final amount but was in the 300m – 500m range. OK, the taxpayer didn’t get a say in it – but in effect it reduced Quinn’s CFD loss by about 500m. And the taxpayer has no recourse to Quinn’s asset. This was a rather generous (if involuntary) gift from us, no?

@ Excellent piece, Karl, thoroughly enjoyed it. On the ongoing debate about liabilites to the Irish Central Bank and the ECB, I was under the impression that the ECB was a decentralised operation and that national central banks merely acted on its behalf and had no real independence. If that is the case, then debts to the Irish Central Bank are, in effect, debts to the ECB and must be treated as such, and the Irish Central Bank is, in reality, no more than a branch office of the ECB.

@Sarah Carey
Quinn is a huge story but the disappearance of lead coverage of the first official admission of the banking system collapse on RTE is deeply disquieting. It would not have happened in the US if the banking system there imploded. There has been a recurrent pattern throughout the NAMA debate where after each revelation there is coverage and then the story disappears. This story is GINORMOUS. We now have official admission that for the first time in almost two centuries one of our banks has collapsed.
Worse still, our banking system has collapsed. Our employee, Brian Lenihan, put us eight thousand million more into debt in one speech, and is planning to put us another ten thousand million more again into debt…and he says that may not be the end of it….and that’s just for one bank! Has this story being swept under the national carpet with all of our other megascandals? I fear it has.

I would love a debate between karl whelan, brian lucey david mcwilliams bendan keenan and other interested financial analysts (NO POLITICIANS)

For people like me each side could put the figures up.
Demonstrate the for and against and then and only then will we ordinary joe and josephine be able to make up our minds. we will have a understanding.
Karls article is very good but there are so many differing views it is confusing

I have a saying dont tell me, show me and it works every time

Good to get some black and white figures.

I believe a number of your assumptions re wind up of Anglo are fundamentally flawed.

Lets take item 3 in your list:

“The ECB loans will be collateralised by a selection of the bank’s better assets, meaning they can grab the

underlying assets if they’re not paid back, so no gain there from a wind-up.”

I’m reminded of a recent interview with Brian Lenihan in a Sunday newspaper on April 1 that included the

note (Brian grins) when Brian made the poind, do you not think Mr Trichet (President of ECB) wants his

money back.

I’m sorry, but I believe the joke is both on you, Karl and Brian Lenihan.

It is now current policy in dealing with future financial crises in member states, as advocated by Merkel,

Schauble, Sarkozy, Lagarde to wind down effected rogue banks such as Anglo. If the Anglo matter was

properly dealt with by due diligence by a competent Minister for Finance, calls would have been made. Item

one, Anglo is banjaxed, they’ve stolen all our loot. We need to wind it up now. Our ECB won’t get its €11.5bn,

your going to have to forfeit your €12.5bn as well.

Items 2, 5, 6

These are for negotiation based on sums available on assets valuation and what other aid buffers ECB and

Irish State can offer.

Deposits need transfer to other banks to firm up and strengthen their balance sheets. Again there are I

assume imaginative cost saving ways to achieve this on behalf of taxpayers.

As well as figures, we need imagination, creativity and a sharp eye for expert negotiation.

I believe Merkel, Schauble, Sarkozy, Lagarde are embarrassed the way taxpayers in Ireland have been

taken to the cleaners. You should be too on the basis of this apologia for government incompetence.

Anglo need to be wound down immediately.



Comments are closed.