Anglo and Quinn

Let me see if I have this right. Quinn Group has debts of €4 billion, €2.8 billion of which is owed to Anglo. Quinn Group used some of this money to acquire shares in Anglo which it has lost about €3 billion on. Now Anglo is proposing to take over Quinn Group including its insurance arm but the Financial Regulator isn’t happy with this idea and is going ahead with appointing administrators for Quinn Insurance. (Irish Times story here.) And people are on the streets protesting against the Regulator, apparently favouring a return to light-touch regulation. It’s all pretty strange stuff.

The serious point here: We are where we are in large part due to very serious regulatory failures. If the first time our new regulator steps in and deals with what he sees as serious failures to comply with regulations, there is any sense of the government (any arm of it) stepping in to protect those who failed to comply, then this would do serious damage to our attempts to build an image of having made a fresh start on the regulatory front.

127 replies on “Anglo and Quinn”

Karl – I think they have debts of €2.8 billion to Anglo, €4 billion in total.

Quinn Group appears to be otherwise profitable. I’m not sure it is in Anglo’s interest (or ours, as their owners) that an otherwise profitable company be prevented from trading. How are we supposed to recoup anything while an important part of the company is banned from writing new business?

Quinn said yesterday that due primarily to equity losses (ie. gambling losses) of circa €3 billion outside of the Quinn Group, the Quinn family owe Anglo Irish Bank €2.8bn. This debt is secured on the Families International property portfolio and their shareholding in Quinn Group.

On an overall basis the Quinn Group has borrowings of €1.2bn from the likes of Barclays and bondholders.

These have first call ahead of Anglo.

Echoes of “Yes, Prime Minister”?

Bernard: I think the Prime Minister wants to govern Britain.
Sir Humphrey: Well stop him, Bernard, stop him.

The horror of it: a regulator taking his responsibilities seriously and exercising his powers in the public interest, rather than responding to the bidding of government or of the businesses being regulated.

Can’t see him lasting long.

Quinn also said that annual cash profits have amounted to between €300m and €500m over the past five years.

It said there is no issue in terms of the Group’s liquidity as it has circa €70m of surplus cash. In addition profitability is strong with cash profits of €47m generated in the first quarter.

Post the economic crash, a phone call from the Taoiseach’s office to Dame Street to neuter Central Bank action is no longer feasible and following Quinn’s loss of  €3bn on bank shares, what is needed to keep control of the insurance business is to have lenders cancel the guarantees issued by the insurance division.

As regards the profits, having been an accountant, my guess is that the reality is not as clearcut as the public soundbites.

@ Karl Whelan,

This is like a flashback for me, of when Zoe developments went to court with ACC bank last summer. From my time line, I note that Simon Carswell published a story in the Irish Times newspaper on June 18th 2009 about the move by ACC bank. Of course all of the workers at Zoe, though released from the company at that stage were still of a mind, this is only a temporary bump in the road. Things will return to as they were soon. The courts would do right by us, and we would all be fine. Maybe that was a reflection of the story we were told by management at Zoe? Bear in mind, the a majority of people in Ireland in summer 2009 were in denial of what had happened to the property market. It was the property market which seemed to underpin so much of peoples’ confidence in Ireland. It wasn’t that people were worried about losing property values. People were worried about losing confidence. In June 2009, I knew that Zoe were not without problems. I was relieved in many ways, the company had been pulled into the courts. But it would be highly unpopular to suggest that in the company of ex. employees of Zoe. It still would be highly unpopular to suggest it. I have had more time to reflect and look at the bigger time scale involved. I have a much clearer picture now of the longer history of the DDDA for instance, often referred to as a sub-branch of Anglo Irish bank. I have gone to trouble to articulate several theories and observations on my blog.

The trouble with the Quinn group today, is exactly the trouble with the Zoe group last summer. I would suggest whoever is defending the case for Quinn to admit straight away to the current reality of the situation. But to argue in court on a much more wide ranging defense than Zoe did. Look at the longer time line of events, which led to where we are. The evidence of persistent political intervention and so on. Remember, both Quinn and Zoe were interferred with extensively by politicians and local government at one stage or another – but neither bothered too much, as long as the Celtic Tiger still roared. Both companies are now paying the ultimate price for not shouting wolf to the regulator themselves. This is where their biggest fault lies. Upon reflection now, I can see how intertwined the stories of Zoe, Bernard McNamara, Quinn Group, Anglo and all the rest are. The were all bottled into taking on positions they shouldn’t have by the political establishment. That is what Quinn group needs to demonstrate in court, for once and for all. BOH.

http://designcomment.blogspot.com/2010/02/north-wall-quay-time-line.html

As Joseph said in the Anglo thread:

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.

Or as BJG correctly made the point on the Anglo thread:

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?

Karl,
I agree. But while I have very little sympathy for the government, they are damned if they do and damned if they don’t on this one. Imagine the ructions if jobs are lost because of this.

Posted in another thread but more appropriate here.

@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.

– Sarah I am not convinced this is putting the cart before the horse. I would be very interested in the reply you get from Joan Burton if it’s possible for you to post it here. I still think the starting point is to find the common bondholders between Quinn and Anglo then we can start putting the pieces together.

Bertie Ahern was responsible for Quinn wading into to buy BUPA Ireland – I’ve known this for some time now. Ahern took care of the trade unions side of the equation. By all accounts it was a very dirty affair. Quinn was warned by those best placed to know, of the dangers, but to no avail. I blogged this on March 21st 2010, prior to the move by the financial regulator. BOH.

There is a large part of the mess, which has not been mentioned in the media. It is the other side of the deal between Anglo Irish bank and Sean Quinn, via the health insurance business in Ireland. The one that hasn’t been reported on at all. Former Taoiseach Bertie Ahern was busy in the middle of that episode also. Offering his usual introductions and handshakes.

http://designcomment.blogspot.com/2010/03/ventures-in-valley.html

Anglo Quinn Bank Insurance Ltd opens for business to much fanfare.

Government says Anglo Quinn Bank Insurance Ltd is a solid company going forward.

Government reach for blank cheque.

Cabinet hailed for patriotic duty.

Since non-life companies cannot rule off the books for a particular insurance year for three, four or more years subsequent to the end of the year in question, what is the basis for statements such as ‘Quinn Insurance is profitable’, or ‘Quinn Insurance made €47m in the first quarter’ or ‘Quinn Insurance made profits of €30m. in March’?

Any confusion of cash-flow and profit in the insurance business is terribly serious.

@ Brian O’Hanlon

“Ahern took care of the trade unions side of the equation. ”

What do you mean by this? As far as I know, Quinn Insurance (like Anglo) is non-union.

This makes me skeptical of the bus loads of workers going to Dublin. Who is paying for it. If the workers are organising it themselves the fair enough. I curious how they have the organisational capacity however if they are not part of ‘organised labour’.

I suspect its the Quinn group itself that is orchestrating these protests and paying for the buses.

I can’t imagine that Quinn will keep unprofitable businesses going for much longer whether or not the insurance business is subsidising them.

How much of the funds leveraged through Quinn Insurance have gone to companies providing employment and how much has gone to servicing the gambling and speculation debts of the Quinn family?

One would like to see as many jobs as possible preserved. As has been pointed out, the costs of bail-outs are small compared to the other costs of economic crises. Also, it would appear to make sense for Anglo to want to take over Quinn Insurance.

However, it appears that the only way Anglo can keep Quinn Insurance and the wider Quinn Group going, without selling the business or having to overcome regulatory hurdles, is to keep the Quinn family in situ. One wonders how much Anglo could raise by procuring the relaease of the guarantees and thereafter selling Quinn Insurance?

In truth, it appears the Regulator is best placed to acheive the sale of the business and to distribute the proceeds amongst the creditors. It is not clear how much better Anglo could do or whether they might risk further liabilities in their efforts to rescue funds. That a State owned zombie bank would guarantee the debts of a Billionaire and his family is not something that any sane politician would contemplate.

At the end of the day though, it is safe to say that Sean Quinn and his management team have played a leading role amongst the cast of actors that has brought this country to its knees. That they should be left in charge or should personally enjoy the largesse of the tax-payer would reinforce the moral hazard in Irish business. It would also be an anathema to those trying toclean up our national image and to promote Ireland and the IFSC as a financial services hub.

We need Quinn Insurance to continue to function and we need to keep employment intensive parts of the Quinn Group going as well. We need them without Sean Quinn, his family or his management team though. I don’t mean to curse those people for being fooled by Anglo or trying to keep their heads above water as the group’s debts threatened to become overwhelming. The action required is necessary and not personal.

@Brian O’Hanlon:
You quote my questions on the Anglo thread …

“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?”

… and say that I “correctly made the point”. However, that overstates my position: I’m asking questions, out of ignorance, rather than making an assertion.

@Karl Whelan:
“Let me see if I have this right. Quinn Group has debts of €4 billion, €2.8 billion of which is owed to Anglo. Quinn Group used some of this money to acquire shares in Anglo which it has lost about €3 billion on.”

I don’t know how much Quinn borrowed when, and what he wanted the money for. But Karl’s “Quinn Group used some of this money to acquire shares in Anglo …” is what interests me. How much did Quinn owe to Anglo before he started buying CFDs? What effect might Quinn’s actions as an Anglo customer have had on the value of his CFDs? And could his holding of CFDs have affected his relationship with Anglo as a customer?

bjg

@Zhou

Agree.

@Joseph

I think the issue is the timeline (as Ahura identified)….

So, you said that the starting point is a wish to stop a wind down of Anglo by injecting Quinn into it. But is this a post-nationalisation government policy or was it a pre-nationalisation Fitz/Drumm saving Anglo policy.

You see the difference?

If the sequence begins with Quinn building up the stake via the CFDs. Anglo discovering he couldn’t pay the bill, then loaning him the money to pay it and at the same time arranging the Anglo 10 bailout…..by the time we/Lenihan got our hands on it, the damage was done.

What I don’t understand, and would love if someone could tell me, is what the options were when Quinn realised he had a huge bill on the CFDs. To whom did owe that money? A stockbroking firm? Anglo? Did Anglo HAVE to lend him the money to save themselves, or to save Quinn? ie, did they have to save Quinn to save themselves or could they have been told (by gov.regulator) to do what they could to save Quinn. What if they didn’t employ the Anglo 10 tactic?

I think that we have ended up again, in a position where we have no choices, because bad choices were made earlier in the critical path. At which point did someone take the wrong turn?

I’m in touch with Joan Burton’s office. News next week and I’ll report back here.

I think the counterparty on the CFD had to own the shares. It depends on whether “naked” CFDs are possible, which I doubt. But this was “light touch” Ireland.

Pension funds attached to public sector trade unions are common bondholders as far as I know. Bertie Ahern took care of them, and secure deal with Quinn taking over BUPA, so as to keep trade union bosses in positions of control. I heard from a different source, that all public sector pension plans are hosed. There is no money there to pay pension – work until age 75 etc. Great if you are an academic and like what you are doing I suppose. That is the root of everything. BOH.

Karl,

Apologies in advance for being off topic but the last post on the NAMA LEV mystery thread is almost a week old so I’m guessing it’s dead. I sent NAMA the following email “Dear Sirs,

I have studied your four publications from Tuesday 30th March 2010 with respect to the transfer of the first tranche of loans to NAMA. I write to ask if you could make publicly available the overall methodology to derive the Long Term Economic Value (LEV), Current Market Value (CMV) and consideration paid with respect to the first tranche of €16bn of gross loans.

In summary the gross loans of the first tranche are estimated at €16.03bn, the LEV is shown as €10.51bn, the CMV as €9.44bn and the consideration paid is €8.51bn. Could you explain in general terms how the LEV and CMV were calculated and why the consideration paid is different to the LEV.

Also the press have widely reported the estimated haircut on the first tranche at 47%. Would it be more accurate to quantify the haircut as 34% (1 – LEV/Loan Value or 1 – 10.51/16.03)?

I have read the Act and the LEV Regulations before writing to you and I can still not resolve the figures produced for the first tranche. I propose publishing any response from NAMA to the above questions on the irisheconomy.ie blog.” and they sent the following reply today “Thank you for your email.

Please see below a brief guide to how NAMA obtains these calculations:

1. The €16.03bn is the nominal value of the loan balances transferring to NAMA.

2. The property CMV represents the current market value of the property as at 30 November 2009.

3. An LEV uplift factor is applied to the property CMV to arrive at the property LEV which is one of many inputs to the valuation methodology to arrive at the consideration NAMA will pay for any of the transferring loans. In addition to the LEV of the property, the loan valuation is determined by reference the discount rates per the valuation regulations taking account of enforcement costs and the legal due diligence levy, and the potential for legal haircuts regarding defects in security and title amongst other inputs which influences the consideration paid by NAMA for the loans. The average LEV uplifts per participating institution are available on our website.

4. The discount applied can therefore be calculated as: (1- (Consideration paid/Loan balances at transfer)).

Some additional information is available on our website http://www.nama.ie.”

So there you have it there are a large number of inputs to the consideration but they include the potential for legal haircuts regarding defects in security and title. Presumably no-one outside of NAMA can quantify these so this is the best we’re likely to get. Can I have the copy of the 46-signature protest letter?

The finances of Quinn Group is a black box to me. Hopefully things are as rosy as Sean Quinn suggests. A 100m short fall isn’t too big and a result I’d welcome.

However we don’t know if Anglo was his only folly in equities. Or how other group companies are performing post construction boom. Was the group too exposed to property and have these values been written down? Page 66 of the linked gives a little information on QI’s assets in 2008. No doubt this is out of date and may have never been accurate. At this time, QI accounted for 70% of all non-life companies’ investments in property, followed by FBD at 13%. You can never have too much property – get out of me field or I’ll shoot ye 😉 It’s always comforting to see an insurance company with a good deal of gov bonds ( QI @ 0% 🙁 ). It’s very difficult to make any meaningful assessment at this level. For example some of the assets might be leveraged.
http://www.financialregulator.ie/publications/documents/insurance%20statistical%20review%202008%20(double%20page%20version).pdf

Perhaps this is long winded way to say I don’t know. There is the potential for a couple of billion hole. I think collectively we need a break and hope for good news to come from the courts next week.

@ Zhou

‘We need Quinn Insurance to continue to function and we need to keep employment intensive parts of the Quinn Group going as well’

I am sure you will agree that there are several levels of problem. One is the securing of the insurance business. The regulator is on that. The securing of the overall enterprise with its many interconnected parts is a another kettle of fish. Absent a resolution of the larger funding issues, the second goal may not be compatible with the first.

Given the state of government finances, the prospects for meaningful political intervention are minuscule, and its really hard to see how the third problem, employment protection, can be addressed directly, if at all.

@ Sarah
‘What I don’t understand, and would love if someone could tell me, is what the options were when Quinn realised he had a huge bill on the CFDs. To whom did owe that money? A stockbroking firm? Anglo? Did Anglo HAVE to lend him the money to save themselves, or to save Quinn? ie, did they have to save Quinn to save themselves or could they have been told (by gov.regulator) to do what they could to save Quinn. What if they didn’t employ the Anglo 10 tactic?

I think that we have ended up again, in a position where we have no choices, because bad choices were made earlier in the critical path. At which point did someone take the wrong turn?’

I agree with most of the comments on this thread, and think you are absolutely correct in your assessment of the current scenario. You are asking a big question, but then a billion is a big number. Maybe the man himself will tell the whole story some day. For posterity.

In any case, it looks like lots of folk made wrong turns in this particular drama. Many of them were in positions of serious responsibility. Hubris.

If recovered, the €200 million shared by the Quinn “children” would go a long way towards regularizing the position with the guarantees that the regulator is rightly concerned about.

Otherwise that €200 million could service the group’s debts for a year.

I’m perplexed though as to how the “children” are instead free to use this cash to build their own wealth portfolios. A word that starts with an ‘l’ and rhymes with ‘rooting’ springs to mind.

@ Sarah Carey

Quinn took a 15% interest in Anglo, having earlier bet on price movements without having to acquire shares while having other gamblers taking opposing positions on how the shares would move.
Anglo lent the money for Quinn to buy the shares as he had lost bigtime on his bets.

It is crazy that Anglo could lend money to support its share price.

This is the type of thing that was going on up to the Wall Street Crash in 1929 and prompted the splitting of commercial and investment banking on passing of the Glass-Steagall Act.

As regards Regulation, the ancien regime in 2008 had imposed a fine on Quinn for breaking insurance regulatory rules and forced him to resign as a director of Quinn Insurance.

The current situation is a case of déjà vu all over again!

€4bn is a lot of debt and interest rates have nowhere to go but up.

Even if the Quinn units make big profits in future years, the €2.8bn in personal debt would have to be paid back on after-tax income – – it seems like a tall order.

breaking from my break, its one way to make anglo systemically important, back quinn into it…

@ Sarah

on Quinns CFD’s, i believe Cantors and Credit Suisse were who he owed the money to, as he probably only put up 5-10% of the stake, and they essentially lent him the rest. Every day as the value of his holding changed, he would have to mark-to-market the holding, and pay over the difference, as well as the rollover cost of the “loan”. This would probably be costed off Libor +3 or 4% or so, which over time becomes expensive unless you have strong gains to net against this. Eventually as the losses increased more and more they may have told him to either close out his position at a massive loss at wherever they could sell the position, or else find the money to buy it outright. I assume the Anglo loan was probably cheaper than the offering at that point from the brokers, and also made sense from Anglo’s point of view of not wanting the stock to collapse.

Given that Anglo did not initiate or suggest Quinns holding in Anglo (i assume), and given his wealth there may have been a reasonable assumption that their loan to him would be repaid, it difficult to find a legal or regulatory problem with their loan to him, even if ethically it was highly dubious.

HI,

Does anyone know if SQ’s CFDs had a counteparty?

It’d be curious to see some player taking the opposite wager (and making a killing..)

@Eoin
Did he not put the shares in Anglo as security for the loan? This surely would make the transaction more than Highly Dubious???

@All
Quinn Anglo Cowen DDDA WHPR Quinn….This has to stop. The regulator has to stand firm. We have to get out of the Anglo/Quinn House of Horrors once and for all. Otherwise the new regulator will be sucked into the cover up. He should remember that if that happens there’s no escape.

Warren Buffet gave an interview some months back to Evan Davies (BBC) where he dwelt on the importance of an insurance company (name escapes me) taken over by Berkshire Hathaway to the latter’s growth, viz. its float. Conceivably, Quinn Inc might have hoped for similar magic. Anyone running any kind of a business knows the importance of a stable float for all sorts of reasons and for sure the bank manger does – even one from Anglo I’d hazard a guess.

The Regulator is in a tricky position though, isn’t he?

*IF* he was just dealing withe QI, his job would be simple – take it over, flog it.

But since he also deals with Anglo, should he take into account that we (the taxpayer) would benefit from Anglo being allowed to run it and use the profits to pay back the debt?

If he takes the first option, our chances of having the debt repaid are surely slim to zero?

@Eoin

Thank you! So..what would have happened if Anglo said. “We’re not loaning you the money”.

What would have happened next for Quinn and for Anglo?

@Sarah

Why not just beef up the Admin team, let them run QI on a commercial basis, gradually pay back loans to banks incl Anglo and then sell on QI as a viable business. I don’t see that letting Anglo run QI would have any advantage other than giving it a pretext for staying in existance.

OF course. Makes perfect sense.

So…why do Anglo want to do the debt-equity swap then?

in my humble opinion, given his financial position,

1) quinn should publish full audited consolidated accounts both all his interests both corporate and family so that we, the taxpayer might know who owes who what!

2) the regulator can’t be seen to fudge the issue and will have to be strong and be seen to be strong in his actions on this issue

i don’t think the financial markets will buy “the irish solution to an irish problem”

@Sarah
“So…why do Anglo want to do the debt-equity swap then?”

Is this a trick question or a leading one?

Maybe, Anglo simply wants to become a bankassurer like Irish Life & Perm doesn’t want to be.

@BF

No, an honest one!

According to the 9pm news, Anglo wants to put in 700m and take an equity stake.

If they have the option to just let the company be run by an admin team, why would they want to take this route?

Per RTE.

Government to issue Bonds to pay off Barclays etc.

€1,200,000,000?

😆 😆 😆 😆 😆

@ Sarah Carey

If Quinn Insurance is sold by the (Insurance) Administrator the group collapses.

Anglo are owed €2.2bn by the Quinn family not the group.

Barclays are in front of Anglo for €1.2bn.

Anglo qould have to write off the bulk of the €2.2bn.

Lucky for us Anglo now have a surplus of insurance experts on its board.

😆 😆 😆 😆 😆

Brian Lenihan better order some more of them Promissory Notes from the printers.

😆

ah…..

I gettit.

Eh, so, we should want the Anglo proposal passed then? It means we’ve a better chance of getting the money back, yes?

@ Sarah Carey

That’s my understanding.

Except the Anglo debt is €2.8bn.

What an utter mess.

What is that insurance-related advert about someone putting their hand in your pocket to steal your money? Reporting insurance fraud, I think. Is the State about to put its hand in my pocket? Why can’t we put our hands into the Quinn pockets instead?

@ All,

Look it, I know that the trade union leaders have a complete overview of what is going on here, because they were party to the deal brokered between former Taoiseach Ahern, Mr. Quinn and a multi-national insurance firm, which like ACC bank and all of the rest, decided to cut and run with Ireland. What would be really comical is where the pension fund of all public servants in Ireland were holders of senior debt in both Anglo and Quinn’s companies. What you have to do is read the Sunday Tribune piece by developer and Anglo client Simon Kelly on April 4th 2010, Thank you, Anglo, for being there for business. It goes back to the founding of the IFSC by Desmond and Haughey in the 1980s. Certainly multinational companies created jobs in Ireland, but didn’t leave much in the way of profits in Ireland to repay our crippling national debt. Of course, the NTMA was set up by Haughey back then also, and the DDDA/Anglo whole thing happened after the IFSC initial project. It was officially a promise to independent TD Tony Gregory in March 1982. The idea was for Irish state pension funds to become landlords to the multinational companies over a period of time – even though pension funds invested heavily in property in Ireland, they were diversified by nature of the fact, tenants were multinational. Hence it hedged risk and Mr. Fitzpatrick of course became chief risk manager at DDDA – who else? Remember the DDDA managed the investment of €5.0 billion in construction over a decade in an area of the city which was derelict. The more the FF government could collect in transactional property taxes, the more it could expand the public service – which meant, the larger the pension fund of the public service became – which meant, the fund could be siphoned into bond investments in Anglo Irish bank, which in turn led to further outrageous lending going on to build more speculative commercial projects (via Anglo/DDDA) to provide office space to the multi-nationals. NAMA didn’t ‘make’ Ireland the biggest property owner in the world – NAMA merely converts into fact what already was – except, it still doesn’t reveal the identity of Anglo’s and Quinn’s bondholders – the pension fund of the Irish public service. Of course when AIB and BOI figured it out, they played chase with debt sold to Germany, China and middle east. Go and read Simon Kelly’s Sunday Tribune article people – then go figure it out. Now you see why the trade union leaders had to be involved in the Quinn/Anglo deal? BOH.

@ Sarah Carey,

“Eh, so, we should want the Anglo proposal passed then?”

Not sure about that.

However given that Anglo is wholly owned by the State I cannot imagine that the Minister for Finance did not give the go-ahead for Anglo to issue its statement.

Elderfield can rest easy.

As long as both Anglo and Quinn have sufficient capital he can wash his hands.

See where giving blanket guarantees gets ya.

Cheapest bailout in history.

Boy are we getting stuffed.

😯 😯 😯 👿 👿 👿

If Quinn Insurance is generating sufficient free cash flow to pay for the debt incurred by the Quinn Group – as we are told – wouldn’t the Quinn Insurance valuation be sufficient to cancel the debt? The group should not be at risk of collapse in the event of the sale of the unit.

It doesn’t add-up. Waiting for the next foot to fall…

@ greg/sarah

It”s an appalling mess. God knows how it will be resolved, but it looks as if the founder is finally ready to cede control of the group.

A lot of people are very confused, angry and frightened, particularly in the border areas. Economic adjustment can be cruel, which point has been made on this blog before. When the mighty fall, they usually fall on us. You today, me tomorrow, and no one is immune.

No matter what the outcome in the short to medium term, the Quinn enterprise has been a phenomenal learning experience for Ireland. It’s raining harder now, but we have endured before.

In relation to CFDs and the reference to light regulation in Ireland in particular, I don’t believe that the requirement to disclose CFD holdings was in the relevant European directive on disclosure of shareholdings, (the Transparency Directive) and I know that the FSA only introduced the requirement to disclose such holdings, including other similar types of holdings in June 2009 – its explained here http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/034.shtml. I think that in order to ensure transparency here the DOF or Regulator needs to bring in the necessary legislation. I think that one reason for the delay would be insufficient resources in the DOF dealing with financial services matters – I would say that they are stretched and I saw a couple of weeks ago that there is a job advertised in the DOF for a second secretary dealing solely with Financial services. Its long overdue and a good idea as there have about 40 directives in the last few years dealing with financial services matters so there is no way that they could give enough attention to financial services if the same people are dealing with the budget etc.

CFDs were not regulated instruments in EU financial markets until the Markets in Financial Instruments Directive (MiFID) effective November 07 so I think that it would be unlikely there would have been any regulation of them in any EEA country prior to that date. There would have been a general requirement that only investors who were suitable, ie who understood them and had the necessary resources, should have dealt in them as when losses are made the market makers can demand payment of margin asap, which should be clearly understood by anyone investing in them and according to the papers a lot of people were caught out by those demands. So, it is slightly mad to bet the farm on them. As Eoin said, I think that it would probably be Cantors for instance acting as a market maker who would issue (or I think write is the term) the CFDs and take the risk and hedge their position by buying or selling the underlying shares so I don’t think that there would have been another person taking an opposite view on the other side of this transaction to Sean Quinn – I am open to correction on this.

People might not like the idea of cfds but I don’t think that they could be banned here as they are a financial instrument in all EU countries under MiFID as we are part of the single financial market the EU is trying to create. I think that commentators here tend to forget or ignore the fact that most of the legislation/regulations for the financial markets are largely the same across the EU.

The Germans by the way, had a big problem in 08 with Porsche acting as a hedge fund and building up a secret holding of about 74% of Volkswagen which was a big deal at the time and was bad for the reputation of the German market as it skewed the DAX index and there were concerns about market manipulation. “The VW situation highlights the need for a consistent approach to contracts for difference disclosure across Europe,” said Andrew Shrimpton, a member of Kinetic Partners and the former head of hedge fund supervision at Britain’s Financial Services Authority.
http://www.reuters.com/article/idUSTRE49R3I920081029

@ paul quigley

As I said at 12:02 today.

“Anglo Quinn Bank Insurance Ltd opens for business to much fanfare.

Government says Anglo Quinn Bank Insurance Ltd is a solid company going forward.

Government reach for blank cheque.

Cabinet hailed for patriotic duty.”

Did I miss something?

This is just totally ridiculous. We make a big fuss about the regulator not doing his job, and when he does it people complain. The worker representation at Quinn reminds me a bit of when Ceausescu bussed in people in December ’89 to cheer him. I mean if they want to protect their jobs fine, but protect Quinn?

I really feel a bit sickened by all this. 54 billion in the hole and we learned nothing.

We need to draw a line in the sand and cut our losses. Anglo is a failed entity, and things would be better by letting the failed entity run a soon to fail entity?

5,000 jobs are important, but why not spend the money building schools or something else useful? Why pump it into failed companies?

@ Brian O’Hanlon

Could you clarify where trade union leaders are somehow responsible? What public sector pension fund are you referring to? The NPRF?

Anglo- non-union
Quinn- non-union
I can’t see how you can pin this on the trade union leadership.

@ All,

Btw, why do you all think the national pension fund had to be set up? Because the money from collected from rents and/or disposal of commercial properties by the Irish state pension fund as landlords during the heady days of the Celtic Tiger, would not fit under the mattress any more. Who administers the national pension fund? Who is administering NAMA? Like where do you all think the €20 bln stored in the national pension reserve fund came from – thin air? ? ? What is bizarre is to see photos of the Teachers Union of Ireland protesting on NAMA yesterday in Clare. What is even more bizarre is to read a blog by public servants in Irish universities to recommend a strategy of squashing bondholders of Anglo – the same bonds, upon which their own pensions depend. When are we all going to grow up? Best of luck. BOH.

@ Bookworm

“TAOISEACH Brian Cowen last night dismissed allegations he reversed a tax clampdown on share trading after being lobbied by vested interests.”

“Mr Cowen admitted scrapping an order by the Revenue Commissioners, which would have cost stock market investors millions of euro in tax on controversial share options.

He took the decision when he was finance minister in 2006, but insisted it was based on advice from officials in the Department of Finance.”

“Revenue announced its plans to abolish the stamp duty exemptions on share options, known as Contracts for Difference or CFDs, on St Patrick’s Day in 2006.”

http://www.independent.ie/national-news/cowen-denies-vested-interests-behind-uturn-on-share-taxes-1644970.html

Is the €700 m needed to plug solvency or liquidity problems. I would have thought the former so with some form of State quarantee the Financial Regulator’s demands would be met.

The problem lies with the rest of the Quinn Group and the family. If the QG is profitable then it could be sold and proceeds used along with family assets to pay off Anglo etc. Of course, it would help to see ALL the figures.

1.9 bn is what is being proposed as the payment for a part-share in the Quinn group with those gamblers and now, it appears, extortionists (or should that be contortionists?) the Quinn Gang.

1.2 bn to pay off other banks and the bondholders and 700 mn to make it a solvent company again.

And all to save Anglo 2.8 bn it has already burned. Or indeed, not to save it. Just to avoid a balance sheet incident.

This is the same pointless waste of real money for imaginary gain that the subordinate debt buyback was. The intangible in pursuit of the unaccountable…

As for the smokescreen of the 5,000 jobs, 1.9 bn is 345,000 per job… Given that some of the jobs are in Northern Ireland, why are we doing all the stumping up? Marian Harkin on Primetime said that 11 mn sterling and 7 mn euro paid in taxes each year by employees. If she is right with those figures (which I doubt) that’s an average of abut 3,500 euro per job… hardly the high value jobs that are being claimed…

@ pamina

“If Quinn Insurance is generating sufficient free cash flow to pay for the debt incurred by the Quinn Group – as we are told – wouldn’t the Quinn Insurance valuation be sufficient to cancel the debt?”

I think it fairly obvious that by virtue of the Quinn Insurance having given guarantees to cover the rest of the Group (am I correct in that?), it seems obvious does they do not have sufficient “free cash flow”.

An insurance company can be stuffed to the gills with cash but that does not make it solvent nor does it mean that it is free to use the cash mountain as it sees fit.

Hence the guarantees.

If the cash was truly free the Quinn family could have taken a dividend and reinvested the cash in other parts of the group. They could probably have taken clever advice to avoid tax on the transaction to boot.

Could be wrong but it appears to me that Quinn Insurance has insufficient reserves to allow a distribution. The other elements of the Quinn Group are cash stressed. The Quinn Family owe €4bn, €2.8bn of that to Anglo.

Anglo Anglo Anglo

So what else were Anglo up to?

Hard to see the hotels, pubs and concrete businesses doing well at the moment.

@ Yoganmahew

High value jobs?

I’m sure Marian Harkin meant to say call centre jobs and digger driving jobs.

No offence to people who make their living working in call centres or driving diggers.

The majority of the insurance company jobs would be safe for about two years and (if not outsourced to India) 50% could be considered “permanent” under new and solvent ownership.

The rest of the group unfortunately will have to suffer the reality of the collapse in construction.

Are we now in the business off bailing out cement works?

@ Maurice O’Leary

“No doubt Quinn Insurance will be renamed the Dukes of Hazard.”

Or more simply Duke’s Hazard.

Greg
The stamp duty issue is a different one to the transparency issue and there has been a lot of confusion in the media on this as both issues have been mixed up. Clearly the lack of transparency on SQ’s cfd position caused a lot of the problem and people should have to report CFD positions. In relation to stamp duty, the Revenue would not have any powers of its own to decide to tax an instrument (to my knowledge), that would be a Minister for Finance’s call to make and would be in a Finance Act so I can’t see how they could unilaterally decide to tax CFD purchases. I understand from talking to people who know about stamp duty that the legislation at the time was very out of date and that this was the main reason why it was decided to change it in 2007 to be more similar to the UK legislation which has one relief, intermediary relief (brought in in 1986 to reflect the change in the market from their big bang at the time with the aim of helping to attract liquidity) rather than the 3 cumbersome out of date reliefs that existed here at the time. The older reliefs, I understand were an administrative nightmare for the Revenue to process with a significant waste of people’s time so I think they were happy to get rid of them and replace them with intermediary relief. I think that Ireland and the UK are the only EU countries with this antiquated stamp duty tax anyway, which is helping to reduce our pensions further, and stamp duty (Irish and UK) was also examined by the EU to see whether it was a barrier to the creation of a single market a couple of years ago. So, I am not a fan of stamp duty but it is an easy tax for the revenue to collect as the brokers do the work and they get the info through the settlement system so relatively speaking its cheap for the govt to collect. I understand that the revenue concerns related to whether the trading in the underlying shares would be in the ordinary course of business of a cfd market maker and hence entitled to the then existing relief which it would clearly be in the UK at the time and which they had understood it was in Ireland. An ordinary market maker of shares would have been exempt anyway at the time – these were technical concerns relating to the application of stamp duty reliefs which had never been communicated before by Revenue and came out of the blue – hence the consternation as people like to think that there is a clear legal basis for operating in a country. The issue had nothing to do with the imposition of stamp duty on the purchase of cfds by investors. I just found this article which would explain the issues as I don’t know the detail. http://www.hg.org/articles/article_1365.html
Personally, I discount a huge portion of what I read in the media as they routinely get things wrong, they spin them quite hysterically at times so I never know what I can believe. I also find Gilmore to be a populist windbag..but maybe thats just me.

Just when you think its safe not to feel ashamed of being Irish, the boyos are at it again. What’s next, a bailout for the hotels, the publicans, everyone in negative equity? Ah sure why not, sure we’ll just keep writing promisonary notes, sure there’s loads of kids born this year, sure well let them boys worry about it.

Greg

Sorry – I thought that I had put them in. It is a bit longer than I intended.

@ Bookworm,

Have you read John Lanchester’s Whoops!: Why Everyone Owes Everyone and No One Can Pay. His comments about the beauty contest in Europe between communism and capitalism are very pertinent in Ireland. The truth is, in Ireland we have been well trained the spot any capitalists who might lurk in the long grass and growl at them loudy, so that our master, Che and Fidel in Dail Eireann come running with the double barrel. That does include unfortunately, many intelligent people – from the printed media and academic faculties – who regularly comment here on the Irish Economy. As for the coverage of the Quinn story in the newspapers today, pah! Get out of Cuba/Ireland is all I can say, or learn to roll cigars. Regards. BOH.

http://designcomment.blogspot.com/2010/04/why-ireland-is-more-like-cuba.html

@ Bookworm

Wasn’t contradicting what you said.

Just pointing out Cowen’s involvement in this fiasco from the beginning.

The truth is, in Ireland we have been well trained the spot any capitalists who might lurk in the long grass and growl at them loudy, so that our master, Che and Fidel in Dail Eireann come running with the double barrel.

O-kay…..

Must be an election coming. A 4.7bn bail out for the 5 FF TD in Cavan Monaghan & Sligo Leitrim. They should have rounded it up to 5bn to make it a billion apiece. These must be very special people indeed.

@Celtic Phoenix

A large part of the Quinn Group is made up of hotels and pubs.

@ Brian O’ Hanlon

“Get out of Cuba/Ireland is all I can say, or learn to roll cigars.”

It’s illegal to grow tobacco in Ireland.

@ EWI,

As for poor old Richard Bruton’s attempts to formulate his theories around crony capitalism, all I can do is laugh. C’mon BL and KW, tell us again why you think it is a good idea to squash your own pension plan. We had great businessmen in Ireland in the persons of Liam Carroll, Bernard McNamara and Sean Quinn. But we did what Napoleon did at Waterloo. We fired canon balls into our old guard regiment in the disorganised retreat from Waterloo, so the Irish government could furnish their escape. We have been too brainwashed by Fianna Fail to see facts for what they are. Night all. BOH.

@ tull

‘Cavan/Monagan’ is probably symptomatic rural and small town Ireland, which is FF heartland. There was pride, hope and optimism. Now there is fear, anger and despair. The government is being driven before the storm, and the task is simply to stay afloat somehow. An unenviable position.

@ Brian O’ Hanlon

“We had great businessmen in Ireland in the persons of Liam Carroll, Bernard McNamara and Sean Quinn.”

The government made me do it. The government made me do it.

😆 😆 😆 😆 😆

Things are a lot worse than we thought.

http://www.irishtimes.com/newspaper/breaking/2010/0408/breaking8.html

“Speaking at the opening of the new museum at Glasnevin Cemetery Mr Cowen said: “Every person has a role to play here [in resolving the issue]. But the independence of the regulator is respected obviously,” said Mr Cowen.”

Cowen now believes that even the dead have a role to play.

But then he would believe that wouldn’t he.

Anglo, Nationwide and now Quinn.

Happy Days.

I see that the term Quanglo is now circulating to name the beast that slouches towards Dublin to be born.

http://globaleconomicanalysis.blogspot.com/2010/04/where-is-line.html

A well written exploration of what TPTB got up to in USA.

Why should we be surprized that Ireland was any different?

Banking is dangerous. Those that lieth down with bankers shall ariseth with debt. Whopping debt. Debt that sucketh all understanding. Debt that spells death, for the economy. Devalue as you must, just as inflation is the product of acquiring debt, deflation is the result of paying it off.

It was kind of fun, though, right? All that money? For doing nothing? Very intoxicating, eh? How can money bring misery? I mean money is good, right?

Ohhhhh! What went wrong? Perhaps too much government support for banks? Surely not. Suckers!

The Quinn businesses grew far too fast to be wholesome. I recall the ICI and PMPA, as was, as they say.

Insurance is also known as protection. A racket. As Colm McCuts says, there is a difference between cash flow and profit. Insurance is like banking. There is an inherent mismatch in assets and liabilities, short term and long term. The possibilities are a delight to Al Capone’s accountant. Perhaps it exemplifies what the Austrians mean by malinvestment?

FIRE. Finance, Insurance, Real Estate. There is a reason why these bloom with cheap debt and wither with depression and deflation.

Take a look around. What else will go? Keeping FIRE companies operating is in the spirit of NAMA. Delay the bad news and rack up the debt! Perhaps this is not a successful strategy? Liquidation is the only remedy. Those who deny it are not soft hearted. They make something out of the waste of public debt on these white elephants.

The mob understand nothing, but they are the mob! There are dangers approaching, well documented in history, that little understood discipline that peers into the future by knowing the past!

Zhou
It is clear that you have no understanding of business or economics. Supporting a business that has been run badly will damge businesses that are run well. There is also a cost to the public and the taxpayer.

“I can’t imagine that Quinn will keep unprofitable businesses going for much longer whether or not the insurance business is subsidising them.”

I can. At enormous cost to the public. What was banking in the years 2001 to 2007, if not unprofitable? And still they continue. At no profit. White elephants were the means to beggar nobles that had fallen from favour with the King of Siam. Ignorance of matters economic is costing this country dearly.

“We need Quinn Insurance to continue to function and we need to keep employment intensive parts of the Quinn Group going as well. We need them without Sean Quinn, his family or his management team though. I don’t mean to curse those people for being fooled by Anglo or trying to keep their heads above water as the group’s debts threatened to become overwhelming. The action required is necessary and not personal.”

80% of FIRE business is no longer needed. How much do you propose we give per job? I presume you agree that taxes should double, as they will, in order to support these jobs, unprofitable though they may be, and NAMA repayments?

The 2008 accounts for the Quinn holding company, Quinn Group (ROI) Limited, showed a pre-tax profit of €83m in 2008, compared with a loss of €425m the previous year, when it wrote off loans to the family totalling €762m relating to losses on CFDs.

Before exceptional items, the group made a pre-tax profit of €466m in 2008, and €530m in 2007.

While it is not clear what the impact of the recession has been on the various business units – – it certainly hasn’t been positive — it is clear that in the post-crash business environment, that the insurance business is the cash cow.

http://www.finfacts.ie/irishfinancenews/article_1019417.shtml

@Michael.

Pass by Ballyconnell and check out the car parks. Full of Quinn lorries. No great demand for cement, glass, radiators or insulation in a construction slump.

@Brian Lucey – “breaking from my break, its one way to make anglo systemically important, back quinn into it…”

My point entirely.

So let me get this straight, the government and Anglo intend to “invest” a further €2bn into the Quinn to recoup loans of €2.8bn and in return we will get 51% of Quinn Insurance.

This makes absolutely no sense. To recoup the Anglo loans Quinn Insurance needs to be worth €9.6bn. Even for us to recoup the additional investment Quinn Insurance needs to be worth €4bn!

I don’t think the the full Quinn group is worth €4bn

@ Pat

“Zhou,

It is clear that you have no understanding of business or economics.”

Possibly one of the stupidest statements i’ve read this year…

@ John M (from another John M)

Does anyone know if SQ’s CFDs had a counteparty?

I doubt it. If I remember correctly Anglo’s short interest peaked at something like 12% of shares outstanding – so Sean Quinn’s stake alone was larger than the entire short interest in the stock. In any event, a short seller would be a fool to take the other side of a trade involving a strategic investor like this (even if the stock involved is Anglo).

CFDs are usually created after the trade, not before it. Normally, a broker executes a trade for a client and then ‘gives it up’ to the swap / CFD counterparty (say Credit Suisse or Morgan Stanley). So the position is usually fully collateralised. The shares are purhcased in the open market so this stage of the CFD trade is exactly the same as it is for any normal equity trade.

@ Bookworm – the VW/Porsche sage came about through the use of cash settled options, not CFDs.

This idea of Anglo injecting money into Quinn is worrisome. Anglo has a charge over the shares in Quinn Insurance afaik. If Anglo were to take ownership of Quinn Insurance and then pump in money to free QI from QG to the intent that Anglo could sell QI at a profit then one would understand it. However, it appears Anglo is considering subsidising QI so that it can continue to function and, in the long term, generate cash to pay off debts owed by the Quinn Group to Anglo and others. This does not make huge sense afaics. Perhaps there is more detail which I do not appreciate.

This is a credibility test for the Irish banking system and for Aynsley as much as it is a test for the Financial Regulator. The fact that The Governor of the Central Bank attended the lobby meeting makes me think that he is well aware of this.

I also think we need to be careful as to how many jobs are at stake. As the former BUPA employee said – we have been through this before. The Insurance jobs should mostly be safe, notwithstanding Sean Quinn’s suggestions that not a tap will be done. Mr Quinn almost seems to be encouraging staff to down tools. Did Mr. Quinn’s associates organise the marches in Dublin? The jobs in the pubs, hotels and restaurants should not be directly affected as most of those premises are leased out and not operated by QG.

Where are the jobs that are at risk so? Quinn does have plants in Ireland. It also has plants in England, Wales and Germany. Which of these plants will be saved by an injection from Anglo and which would close anyway? It is entirely unclear.

If Anglo is going to inject money then it will need to spell out how this improves its chances of getting its money back. It also needs to be careful that it is not putting a political yoke around its neck such that it will have difficulty instigating necessary restructuring of the Quinn Group in the future at a cost to Irish employment.

@ all

Read all above with interest, and so the great Anglo scam continues. Leaving aside the bondholder issue for a moment if you focus on some fairly basic issues e.g. Sean Quinn owes Anglo €2.8bn which mainly or mostly consists of loss made on Anglo CFDs. If SQ has as reported private wealth of billions, finding €400m for liquidity should not be an issue, correct? So he cannot find it does one deduce that his losses are greater than €3bn on Anglo or there are significant other losses made not yet disclosed?

Or the €2.8bn that is owed to Anglo, how is it secured, on shares in Quinn group but beyond that non recourse to other assets? So Anglo stumps up to save Quinn Group and gets a whole lot of nothing, save for an insurance company whose margins are increasingly under pressure and whose business model may be broken. Add in a nice dollop of property both here and overseas and wallah.

On the wider issue of Anglo and the ever growing amount to keep it propped up. It would be useful if someone could ask our esteemed government how much of it is non recourse, i.e how much of it is secured against now worthless CFDs, Lehman products etc that it was loaned to purchase? What other high flying “capitains” are on the list outside the usual property mogul suspects? Maybe then we would be somwhat closer to the truth. Although I fear if and when we got to that point then Michael’s idea of charging €20 for each additional bag may seem like a bargain!!

@zhou_enlai

According to the RTE article €1.2bn will also be paid off by government bonds.
http://www.rte.ie/business/2010/0409/quinn.html
[quote]
The plan would also see other banks owed €1.2 billion by the Quinn Group paid off with Irish Government bonds
[/quote]

I don’t think this is a financial decision by the Anglo board, I think this is a political decision.
No one Anglo can plan to repay the €1.2bn bondholders with government bonds unless the Minister has agreed to it.

@ zhou_enlai

“Did Mr. Quinn’s associates organise the marches in Dublin?”

Have you ever tried organise an excursion at work. Its difficult to get a time to suit everyone.
Or a bus to a match or concert? You have the hassle to collect money from everyone. Its hard to organise things.

Thats why trade unions maintain funds for such protests and have full-time staff and organisers. Similar for other groups who protest now and then (like the IFA and so on). They maintain an organisational capacity for such events.

However, the staff of Quinn, who have no union and aren’t part of ‘organised labour’ managed to arrange time off work, and transport THOUSANDS of people to Dublin, all within a few days of the regulators decision?

Not a chance.

@D_E

5,500 jobs will always be political. Look at what Dell has meant to Limerick. Didn’t everybody say that Coughlan and the Government should have been busting a gut to keep Dell there long before they left.

Apart from that, a loss of 5,500 jobs would have a huge impact on the regional and national economy. I would repeat Rogoff & Reinharts point that bail out costs are a small proportion of the overall costs of economic crises. As repulsive as the thought of Anglo pumping money into Quinn and paying off the debts of other banks is, we do need to look coldly at the economic reality.

My problem with Anglo’s move is fivefold.

Firstly, it appears the Quinn family will retain part pwnership. This is moral hazard at its worst. It is also politically unsustainable give the family’s role in the collapse of Anglo.

Secondly, it risks our international reputation for fiscal probity. We need to show we have changed. This is important for our sovereign debt rating in the long run and for the IFSC in the medium term.

Thirdly, there is no clarity as to how many jobs this will save. This is a global recession so there will be no quick recovery. Hoping for a quick recovery is like hoping for a soft landing. Jobs in loss making parts of the Quinn Group may go soon in any event. This should be speeded up by refinancing and restructuring.

Fourthly, it is not clear that Anglo will save any money by this move. Indeed, it could lose money. If owning Quinn Insurance is such a good deal then why aren’t the other banks trying to get in on the action? Anglo need to explain their rationale to the people and the market.

Fifthly, given that Quinn has emplyees in a number of countries, including the UK and Germany, any perceived state aid in favour of particular countries will fall foulf of the EU Commission. The UK already had a go at Germany over this in the context of Opel. It is likely that both the UK and Germany will be ready to complain to the Commission in any future cases involving one or both of them.

@Sarah Carey – “If the sequence begins with Quinn building up the stake via the CFDs. Anglo discovering he couldn’t pay the bill, then loaning him the money to pay it and at the same time arranging the Anglo 10 bailout…..”

I do see where you are coming from but if you go back there, you would surely need to go further back? What were the drivers for building up that stake? What if it were a share support operation orchestrated/initiated by Anglo?

I think what is happening right now is simply ‘opportunity’.

@Greg – “The government made me do it. The government made me do it.

”

Many a true word spoken in jest?

Anyway… I still maintain this is about preventing a wind down of Anglo and a spilling of secrets – and getting a cash cow injected into Anglo is the icing on the cake.

I guess we will just have to see how it all pans out. Monday looks set to be interesting. In the meantime, I’m sloping off early to watch Leinster play later on and have a few beers on a sunny Friday afternoon.

@ Joseph

“I still maintain this is about preventing a wind down of Anglo and a spilling of secrets”

Quite.

If we ignore moral hazard this is indeed the real moral issue.

You can throw NAMA and its SPVs into the mix as well.

Alan Dukes revealed on 6.01 News last week that Anglo had made a provision against their loans to the Quinn Group. That implies that Anglo does not believe that Quinn can fully repay all of its debts. That, in turn, implies that Anglo believes that Quinn Group’s equity is worthless.

But now, according to the Irish Times “The bank has proposed taking control of the wider Quinn Group, potentially through options or warrants under which it would take outright ownership of the group if certain conditions were not met in future.”
http://www.irishtimes.com/newspaper/finance/2010/0409/1224267974156.html?via=rel

If Anglo believes that it cannot recover all of its loans to Quinn, why is it circulating details of a plan where it would essentially leave Quinn in majority control of his group?

@Joseph

“What were the drivers for building up that stake?”

Agree. Has it been satisfactorily explained? A €3bn question of the moment. A bit like borrowing from the casino to take it over while still at the tables.

From a distance, the level of political ‘interest’ in the work of the Regulator is in stark contrast to previous times. Worrying on several levels.

@ Cormac

I can think of three reasons.

a) Anglo have looked at the books and concluded that there orignal assessment was two conservative and there is residual value in the equity.

b) Quinn is being left with a stake in his own company because he is integral to the resolution of the proceess of managing the empire

c) Anglo or its sole shareholder is exercising forbearance for some altruistic reason

the behaviour of the opposition on this issue is remarkable.

A little off-topic.

ECB statement on the new haircut rules:

Furthermore, the Governing Council confirmed that the following instruments will no longer be eligible as collateral as from 1 January 2011:

*

marketable debt instruments denominated in currencies other than the euro, i.e. the US dollar, the pound sterling and the Japanese yen, and issued in the euro area;
*

debt instruments issued by credit institutions, which are traded on the accepted non-regulated markets; and
*

subordinated debt instruments when they are protected by an acceptable guarantee.

Does this mean that there’s a big chunk of Irish bank debt that can’t be repo’d at ECB by the end of the year? And did we know this was going to happen?

@ Tull

Your arguments have merit but I still disagree. Looking at your arguments in turn:

a) Anglo’s original assessment was too conservative – maybe it was but is it likely that the information to which they have access has changed recently in any material way? I strongly doubt it.

b) Quinn is integral to survival of empire – this is a soft argument given that Quinn has gambled recklessly and lost twice (2000/2001 and 2008/2009) and has twice unlawfully used insurance company assets to finance speculative losses. Quinn’s argument that the loss-making UK insurance business must be reopened argues for his speedy exit from his empire.

c) Anglo is being altruistic – I like altruism but isn’t it normal for people to do it with their own money rather than use mine for the purpose?

@Tull McAdoo
For Quinn to get a sweetheart deal from the government would be in no way shocking. It was revealed in court that AIB gave 500m secured on a completely flimsy basis to prop up Liam Carroll. This was effectively 500m of the 3,500m they knew they were about to get from the taxpayer, which we were repeatedly told was for sustainable SME lending. Liam Carroll an SME? Liam Carroll a sustainable business? Did the government know about this? I would say yes. In fact it was probably an unwritten condition -although unnecessary – of getting the 3500m that they gave Carroll 500m of it.

@ John Mull

Just to clarify a few issues with this:

‘Does anyone know if SQ’s CFDs had a counteparty?
I doubt it. ‘

If he didn’t then by definition it isn’t a CFD!

‘If I remember correctly Anglo’s short interest peaked at something like 12% of shares outstanding – so Sean Quinn’s stake alone was larger than the entire short interest in the stock. In any event, a short seller would be a fool to take the other side of a trade involving a strategic investor like this (even if the stock involved is Anglo).’

The other side of the trade would not be counted as short interest, to be so one must borrow the actual shares.

‘@ Bookworm – the VW/Porsche sage came about through the use of cash settled options, not CFDs.’

Any cash settled instrument is a CFD.

@ tull mcadoo

“Anglo have looked at the books..”

I doubt it.

Given the wide range of businesses and the impact of the recession, It is likely that a new firm of auditors, without connection to the Quinns, would likely recommend bigger writedowns than existing ones.

There hasn’t been time to do a proper due diligence, which reflects badly on the new regime at Anglo if it is recommeding an increased exposure.

Seán Quinn has given a number of interviews but it appears that the journalists have no knowledge of accountancy.

There was a famous case in the early 1970s when Rolls-Royce went bust after reporting a profit and had to be nationalised!

The claims of having plenty cash etc can be taken with a pinch of salt.

@ cormac

Agree with you
-as regards Anglo coming into more information that puts a enables a more accurate value on the equity. This would be probably lower not higher.
-as regards Quinn being a financial genius. The evidence is that he is running the Buffett model without the skills.

Anglo is in the equity position in a highly cyclical business but there appears to be about 4-5billion of debt above it. The average operating profits in the good times were 500m -now probably 300m at most. So the debt exceeds the cash flow by 8-9x. At lest half the debt will have to be written off or converted into equity. How accurate is this?

@Jagdip Singh

Perhaps you would email NAMA and ask them:

(i) what is expected average or typical uplift from LTEV of underlying assets to LTEV of a (loan excluding the application of the standard discount rate and assuming satisfactory security is in place)?, and

(ii) were the estimated enforcement and due diligence costs for all of each participating institution’s entire NAMA portfolio included in the haircut for the first tranche such that it will not be included in haircuts for subsequent tranches if estimates prove accurate?

In the meantime, I have added another post on the original thread.

@Karl
“The serious point here: We are where we are in large part due to very serious regulatory failures. If the first time our new regulator steps in and deals with what he sees as serious failures to comply with regulations, there is any sense of the government (any arm of it) stepping in to protect those who failed to comply, then this would do serious damage to our attempts to build an image of having made a fresh start on the regulatory front.”

It begs the question why is it “..the first time ..”. I would have thought the regulator would be so busy dealing with the regulatory inmproprieties of the big banks, and winding them up, that QI, a relatively minor player in comparison, would be well down the list.
It’s all just a sideshow, and gets the media and blogs onside, the new ref gives a red card to Quinn saying “look how tough I am” while turning a blind eye to banks running amok.

@Aidan McGrath
Leave aside the regulator completely. If Sean Quinn knows where the bodies are buried then all this may well be a choreographed rescue of him by the government. Perhaps no regulator action was taken until now because of the threat that foreign banks would take over the Quinn group. Now the regulator suddenly moves on this and the plan is that through indirect (via Anglo) /and direct action the government:
– gives Quinn a shareholding he doesn’t deserve at public expense
– thus keeping him happily silent
– and keeping evil foreigners away from the books of his empire
We may well be looking at a smaller version of the blanket bank guarantee: the government is taking on private sector liabilities in order to buy silence and keep its control.

@All
Courtesy of poster Grumpy on the pin forum:
“Irish insurance troubles nothing new.”
http://news.bbc.co.uk/2/hi/uk_news/northern_ireland/8609161.stm

Poster Cretinhop has an interesting theory on why there has not been more public reaction so far to the torrent of establishment scandals:

“You know I think the Government’s PR department have cracked it. They watched the episode of Fr Ted where he kicked Bishop Brennan up the arse. It was so incredible, so unbelievable, so shocking that Bishop Brennan couldn’t believe it had happened. That’s what’s happening here. We are getting kicked up the arse daily and we go, “that did not just happen, did it?””.

@ Aidan

Without wanting to dismiss your line of reasoning (this is Ireland), it’s probably simpler than that.

My lay understanding is that the regulator is simply trying to stop QI:
* running up losses on its UK business
* further eroding its ROI asset base
* generating a need for a rescue
* leaving egg on his face

The funding and governance issues around the holding group reinforce that rationale. Hence the ex parte application. The QI affidavit might be interesting.

Re the CFDs. Latest from my enquiries. “Blackstone and Carlyle saw him coming”.

@Oliver Vandt – ” the government is taking on private sector liabilities in order to buy silence and keep its control.”

I suspect you are right but where do we find the evidence? I think it beggars belief that they would leave Quinn as chairman/significant shareholder in the new AngloQuinn Bancassurer division.

Are there any whistleblowers out there? You can always go to Wikileaks if you can’t do it here.

Once this deal goes through, we will never get Anglo wound down or find out what’s in there.

@ Joseph,

Nothing will change. I worked for Liam Carroll and saw him get wiped out. I saw the same happen to Bernard McNamara. The same will happen in the courts as per usual to Sean Quinn. The problem is twofold: These guys in the private sector aren’t clever enough to stay in business long enough, and always put on the green jersey to support government when they are in trouble. I call them capitalists on a leash. But it would be a lot simpler to say, they just aren’t very bright. They will be allowed to keep a couple of hundred million for the sake of their families, and that takes care of private enterprise here in Ireland. You saw the same with Gerry McCaughey, who spent all of a month as chairman of the Dublin Docklands Development Authority, before moving off with his €200 million to California. The other side of the problem is, the banks in Ireland have no skills with which to create any other kind of business, other than those in property. But as I have explained above, the Irish pension fund is the landlord of the same property, and landlord to multinationals who run the biggest call centre in the world, Ireland Incorporated. The build-er(s) created by the Irish banking system are only servants to the pension fund of the Irish public service. It is all circular, and I am very much in doubt that Mr. Honohan will have the sense to put the pieces together either. He is looking in the right general directions. I will give him that credit. BOH.

@Paul
No doubt there are plenty of nasty bugs under the Quinn stones. But I really find the media coverage, more than a little hypocritical. There is almost universal backing for this new regulator in his “get tough” policy – but the point is he is still allowing the banks off the hook – why is there no receiver at AIB. As for Anglo taking over Quinn – that is just perverse! Anglo is the reason surely that Quinn is in trouble.

@All

Anglo-Irish Bank conducting due dilligence on the Quinn Group! Paying off Quinn Bondholders! Naw – can’t be possible – must take another day off – thought last week was the nightmare …

@All

Ah yes – I’m catching up here. This is now about “Saving Cavan” in the national interest, with a bit of Fermanagh thrown in for good measure.
Anglo-Irish is now sprouting little black holes – little stanley yelnats black holes – and each with its little family of toxic lizards – and all of us pleb-serfs in our indentured organge suits diggin an diggin an diggin lookin for the pot o soup at the end of the rainbow.

@Greg
Yes – Looney Tunes! This match can’t happen. These idiots are playing with future debt like confetti …

Anglo is a melting core; spending money on Quinn is like pouring water on a nuclear fire. Build the sarcophagus now and let Anglo and Quinn play with the Spider Pig.

One wonders what legal claims, if any, the Quinn family might have against Anglo arising from the loan to buy 15% of Anglo. One suspects that the Quinns, like everybody else, relied on Anglo’s accounts and possibly on direct representations from bank executives. Anglo is likely to have indemnified such executives against claims.

@All

One more week …

The full hearing of the Financial Regulator’s action to put Quinn Insurance into full administration has been postponed after the company filed a lengthy affidavit this morning. Counsel for the regulator said the affidavit from Quinn Insurance did not appear to address the subject of the regulator’s serious concerns. However, it merited consideration and a response, John Hennessy, senior counsel for the regulator said.

http://www.irishtimes.com/newspaper/breaking/2010/0412/breaking5.html

@All

The department of finance is not directly involved ….
The department of finance is not directly involved …
The department of finance is not directly involved …

Hello! Hello! “The departement of finance is not directly involved …”

Any comment? “The department of finance is not directly involved …”

… something is going on! Something to feign distance from … and on recent evidence brazen enough to try it on …

The Alternative: Wind Anglo-Irish Bank Down ………. hard-ball on behalf of the hope-less serfs of this Kleptocracy ……..

“the affidavit from Quinn Insurance did not appear to address the subject of the regulator’s serious concerns”

Quelle surprise.

I guess this is what you call a ‘holding action’.

@Michael Hennigan – “On an overall basis the Quinn Group has borrowings of €1.2bn from the likes of Barclays and bondholders. These have first call ahead of Anglo.”

I’ve only just realised the significance of that statement (the last sentence). We could end up having to pump another (additional) 2.8bn into Anglo because there would be nothing left for the second call. Would Anglo survive the shock or would it simply be a case of the Minister writing another IOU note?

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