€2 Billion More for Anglo

From the Department of Finance:

The Minister for Finance, Mr. Brian Lenihan, TD has confirmed today that an additional €2 billion is being made available to Anglo Irish Bank to support the capital position of the bank. This capital injection is in line with the Minister’s statement to the Dáil on the 30th March 2010, when he pointed out that the bank would need further capital to cover future losses and accomplish the restructuring of the bank and its balance sheet. This capital contribution was also approved by the European Commission last March.

The capital requirement arises out of additional losses resulting from the level of the discount on the first tranche of Anglo’s loans transferred to NAMA and further impairments on the remaining loan book. The Minister has previously provided €4 billion in 2009 and €8.3 billion by way of a Promissory Note to the Bank on the 31st March 2010.

At that time the Minister indicated that additional capital could be of the order of a further €10 billion. The €2 billion announced today is part of that anticipated capital requirement. The amount of further capital that will be required is dependant on a number of factors including the discount applicable to future tranches of assets transferred to NAMA and further losses on the bank’s non-NAMA loan book

The capital support is being provided by the State in the form of a promissory note, payable over a number of years into the future. In essence this means the amount will be paid over a period of 10 to 15 years, thereby reducing the impact on the Exchequer this year and stretching the payments into the future.

Anglo’s restructuring plan is being submitted to the European Commission today. Discussions between the Commission, the Department and the Bank on the restructuring plan will continue and the future of the bank will be determined by those discussions. As the Minister stated last March the overriding objective of the Government is to minimise the cost to the taxpayer of the restructuring of Anglo Irish Bank.

In relation to the wonder of promissory notes (about which I’ll bet you’ll be reading in the business section of your newspapers tomorrow) I’m pretty sure this stuff about minimising impact on the Exchequer won’t fit in with the Eurostat people’s worldview. Most likely, this and any other promissory notes issued to Anglo, INBS or EBS will count towards this year’s General Government deficit.

This stuff suggests though that the NTMA, lacking the Department’s gift for PR, have been missing a few tricks in relation to promoting their activities. I suggest the following as a press release the next time they issue a ten-year bond:

The NTMA has today issued a new bond. To reduce the impact on the Exchequer, the state will only have to pay out about 5% of the face value of this bond over each of the next few years and the rest of the payment is stretched out way into the future. In fact, apart from that little interest payment, we don’t have to pay a cent back until 2020. We are exploring the idea of further helping the Exchequer by issuing lots more of these wonderful bonds.

Beyond the promissory note silliness, what else can you say at this point? Will the usual suspects be along tomorrow to explain to us how, in fact, there is no connection between the banking and budgetary crises, or have even the most hardcore loyalists thrown in the towel on that particular denial of reality?

35 thoughts on “€2 Billion More for Anglo”

  1. Promissory Notes – They are wonderful. You can issue them willy nilly- no pesky credit rating agencies to bother about- sure you can assign them AAA yourself
    and best of all they are legal (hope they did not forget the stamp).

    Unlike the quantative easing the boyos in Laois were attempting.

  2. Sorry, partially repeat post

    In the context of our national debt, I see the government on Friday last injected another €2bn into Anglo.

    http://www.irishtimes.com/newspaper/breaking/2010/0531/breaking56.html

    So now the “dead-money” bailout has cost us €16.9bn (€3.8bn + €8.3bn + €2bn + €2.7bn + €0.1bn) (Anglo 09 + Anglo 10.1 + Anglo 10.2 + INBS 10 + EBS 10).

    And for all the future debate and uproar on the matter, it will merely be historical analysis. This money has been spent (or committed to by the government via promissory notes and the only way the govt can escape the commitment is to default). So gone forever.

    So €16.9bn gone. The only question now is about the future estimates (€8bn + €0.75bn + €??) (Anglo + EBS + Anglo/EBS/INBS additional).

    With respect to the future (and from a decision making/influencing point of view, isn’t that all that is relevant?), the ECB Financial Stability Review published today predicts that there are huge losses coming down the road – €195bn in 2010/11 compared to €238bn in 2009. Haven’t had any chance to look at the detail of the Review but I can feel in my waters that Morgan Kelly’s (and to be fair others as well) prediction of future losses will come to be.

    http://www.ecb.int/pub/pdf/other/financialstabilityreview201006en.pdf?97a5443290064dc943c3102495c832fc

  3. Sure thats only €500 for each man woman and child in the country. EBS, INBS and Anglo are “SYSTEMIC”.
    I think there will be a new definition of Systemic in 2020.

    Systemic is an illogical belief in an institution or institutions leading to mass delusion and impoverishment of the entire society. Often backed up by the logically improbable argument of “the dominos” systemic institutions require the diversion of vast amounts of resources to support them. Like a tumor they will divert the blood and oxygen supply of the system to support their growth and the entire construction, legal and political structure of the country will gradually be diverted to their support. Historical examples include the Easter Island statues and Pol Pots year zero campaign. Recent history also shows that modern democratic societies can fall for the systemic delusion an example being Ireland a previously independent state on the periphery of the EU that diverted its entire political, financial, construction and legal structures in what was to become a text book example of the SYSTEMIC DELUSION to support ghost institutions that have long been forgotten about. Despite having the largest drop in GNP in modern history the independent government continued on its path to improvise this once independent province that was actually referred as the celtic tiger economy in the naughties having built a very successful high-tech economy about a combination of low taxes, good education and EU membership.

  4. @Karl
    There is something deeply depressing about this transfer of our money into the event horizon that is Anglo. Anybody like to explain what exactly is Anglo doing with this money, and what happens if it doesn’t get it?
    I was under the impression that business at Anglo is non-existent – so what purpose does it serve?

  5. @Aidan McGrath – I’m not sure how many employees Anglo has or what the average wage is but it appears to be one hell of an expensive job creation scheme from here – and this (the cost of it) is obviously what has put the government off of trying any other job creation schemes in Ireland.

  6. @Aidan McGrath – I’m not sure how many employees Anglo has or what the average wage is but it appears to be one hell of an expensive job creation scheme from here – and this (the cost of it) is obviously what has put the government off of trying any other job creation schemes in Ireland

  7. @ Aidan

    Depression is painful, but it is progress.

    With respect to Prof Whelan, and all the other economics experts, it seems to me that Anglo is like someone on a ventilator. They are breathing, their heart is pumping, their kidneys are working etc, but they are sedated. They ain’t going nowhere, and they won’t be taking any questions. Even if they are a goner, its important to know, for preventive purposes, how they got into that state.

    Anglo borrowed tons of money abroad, to lend to crony developers here. A mad gamble in retrospect, but it was hugely admired at the time. All it is doing with our money now is paying off those gambling debts, so that it can eventually be let die off in a respectable manner. So as not to bring disgrace on the family.

    Our government guaranteed Anglo debts in 2008, on the basis that it was a ‘systemic’ (vital) institution. In other words, they chose to treat Anglo debt as if it had been Irish state debt. Lots of folk disagreed, but they did it anyway, and it’s now the law.

    The so-called Celtic Tiger looks at this stage like a bit of a childish fantasy. There is a s concept in child development theory called the ‘depressive position’. It follows on from the ‘omnipotent’ stage.

    The infant eventually comes to have some awareness of the fact that there is a world out there which isn’t all about meeting his/her infantile needs. Growing up is about recognising and accepting limits. No doubt there is a limit on how much bank debt can be loaded onto the citizens too.

  8. @paul
    thanks – I guess these are the bondholders we are so fearful of defaulting on?

  9. Is Anglo still writing down loans in tranches? It’s the only explanation I can see why it would need such large lump sums every couple of months.

  10. Still looking for that thread (today) where BWII said the guarantee had cost absolutely nothing so far! Where are you BWII and do you still believe that?

  11. Ireland Inc. needs to bite the bullet now..

    Let Anglo Irish Bank and maybe some others go …..it will ultimately be better.

    All Ireland Inc. is doing is building up a bigger debt problem for the future supporting these ‘catastrophes’.

    Let the chaos begin NOW….have no regrets.

    And a better stronger country with a better banking systems will emerge.

    The Irish Government (People) need to get off the hook on this thing. And the Irish Government (People) need to stop messing around with stuff they no nothing about …like crisis economics.

  12. @ Aidan McGrath

    “what exactly is Anglo doing with this money.”

    This is now the key.

    If Prof. Honohan wishes to protect his impeccable credentials he would want to begin addressing what are now becoming very serious transparency issues surrounding the Anglo bailout.
    .

  13. @Cearbhall

    Anglo needs capital to staunch the capital losses but more likely it also needs liquidity for day to day operations. If it didn’t get that, it would default and crystallise the guarantee….

    @Aidan McGrath

    The BWII quote you were looking for is as follows (and it gets better if you re-read it a few times):

    “How would we be in a better place if we had excluded bonds from the guarantee? How much has guaranteeing these bonds cost? The only way to default on these bonds is to have the bank liquidation we are trying to avoid. The guarantee was only for TWO years and has so far and most likely will cost nothing. To that extent the TWO year guarantee was a resounding success, all upside and we didn’t have to pay out, like insuring a catastrophe which never happened.”

    Quite. A catastophe which never happened.

  14. I recall saying that this fear/love affair with banking debts would turn us into Easter Island, never mind Iceland.

    I take it we agree on the danger?

    Do we allow it to happen?

    Ahh, why not, it’ll be fun to watch the unwashed take it out on their betters ……..

  15. @Dave
    “Is Anglo still writing down loans in tranches? It’s the only explanation I can see why it would need such large lump sums every couple of months.”
    I reckon they are winding down their Interest Rate Swaps.

  16. Given that the €2bn is in promissory notes, not cash, then can the injection really be for liquidity purposes?

    Also the injection on 28th May, 2010 is nearly three weeks after the first tranche was transferred at a 55% haircut (you could argue it was a 62% haircut because NAMA refused €0.7bn because of issues with paperwork and security).

    Anglo upto last Friday would have had a 19% provision against the remaining €26bn NAMA-bound loans (subtracting the €5.1bn haircut from tranche 1 from the Dec 09 provision) and even if the €2bn has been applied entirely to NAMA – Dof say “other loans” also needed a provision – then at max the remaining NAMA loans have a 26.6% provision.

    Isn’t it time to put it to Matthew Elderfield that either Anglo is significantly insolvent or is reckless with its provisions against NAMA loans?

  17. @Jagdip Singh – “Given that the €2bn is in promissory notes, not cash”

    Can they not use said promissory notes as collateral to raise cash?
    Or am I thinking of something else? I’m possibly losing the plot.

  18. Once more unto the breach, dear billions!

    Quite incredible that they’ve determined to keep Anglo going. It makes little sense. What are Anglo’s core competencies? Do they excel at something?

  19. This extra capital is said to be as a direct result of the lower-than-expected haircuts applid to Anglo loans in the first tranche.

    The only thing I will say here is that I am actually happy that this €2bn has been put in as recapitalisation and wasn’t disguised as payments for the first tranche of loans.

  20. The way we all have so far remained in this benighted isle as the elected dictatorship that masquerades as a government continues to p1$$ our money away reminds me of:
    (1) the apocryphal frog that stays in the water despite the ever increasing temperature.
    (2) the ever so real band of Anglo shareholders who believed in the efficient market hypothesis during the 18 month implosion and decided to stick with their shareholding.

    Another 2 billion down the drain. The fact that it was signalled on Terrible Tuesday in March doesn’t diminish the pain.

    This country must have some extraordinary grip on our psyche if so few of us have left up to now.

  21. Alan Ruddock is a huge loss to journalism in Ireland and had a great insight into this country. As Kevin Myers pointed out today he was very courageous and not afraid to tell the story as he saw it. He was one of the most vocal critics of the Anglo event horizon.

    http://www.independent.ie/opinion/analysis/dont-bank-on-this-lot-to-come-clean-on-their-own-2142492.html

    http://www.independent.ie/opinion/analysis/nama-has-started-to-pull-punches-already-2200426.html

    http://www.spectator.co.uk/alexmassie/6046924/alan-ruddock-19602010.thtml

  22. @Joseph

    “Can they not use said promissory notes as collateral to raise cash?”

    As I understood it, all of their tier 1 capital could be used to raise cash. I don’t see this as a liquidity matter – I think it’s a capital cover/insolvency matter. The Dof has said it’s to cover losses with NAMA and remaining loans – RTE seem to have the best verbatim from Upper Merrion Street.

    http://www.rte.ie/business/2010/0531/anglo.html

    “A statement from the Department of Finance said the bank needed new funds because of the losses it had taken on the loans transferred to the National Asset Management Agency and because of further losses on its remaining loans”

  23. @Greg
    “Did we guarantee derivative positions”
    As long as we keep Anglo going, it will pay its bills.

  24. Couldn’t we just use some of those free NAMA bonds from the ECB Frank Fahy was promising us back in September? You know, the ones we never have to worry about paying back because the ECB will repo them and NAMA will make a huge profit and then Gandalf will summon the Eagles to swoop down and collect us from the slopes of Mount Doom….

  25. @Ribbit
    “Couldn’t we just use some of those free NAMA bonds from the ECB Frank Fahy was promising us back in September? ”
    the ones that would get credit flowing? them ones?

  26. Has anyone figured out what would happen if the Eureopean comission regected Anglo’s business plan?
    From where I see it, this is going round in circles “one semi state bailing out another semi state”.
    Someone will call a halt to this and it will not be the Irish Government.
    Anyway what the F**K do I know,I am not an economist or a banker. 🙄

  27. @Brian Lucey

    But the audience from Athlone on Primetime here are telling Batty O’Keefe that it’s not flowing. One of them just used the phrase “self-deluding lie.”

    At least the Shannon is still flowing in Athlone.

    Somebody just asked Batty where the jobs are that they voted yes to the Lisbon treaty for. “Ah – we need to create the right environment… and it’s all about cost inputs,” says Batty.

    Apparently we are “going to get them all back into the education system.”

    There was also a comment about trying to stay in education as long as possible, go do a Masters etc. (because there’s f-all out there in terms of employment for graduates). Perhaps nobody has pointed out that’s already happening.

  28. @Joseph:

    “At least the Shannon is still flowing in Athlone.”

    Wait until the Dublin local authorities get their hands on it. But maybe the reduced demand for housing and jacuzzis, and the prospect of water metering, will reduce demand for water amongst the Eastern Folk. Not that changes to Real Life ever caused a local authority to change its plans.

    bjg

  29. This is another AngN000,000,000 moment. The government has wasted TWENTY FOUR BILLION EURO (don’t forget the 10 Billion the central bank put in) on a non-systemic bank (and the ECB has put in more again).
    €24,000,000,000….and more still to be thrown on the Crony Bonfire.
    In most countries the responsible government, let alone the responsible Minister for Finance, when this bank went on its lending spree would have long since been forced from office. How many more billions will it take?

  30. @Tim Morrissey
    I read Ruddock’s columns with enjoyment. His views were on the right but not in an in your face way. He was correctly sceptical about the government before the last election. I thought he seemed (forgiveably) uncertain in his overall assessment of the government’s banking policy. His most recent story about NAMA being a bailout for developers would therefore seem to have been a crossing of the Rubicon moment. It is a great loss for national economic debate as well as being a personal tragedy.

  31. @Tim Morrissey & Oliver Vandt

    Yes – I also read Alan Ruddock, and have linked some of this stuff on this blog previously. Serious journalist and a “great loss for national economic debate as well as being a personal tragedy.”

    But what I will miss most are his sporting snippets – especially on Irish Cricket.

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