Anglo Irish Bank’s failure has become the single most costly fiscal problem in the history of the Irish Republic. The citizens of this state should at least expect to see evidence that the problem is now being managed in a competent manner and to be clearly informed about what is going on. Today’s announcement is a failure on so many levels that I can honestly say that, even by the low standards that have been set up to now by this government in its handling of the banking crisis, I fear we may have reached a new nadir.
Three issues are worth pointing out:
Communications Meltdown: The Department of Finance released a minimalist statement this afternoon on its website. However, much of the media discussion of today’s announcement has revolved around an FAQ document which, as of now (almost 11PM) the Department has not seen fit to release to the Irish public. On this site, we have been able to read the FAQ because anonymous commenter Eoin received it and posted it here (Thanks Eoin, much appreciated). I don’t think I’m giving away any secrets in saying that Eoin received this document because he works for a financial institution. Think for a moment about this as a communications strategy: Guys who work for banks get to read the answers to key questions but the taxpayers who have bankrolled this disaster don’t. For sheer tin ear, the Department officials deserve to be sent for three months compulsory service at the Terry Prone School for fake sincerity.
Mixed Messages to Depositors: The only, and really I mean this, the only advantage of the Good Bank\Bad Bank split was that it could reassure depositors that their deposits were going to be attached to a fully capitalised, fully functioning bank. Preventing a deposit flight from the bank is in everyone’s interest. That their deposits would not be attached to a fully functioning bank was clear from the DoF’s statement, which established that New Bank would not be making loans. However, the statement tried to reassure that “Depositors with the Funding Bank will be completely insulated from the future performance of the rest of the current Anglo Irish Bank loan book.” However, the FAQ (thanks again Eoin) informed us that
It is anticipated that the Asset Recovery bank will be funded by the Funding bank. Funding will be provided by the Funding Bank from normal sources. As the Recovery Bank reduces in size its funding requirements will also reduce.
In other words, if you have a deposit with Funding Bank, that bank’s assets are loans to the Asset Recovery bank, which (word has it) is insolvent. A statement that the deposits were being transferred to, for instance, Irish Life and Permanent (backed by NAMA bonds or other Anglo financial assets) might have been reassuring to depositers. Today’s messages to depositors were mixed and not reassuring.
Drawing a Line Under It/Message to Sovereign Bond Market: The sovereign bond market is crying out for some sign that we’ve got a final credible figure for the cost of Anglo Irish Bank. What did we get today? Assurances that more technical work would be done to figure out how much capital would be needed. Almost two years after Brian Lenihan talked about “going deep into the banks”, a year and a half since we were told that NAMA would provide clarity about losses and help us move on, over a year since new supposedly highly qualified management were put in place to preside over the bank, we’re being told that we need more time to look at the books? Give us a break.
Note that I haven’t even discussed any of our old bugbear issues of risk-sharing with bond holders (Lenihan indicated today that unguaranteed senior bond holder would be looked after.) The point is that even when judged against what the government wants to achieve, today’s announcement can only be judged as a complete failure.