Anglo Trading Update & Orders on Deposits

A busy day for our grossly insolvent banks. Anglo has issued a trading update. In addition, the Minister for Finance has obtained direction orders from the High Court for Anglo and INBS to allow for deposits to be transferred and to enable other aspects of the restructuring plans. Nearly identical statements from Department of Finance and NTMA (with an FAQ here.)

38 replies on “Anglo Trading Update & Orders on Deposits”

Anglo made a slide presentation to the Dept of Finance on September 18th. 2008, published subsequently by the Oireachtas Public Accounts Committee.

This presentation refers to Anglo’s

‘professional, experienced well-capitalised client base’, noting that

‘all lending is secured, cross-collateralised with personal recourse’.

The presentation asserts that

‘Loan book remains strong’

‘bank continues to be highly profitable and capital accretive’ and there is

‘no requirement for external equity capital’.

The final slide concludes that it is

‘All about asset quality’.

Anglo had Loans and Advances of €77.3 billion at September 30th. 2008. In the 27 months to December 31st. 2010, it has reported losses totalling €30.3 billion, to which should be added €3.6 billion from proceeds of discounted bond buybacks, so total losses to date are €33.9 billion. Thus the bank has lost 44% of its loans and advances as of September 2008. Virtually all of these losses must have already occurred by that date. Provisions according to the slide-show on September 18th. were €273 million. It certainly is ‘all about asset quality’.

What consequences flow from the September 18th. presentation for those who made it?

Why the hell does Anglo have to meet the “capital requirements of the central bank”.

It is a junk institution full of junk bonds and junk loans. It dosn’t have a single cash machine and is not a “bank” in any normal sense of the word.

So what if it dosn’t meet the “capital requirements”. Bankrupt it and save the taxpayer another 20bn.

@Colm McCarthy

‘What consequences flow from the September 18th. presentation for those who made it?’

Good question. Methinks Irish-Justice skipped the state a few weeks later …. Patricia the Irish Sovereign_in_Exile skipped within months …. no sign of either since around here – nor is there likely to be in near term imho.

BTW – The IMF have a few 2nd hand Sherman Tanks – pristine condition, great value – you interested? Blind Biddy wants to ride shotgun with her lovely white well polished bazooka … she also wants to drop off her mammy as you pass by the Dail on the way to Kingstown …. making the price of the election deposit etc

If we dpn’t cop on top ourselves Anglo will destroy any economic activity left in this country.

If all we do is take the IMF money and use it to pay German and British “senior bondholders” (who by the way wouldn’t give us a penny at 40% interest”) we are doomed. The reputational damage to Ireland plc has been immense from Lenihans guarantee to all parties. It is highly unlikely that we can recover.

@colm

As for the consequences for the September 18th presentation the sad fact is that they probably got promoted.

If they were embarrassing enough they would have got a golden handshake worth a couple of million.

Apart from Min-mar and North Korea Ireland is pretty unique in its rewards for failure. Failure is seen as a massive positive requiring immediate transfer of huge funds to the individual concerned.

Following the completion of loan asset transfers to NAMA, nominal customer loans will be approximately €35.8bn3 with cumulative specific provisions at 31 December 2010 of €8.8bn.

That’s about 25% provision on the ‘good stuff’ that will be left in Anglo.

Isn’t it about time we got to know who took the Irish citizens money and is not going to pay it back. The NAMA stuff and what is left in Anglo. And why we are spending €240 million for staff and fees to collect 75% of the loans.

If Anglo was a horse ;

You would shoot it.

Jail for animal cruelty those who kept it alive in such terrible circumstances.

Bar from practice any vet found to have assisted in keeping it alive.

@ Ryan

You are 100% right. We want and need to know. This is going to blow up. Enough is enough. People are suffering on HSE wards across the country because all liquidity the government had has been pumped into Anglo.

We deserve to know, we need to know. Enough is Enough!

@Joseph

Did you ever hear the story about biffo and the sandcastles.

Biffo was told that the sandcastles could become really really real if he wanted.

The problem was he needed to go through the gate keeper, a friend of bozzy banker who insisted on bits of paper with harps.

So he had a chat with the gate keeper, who swore he wouldn’t tell, and told him of the the experts in DOF who could produce a facsimile of harp at short notice.

The harp was faxed to the ECB fairy.

And all the castles became real.

@Colm McCarthy

Until the country rids itself of the idea that lying is an acceptable business practice then it deserves to be where it is.

I’d love to know who still has deposits in Anglo and why? The post titlw should read:

Another record breaking year for Anglo – since last year it posted the largest Irish corporate loss in history and will comfortably exceed that.

“The financials for the year ended 31 December 2010 are expected to include:
• Loss for the year of €17.6bn, which includes impairment charges of €7.8bn and a loss of €11.5bn on disposal of eligible assets to NAMA”

Here’s a short history from Wikipedia – some classics in there – including this one from our old pals Merril Lynch

” * 2009 – Merrill Lynch, after receiving a fee of over $11 million, said that the bank was “financially sound”, 11 days before nationalisation.”

Not a conventional usage of the word “sound” !

”
* 1964 – Anglo Irish Bank was established in Dublin.
* 1971 – Anglo Irish listed on the stock exchange.
* 1988 – Anglo Irish acquired Irish Bank of Commerce.
* 1995 – Anglo Irish acquired Royal Trust Bank (Austria), a bank with a 100 year history, from Royal Bank of Canada and renamed it Anglo Irish Bank (Austria). Anglo Irish also acquired a loan portfolio from Allied Dunbar.
* 1996 – Anglo Irish acquired Ansbacher Bankers, which was established in Dublin in 1950.
* 1998 – Anglo Irish acquired Crédit Lyonnais (Austria) and combined it with its existing Austrian operations.
* 1999 – Anglo Irish acquired Smurfit Paribas Bank, a joint-venture that Banque Paribas had helped establish in Dublin in 1983. Anglo – Irish also bought a loan portfolio from Bayerische Hypo- und Vereinsbank.
* 2001 – Anglo Irish acquired Banque Marcuard Cook & Cie. in Geneva, Switzerland, and renamed it Anglo Irish Bank (Suisse).
* 2005 – Chief Executive Seán FitzPatrick stepped down to assume the role of chairman. David Drumm replaced him as CEO.
* 2007 – In January, it was reported that Seán Quinn bought a 5% stake of Anglo Irish Bank for $750 million. In July 2008 Quinn converted investments in the bank to ordinary shares, increasing his family’s stake to 15%.
* 2007- Later in the same January, consultants Oliver Wyman named Anglo Irish Bank as the best bank in the world in a piece of research published to coincide with the World Economic Forum in Davos, Switzerland[41][42][43]
* 2008 – In December, both FitzPatrick, the Chairman, and Drumm, the CEO, resigned (see above).
* 2009 – Merrill Lynch, after receiving a fee of over $11 million, said that the bank was “financially sound”, 11 days before nationalisation.[44]
* 2009 – The Irish Government nationalised Anglo Irish Bank at which point the Irish Stock Exchange and the London Stock Exchange delisted the bank. On 19 January the Board of Directors resigned to allow the Government to appoint a new board.
* 2010 – Alan Dukes appointed chairman
* 18 March 2010 – Former chairman Sean FitzPatrick is arrested for fraud.
* 31 March 2010 – At €12.7 billion, Anglo posts the largest loss in Irish corporate history.[8]
* 2 June 2010 – Irish Minister of Finance, Brian Lenihan, announced a €2bn cash injection for Anglo Irish Bank.[45]
* 8 September 2010 – Lenihan announced the separation into two entities.[14]
* 30 September 2010 – the Irish Government announces a total estimate of the eventual cost of the Anglo Irish bailout as at least €29.3 billion, while also announcing that two other banks, AIB and Irish Nationwide, will require additional funding[46]”

@a McGrath

Was Sean Fitzpatrick arrested? I do not believe so. Yes, he was questioned, but to my knowledge that is all.

Can anyone explain what exactly is being auctioned in respect of Anglo and INBS (okay we know it’s an €18bn deposit book according to the IT last week though the Anglo accounts today would indicate less than that, perhaps €15bn for both Anglo and INBS)

But what are you buying?

You are certainly buying a liability to the depositors. And a commitment to pay interest on deposits in future and offer a safe deposit and cashier service.

It’s not as if Anglo or INBS will be giving you the depositors’ cash because most deposits have been loaned out. So there’s no cash coming across with the deposit books, presumably.

So what will the auction look like? Will INBS and Anglo pay some bank to accept the deposit books and take on the commitment to pay interest and provide cashier services?

Say BoI want the deposits because it will help them reduce their loan:deposit ratio which is a deleveraging requirement under the IMF/EU bailout. Will BoI bid MINUS €15bn for the deposits and if it wins the deposit books are transferred to BoI. And Anglo/INBS give BoI €15bn cash…

Is this how it works?

@AMcGrath

“I’d love to know who still has deposits in Anglo and why?”

Depositors.
Because they are paid interest and their deposits are guaranteed by the state.

It is more rational to have deposits there now than in September 2008 when the bank was about to go bust.

@Joseph Ryan
He was arrested OK – you don’t have to trust wikipedia on that one
http://www.rte.ie/news/2010/0318/bray.html

But it is the Austrian subsidiary that is the really interesting item on that list. Missing from the bullet point list is that is was sold on to a Swiss bank in Sept 2008:

“Anglo Irish Bank Corporation plc (“Anglo”) today, Friday, 5th September 2008, announces that it has agreed to sell its Austrian private banking subsidiary, Anglo Irish Bank (Austria) AG, to Valartis Group AG (“Valartis”), a listed Swiss banking group with international wealth management and asset management as well as investment banking activities.”

Interesting timing there – moving bodies I guess

Valartis offer these type of services:

“VALARTIS BANK AUSTRIA

* private bank offering private banking to individuals and legal persons (companies) including offshore companies
* austrian subsidiary of this swiss bank was formerly known as Anglo Irish Bank Austria
* bank listed on the SWX Swiss Exchange
* the account could be established in our office without any mediatory fee
* fee to the bank for establishing the account is EUR 150 for companies; individuals have it for free
* fee for account administration is EUR 40 per year for individuals and EUR 200 per year for companies
* there are no charges for incoming transactions
* requested minimum account balance is EUR 100000. After reaching this balance, you can receive a debit card
* the account can be managed using phone, fax, or e-mail. Internet banking is not provided. ”

http://taxfreeliving.eu/index.php?id_document=83

@grumpy
“Because they are paid interest and their deposits are guaranteed by the state.”

Anyone who still has deposits in the guaranteed banks imo needs their heads examined. I long ago came to the conclusion that there would never be enough to pay bondholders and depositors – and bondhoders will have far more legal clout than small depositors.

Jagdip

Er, basically yes I think so – except there is usually a very small % of the gross deposits to reflect goodwill (the value of the contacts and inertia of the clients).

AMcGrath

The large depositors will head for the hills at the first sign Irish politics looks like it might default on the sovereign guarantee. The small deposits would be considered more secure than the senior bonds because of the 100,000 guarantee, and anyway most would be fairly footloose.

@ Jagdip

ah, back to figuring out just how you sell a deposit book! Lucey, you tuned in???

Ok, this is why a “sale” is a bad term. In reality its a ‘tranfer’, with, as Grumpy suggests, potentially some small consideration paid by the bank taking on the deposits.

The Banco Santander “purchase” of Bradford and Bingley is the best example: roughly 20bn in deposits was transferred from B&B to Santander on 2008, for a total consideration of something like 200mn. This included quite a few physical branches/buildings as well. Santander also received 20bn from the Bank of England in return for this.

Basically the new banks takes on the deposit liabilities of the failed institution, and receives an equal amount of assets (or just pure cash) as well, so its a net zero effect between the two sides of their balance sheet (it’ll inflate the total size of it though). There may then be a small payment from the recipient bank for the deposit book, but this will depend on the rate paid on the deposits, the ‘stickiness’ of the depositors, and any potential cross-selling opportunities, ie “the franchise opportunity”. In theory as well, having customer deposits would allow some banks to become less reliant on wholesale funding in their reporting metrics (PTSB, i’m looking at you!), so that may also add a bit on to the consideration.

So if you had a load of deposit accounts held by grannies, paying 1%, and unlikely to see withdrawals anytime soon, then you might pay a decent consideration, but it would only be a max of 1% total in my view, as they could just as easily pull all the money out the door tomorrow. If it was a corporate deposit book paying 5% on all the accounts, then you’d likely pay nothing on it in terms of consideration.

As such, for Anglo and IRNW, given that its at this stage highly corporate/high net worth, its going to be at the lower end of consideration, maybe 20bps or so tops.

So, per your example about BOI, they might bid 25mn for the deposit books, receiving 15bn in deposits and 15bn in cash or cash equivalents (i’m thinking NAMA bonds here btw). I’m assuming little or no costs here, which is somewhat assumptive – they’ll probably have to take on some of the Anglo staff who know about the depositors where there is direct contact etc.

@ Grumpy

Slide 23: its a “marathon not a sprint”, and “asset quality is never sacrificed for volume”. Oh mercy…

@ Colm McCarthy

These losses to date..30.3 billion…..is it possible to trace the origins of these or is that information within reach of the ordinary public?

I am thinking back to that prime time special on the property developers and how they were all still pretty much carrying on as usual lifestyle wise…albeit in some cases at the mercy of their wives.

There appears to be a disconnect between the losses the banks are declaring on developer loans, and the developers themselves…a typical irish fudging of the facts thats allowing failures to continue to prosper.

@ Eoin Bond

Interesting, thanks. And I see the Central Bank statement yesterday uses the term “transfer” rather than “sale”.

So the headline in a few weeks might be

“Deutsche Bank [or British bank if that’s any less nationalistic] buys €15bn of deposits for €30m” the DoF might want to put a little more information in the public domain as to what is planned to avoid further public unease.

It is unclear though what asset will be transferred by Anglo/INBS with the say, €15bn deposit books. Looking at Anglo’s balance sheet from yesterday’s announcement, it is simplistically

Loans 27
NAMA bonds 11
Promissory Notes 26
Available for sale financial assets 3
Loans to banks 4
Total 72 (includes rounding)

Depositors 11
Borrowings from banks (incl 45 from central banks) 47
Debt securities 7

Total 68 (includes rounding)

Capital 4

So it looks like Anglo will just have enough NAMA bonds to accompany the 11bn of deposits (I note DoF yesterday was talking about auctioning “the bulk” of deposits and of course it is a movable feast and there are likely to be further withdrawals in the next few weeks).

These low interest bearing securities (and remember 5% are subordinated which might not be honoured if NAMA makes a loss) can presumably still be converted to cash at the ECB with a 1.5% haircut or else you hold the bonds and hope NAMA redeems them or that the government guarantee can be called in. NAMA bonds are not exactly cash.

I think this sale will be riveting and will throw up all sorts of state-aid and NAMA bond issues.

If the assets to be transfered with the deposit book are NAMA bonds rather than cash, surely the interested buyers will be limited to Irish banks?

Can you really see a UK/French/German bank upping its exposure to Ireland at the moment?

Maybe the ECB would be interested….

Good news at last.
Not another cent.
Varadkar just now on radio.

I thought that was Joe Higgins and Gerry Adams position.
Good news in any case.

In fairness to varadker he has been the the most vocal FG’er on this. But I sometimes think his gung ho sinn feinesque pronouncements may be too capitalistic for the rest of his party. Wonder what the rest of his party think of this? Because we now have a pretty serious situation. Either we pay up or we welch on the Bank guarantee.

From the FAQ sheet posted by Karl.

“When do you expect a decision on the restructuring Plan?
This is a matter for the European Commission in the first instance. A restructuring plan for Anglo Irish Bank and INBS was submitted to the European Commission on 31 January in line with the timelines agreed with the IMF, ECB and EU for approval under State Aid rules. The national authorities are continuing to engage closely on an ongoing basis with the European Commission and the other bodies on this plan. The current expectation is that there should be an indication of the Commission’s
assessment as to the restructuring outcome later in the spring.”

Is there a way of knowing what is in this plan?

As the rhetoric is now “not a cent more” might this position conflict with this plan or with the MoU: particularly with regard to unguaranteed debt?

Is there a link to the MoU that one can read?

Thanks

@Grumpy

That’s for the link. To me that is a for starters immediate saving for Irish people of €43 billion (€59 billion less the €16Billion State secured).
It dwarfs all the ephemeral nonsense about a lesser rate of interest.

A pity the chart didn’t have a column for total bonds redeemed since Sept 2008. We could see then just how far into slavery the country has been sold.

I remain confused about what will be transferred to back the liability of the deposits. If the assets are, for example, NAMA bonds, then surely the transaction will have a negative cash worth? Only an additional ELA from the ICB from Anglo with the assets pledged in return for the cash makes any sense – the ‘buying’ bank gets cash that it can use, the ICB gets a bigger balance sheet. Soon it will own the world…

@Eoin Bond (9.20) Jadgip/Hogan.

Good explanation but it does not answer what asset in this particular case will be given to the transferee bank taking on what is in effect a debt due to customers of €15 billion. [Hogan’s question]
How about a very attractive 5% Irish State bond, fully guaranteed by the Irish State, that the ECB will have agreed to buy immediately at face value.
My reason for commenting as above is as follows:

As I see it the only way for somebody to take on the liability for €15 billion deposits in Anglo/INBS is to saddle the shell of Anglo/INBS with a liability for the debt.

That means saddling the Irish citizens again.
Mind you they have not needed a saddle for their performances so far.

@Jadgipre What will back the apporox 15billion Anglo/INBS deposits

@grumpy/yogan

It is not clear what will back the c€14bn of deposits or indeed if the deposits will be bundled with other assets/liabilities such as branches, staff.

All the press reporting that has referred to the accompanying asset transfer has suggested that NAMA bonds will feature on the asset side of the transaction which would make this a more difficult transaction to assess. And I would have said given the NAMA banks with existing NAMA bonds (that’s you Bank of Ireland!) an advantage through familiarity with NAMA bonds if nothing else.

In the UK, the British government threw in GBP18bn of cash with the GBP21bn B&B deposit book sale to Santander (see below for more detail on that including the involvement of the UK FSCS) – that sort of approach should not be ruled out here, though given we’re in an election campaign I would have expected Opp parties to be pressing for answers.

http://www.fsa.gov.uk/pages/Library/Communication/Statements/2008/bradford_bingley.shtml

Sounds like Anglo’s presentation mentioned above was a modified version of this one to US investors in Jan ’07 and a nearly identical one give to Merill Lynch in ’06. Why change a winning formula?

http://www.angloirishbank.com/Investors/Presentations/2007/Davy%20NY%20Jan%202007%20conference.pdf

One quote recycled for the Dof was –
“Not growth “junkies” – All about asset quality”

http://www.angloirishbank.com/Investors/Presentations/2007/ (other years there too, just manually modify the year in the URL)

Slightly interesting to see the minor change of presentation style by Drumm over Fitzpatrick, less slides, but same lazy and superficial story.

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