Author: Karl Whelan

PWC’s Stress Tests

Now that Anglo has officially blown through essentially all of its capital, and given that the government regularly cites PWC’s recent assessment of BOI and AIB’s likely capital needs, I thought it might be a good moment to remind folks of this excerpt from the PWC report on Anglo (released in February, fieldwork concluded on December 10):

Under the PwC highest stress scenario, Anglo’s core equity and tier 1 ratios are projected to exceed regulatory minima (Tier 1 – 4%) at 30 September 2010 after taking account of operating profits and stressed impairments … We used an independent firm of property valuers (Jones Lang LaSalle) to value a sample of 160 properties held as security in relation to the top 20 land & development exposures on Anglo’s books as identified in our Phase II review and report. The results of this work indicated that impairment charges over the period FY09 to FY11 would fall in a range between the two PwC impairment scenarios but closer PwC’s lower impairment scenario.

Hoocoodanode?

Bradford and Bingley Precedent for Anglo Debt?

With Anglo about to report its results, last Sunday’s newspapers contained stories that the government was considering not honouring coupon payments on Anglo’s Tier 1 perpetual bonds. In light of that, it is interesting to note the following story (from Wednesday’s FT):

Bradford & Bingley, the nationalised mortgage bank, quietly issued three statements after the market had closed on Tuesday, informing holders of three classes of notes that they would not now be getting their next due interest payment.

The FT notes that the market value of these bonds collapsed on this news. Anglo’s perpetual bonds have been trading at about 15% of par value lately.

Update: Anglo results released here along with a statement from the Minister of Finance.  The loss of €4.1 billion essentially equates to all of its equity capital (see page 23 of the report’s PDF file.)   And from the Minister’s statement:

the Government has decided, subject to EU approval, to provide up to €4 billion of capital to Anglo. The bank is also in a position to generate further capital of its own by buying back certain outstanding subordinated loans from bondholders at a significant discount to par value. This exercise will generate profit and additional capital for the bank.

See page 50 of the report’s PDF file for details on Anglo’s subordinated debt, which has a book value of €4.9 billion.  About €2.1 billion of these bonds are dated, and thus covered by the guarantee up to September of next year (though the earliest maturity is 2014).  The remaining €2.8 billion are undated and are not covered by the guarantee.

NAMA Meeting at Dail Finance Committee

Now that the transcript is available, it’s clear that lots of interesting stuff came up at yesterday’s Oireachtas Comittee meeting on NAMA, most of it unreported by the press.  Here’s a collection of statements I found interesting.

Continue reading “NAMA Meeting at Dail Finance Committee”

Market versus Economic Values

When the NAMA Project was announced, Peter Bacon discussed the pricing process as follows on Morning Ireland:

Peter Bacon: It will be set by reference to the market. The market, as you know, has fallen dramatically. And I think people have overestimated the difficulties in estimating what these market values are.

John Murray: At the moment there is no market.

Peter Bacon: Well, there is a market.

John Murray: Nothing is selling.

Peter Bacon: For example, in the residential sector, you have monthly indices telling us how house prices have fallen by 1.4% to whatever level. We have information about yields on commercial properties moving out to 8%. I think a lot of people are saying “well, there’s no market” but really what they’re saying is “we don’t like the answer that’s there.”

Continue reading “Market versus Economic Values”

McDonagh and Bacon at Dail Finance Commitee

All you NAMAphiles out there will be interested to know that Peter Bacon and Brendan McDonagh (interim Director of NAMA) appeared today before the Oireachtas Joint Committee on Finance and Public Service. (Updated stories now report that the Minister for Finance also attended.) So set your Sky Plus for Oireachtas Report!  Seriously, though, I will post a link to the full text of the meeting as soon as it is put up. Meanwhile, I can leave you with this interesting excerpt from the Irish Times breaking news report:

Mr McDonagh made a similar point today to the Committee saying: “We believe the Government is basically interested in keeping banks listed and relies on Nama to trigger a change of market sentiment”.

JPMorgan Chase analysts wrote in a note today: “We thus see sizeable chances of a smaller haircut to avoid further capital needs”.

Update: Here‘s the full text of the meeting.

Correction: It turns out that Mr. McDonagh did not say the line that the Irish Times had attributed to him (the updated version of the story no longer contains this quote.)  I had scanned the transcript to see did he say this line, which appeared a strange one to me.  In fact, this line is also an excerpt from the JP Morgan note.  Apologies for misleading readers by relying on our so-called paper of record.