Anglo Irish Bank gave what can only be described as a lack lustre performance during yesterdays Oireachtas Committee grilling. With a broken business model that cannot be fixed the total cost to the tax payer remains unknown as the €4bn being transfused into its shattered balance sheet is an advance instalment.
Its “worst case” estimate is that another €1.5 to €3.5bn may be needed from the tax payer’s purse even after a NAMA bail out. This means that if NAMA takes the toxic loans and allied good ones off the banks hands, the bank will still end up with upwards of €3.5bn impaired loans. And it says it can only guess at how much NAMA will buy and at what price. The figure may be higher or lower.
Unfortunately worst case estimates have a habit of subsequently becoming hard balance sheet facts in Irish banking. Still the only figure that can be admitted to under accounting rules is the actual exposure today as predictive estimates are not allowed. Apparently this explains why Anglo’s accounts last September were not a fairy tale. It seems that even where you know the truck is about to hit your best friend you are not allowed warn him. In bank accounting you must wait until it does and then tell him it has. Having been hit by one truck costing €4.bn, Anglo is however indicating there is chance of another one coming along that could cost another €3.5bn.
Much was made of the systemic risks of an orderly wind down which is strange given the board has only been tasked with operating the bank as a going concern. But what does going concern mean? So far the going concern business plan includes one thing and that is to prevent the collapse of the bank by stabilising it, hence the infusion of billions in ECB deposits and €4.bn infusion of tax payer’s funds (which will almost certainly never be recovered). The rest of the going concern plan is being discussed with the Minister for Finance and according to its Chairman will result in a viable bank – which is a bit like saying it’s a plan to create a bank.
Critical detail was missing and no indication was given what size bank it would become and what it would actually do to become viable save to say that it would be smaller. The business case is to stabilise it or what’s called “de-risk the balance sheet” which will make it smaller but not viable. The viable bit will mean crafting a silk purse from a sow’s ear.
Pressed to explain what investment loans meant, Anglo admitted they were mainly property loans. Finally the emperor’s clothes were found and 84% of its entire business is in financing property. And Anglo is becoming a major landlord as it takes possession of property. Essentially it financed anything that would be bought, rented, shopped in, stayed in or played on by consumers. It was a gigantic Ponzi scheme where pieces of larger deals were carved into smaller morsels for investors to take a punt on with the bank earning huge fees and increasing lending margins.
It seems the banks board could not fully consider a wind down option as its hands were tied by a Government who tasked it with running the bank as a going concern.
Mr Lenihan hasn’t the foggiest notion of what this means and judging by yesterday’s performance Anglo doesn’t know either. How could they? The cost of bailing the thing out will eradicate any notion of its continuing existence as a bank. But the charade continues. One must use the words “going concern” instead of “orderly wind down” or else investors won’t provide the funding to keep it from collapsing. If there’s a viable business plan and Government backing it seems investors will be persuaded to invest. The fairy tale continues…
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