It takes deep pockets and time to rebuild a bank. Anglo has neither, writes Bill Hobbs
Anglo Irish Bank’s future is in its past. What’s left of its post-Nama business is not enough to allow it to emerge phoenix like from the ashes of the Celtic Chernobyl. And with a business model so bust it cannot ever be revived, funding the cost of unravelling from a reckless symbiotic relationship with Quinn Group is like pouring water on a nuclear fire – it will make its meltdown far worse. Yet instead of planning to wind down the bank, it seems its board and management have been tasked with getting the Hindenburg of Irish banking flying again.
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Anglo, under new management, is engaging in hyperbole reminiscent of its previous boom time hubris. It plans to split into a “good” Anglo and “bad” Anglo. Buried in accounts last week is quite a brazen statement on the “good” bit ;“Our aim is to create a medium-sized commercial bank with a well contained risk appetite and stable funding base, operating in Ireland, the UK and the US. Our focus will be on making the Group viable again, then gradually growing the Ireland business while maintaining our share in other markets.” Is it serious about getting the Hindenburg flying again?
Anglo’s “mid-sized” strategy is fanciful and delusional nonsense from a bank that must have known Quinn Group, its largest loan customer, was about to implode. To be fair Anglo’s board and management appear to have had their hands tied as they have been tasked with managing the bank as a “going concern” which precludes them considering managing it for what it is - a “gone concern”. Was there any real consideration given by its board and management to winding it down in the medium term? Probably not, Anglo has been tasked with re-inventing itself as a viable, valuable bank; a banker to small and or medium sized businesses.
There isn’t one objective informed analyst who believes that Anglo has any future as a viable working bank. Suggesting the rump “good” Anglo might revive and survive on miserable diet of state ownership flies in the face of reality. Previous state owned business banks, ICC and ACC, struggled for years with inadequate capital and were eventually sold off at bargain basement prices.
Most agree it’s impossible to close Anglo down today as the State cannot afford the costs. But it’s not impossible to arrange for an ordered wind down which many suspect is the real intent. However in the absence of a bank resolution system allowing for the orderly winding down of troubled banks, we are faced with delusionary comments designed to publically obscure the inevitable so as not to undermine international sentiment.
Attempting to sprinkle pixy dust on its then melting core on 16th September 2008, thirteen days before the fateful night of the 29th September, Anglo told international investors it had 4300 loan clients who owed €69bn. Of these 2500 were Irish clients and it boasted of its “franchise strength with huge organic potential in existing markets”.
Once termed a building society on crack, does it have any franchise value left? The rump Anglo has non-Nama loans of €30.8bn of which €14.27bn are past due or impaired carrying provisions of €4.84bn. Of these loans, €12.2bn mature within one year, €13.7bn within 5 years and €5.76bn over five years. They are made up of €23bn in commercial (property), €2.2bn residential (property) and €4.5bn in business banking (probably property). 83% of its remaining loans mature within one within five years.
The bank needs an immediate €8.3bn in recapitalisation and will need at least another €10bn.
It’s hard to see what value its franchise will comprise other than a handful of surviving customers and some performing property loans in what is left of its tiny Irish customer base. Is this the basis on which to build a “medium sized commercial bank”? Of its remaining non-Nama book, €5.33bn of varying quality is represented by what it calls “business banking” whatever that means in Anglo’s categorisation. It was only ever a second line business banker, mainly a mono-lone lender financing property assets.
The rump loan book reflects its retail funding strategy. The collapse in retail deposits shows how far it has shrunk from its heady days – these have fallen from €55bn in 2008 to €27bn today where 74% is repayable within three months. €12bn of these are highly rate sensitive consumer deposits. Were it not for the government guarantee the balance would be zero.
To rebuild, Anglo will need resources it simply doesn’t have and a parent willing to supply it with fresh untainted capital.
It will need a strategy and purpose that makes sense and one which it is has the competence to execute. Without a branch network, its current product and services are geared for centralised property based lending, its IT system is probably unfit for use as a broad based commercial business bank, its people are demoralised and its core competence in property lending redundant.
Re-invention as either a bank for small or medium sized businesses would tax a better funded larger bank. It takes deep pockets and a time to rebuild a bank. Anglo has neither.
A version of this article appeared in the Irish Examiner, Business Section, Monday 5th April 2010
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