Friday, March 12, 2010

Economics 12/03/2010: Anglo's latest fun in the sun

In latest development: as Mr Alan Dukes – retired politician extraordinaire – takes over as the Chairman and Executive Chairman of the Anglo. Presumably he will no longer be acting in the interest of the taxpayers – which would, of course, be a conflict of interest for a Chairman and Executive Chairman.

There was a nice question put Mr Dukes on Newstalk – about the extraordinary €10 billion worth of ‘Master Loan Repurchase Agreements’ carried on the banks books (per Anglo’s latest annual report). Mr Dukes didn’t answer that question. But here is what we know:

MLRepos are in effect Central Bank of Ireland repurchase agreements that are so toxic, the ECB refuses to accept them as a collateral for its own discounted lending. So our Central Banks stepped in to hover these off the Anglo’s balance sheet.

Which begs several questions – and I do hope Mr Dukes actually answers these:
  1. What exactly are these MLRepos and why are they held by the CB and not ECB?
  2. Does Anglo continues to engage in such derivative operations vis-à-vis Irish CB?
  3. Is this equivalent to the CB ripping out the decks to keep Anglo afloat – after all, in all banking finance theory, special purpose Repos held by the lowest rank lender of last resort can only be viewed as the last chance corral for a financial lender?
In a Newstalk interview, Mr Dukes did not deny the existence of the MLRepos, but said that these were not a part of the normal funding for the bank. I guess we knew this much already. Anglo, you see, is hoping to move away from this sort of shenanigans in some time in the future, when the normal property markets return, so the bank can too start lending in normal ways.

Really? How many tens of billions of taxpayers funds later would that be, Mr Dukes?

I wish Mr Dukes well in his role. And I am sad to see Donal O'Connor leaving the post - he has great experience and did his best to keep the sinking Titanic afloat.


patrick1978 said...

Anglo is the sinking titantic,
the Irish taxpayer taking the hit, reminds me of the doomed navy sailors that perished aboard the KURSK submarine in the Barents Sea.

We will fight on the beaches.... said...

Just a small point (which I have to admit I find really annoying) Its not begs the question, its raises the question. Begging the question is something else altogether. Small I know but there you go. Enjoy your blog, you tell it like it is.

Anonymous said...

What is the quantum of MLRepos exercised by Irish Nationwide, AIB & BofI.

Lehman's had fun with repos as well.

Here's an interesting 8 minutes on off-balance sheet accounting.