23/6/2013: Sindo & Indo: "'Bondholders are f***ing us up the arse' – Anglo"

With slow drip of a freshly leaking faucet, we are getting more and more granularity on the events surrounding Anglo collapse and the events leading up to the Guarantee. Here's the latest instalment:
http://www.independent.ie/irish-news/bondholders-are-fing-us-up-the-arse-anglo-29365626.html

It is impossible to assume that this information, in pretty much the same words, was not conveyed to the Taoiseach and the Minister for Finance before the issuance of the Guarantee. Which, of confirmed, would imply wilful act on their behalf in securing the payouts to the bondholders against all information available.

It is also virtually impossible to imagine, given this information, that the IL&P did not know well in advance of the fated 'deposits'-'loans' swap of late September 2008 that its funding arrangements with Anglo were high risk and not exactly kosher. Which implies that the Irish Fin Reg also knew the same. If the Fin Reg did not know this, its lack of awareness would signify an absolute level of incompetence that would be staggering even by the pretty high bars for incompetence set during Bertie Era.

In short, the two material bits in the article linked above are... well... staggering in their importance.

Updated: more on the same from 
http://www.independent.ie/business/irish/inside-anglo-the-secret-recordings-29366837.html 
now down on tapes and making the case for accusing Anglo senior staff of knowingly manipulating the bank relationship with the CBofI/FinReg!


So while Bondholders were 'f***ing up Anglo', Anglo was f***ing up the entire financial system of Ireland with Ireland's financial system cheerful approval. The only ones who got f***ed up in the end were... Irish taxpayers. Happy times!


Updated: ZeroHedge on the same: http://www.zerohedge.com/news/2013-06-24/anglo-irish-picked-bailout-number-out-my-arse-force-shared-taxpayer-sacrifice

And Anglo 2008 accounts have been released: http://trueeconomics.blogspot.ie/2013/06/2462013-anglo-2008-annual-report-is-out.html

24/6/2012: IBRC 'repayment' of €1.14 billion

New wave of outrage: IBRC is about to repay €1,142 million worth of unguaranteed senior bonds this coming week.

Here's a link to the note by Brian Lucey (TCD) and a link to namawinelake post on same.

My view is simple: The repayment is madness - the country is bust & is being propped up by IMF, EU, bilateral and ECB loans. IBRC is a bust non-bank (it retains banking license, but has no meaningful banking activities and is not likely to acquire any of these at any time in the future). IBRC has 'assets' and liabilities (ex-deposits). Hence, IBRC should default on all debts, transfer underlying assets to creditors based on their seniority and close the shop. The bondholders should get no more and no less than the assets of the company. As ELA is super-senior lending secured against specific asset (Promo Notes), quasi-governmental debt (Promos) should remain within CBofI and no private bondholder should have a claim against them.

Of course, the above process would not involve the €1.14 billion worth of bonds to be repaid this week, as these are unsecured (no claim vis-a-vis assets) unguaranteed (not even a theoretical claim against the State) liabilities. And no moral / ethical impact (these are bonds held primarily by speculative  institutional investors). These should just burn to some cheer from the crowds to boot!

20/1/2012: Deputy Peter Mathews v Minister Noonan

Here are some extracts from an excellent contribution by Peter Mathews TD (FG) from yesterday's topical debates in the Dail (full record available here). This was comprehensively overlooked in the media reporting which focused solely on the non-event (save for Vincent Browne's questions) of the Torika 'approving' Ireland's 'progress'. My comments in italics.


Deputy Peter Mathews: 
      Next Wednesday, 25 January, is the due date for the redemption of a bond issued originally by Anglo Irish Bank Corporation, now the Irish Bank Resolution Corporation. 
      We are at an important financial crossroads in the history of our country. Anglo Irish Bank has been insolvent and supported by financial engineering, promissory notes and the emergency liquidity assistance of the European Central Bank and funds from our Central Bank.  The debt that lies embedded in what was Anglo Irish Bank was not created by the citizens of this country.  It has been meted out onto their backs by a mixture of incompetence and mismeasurement over a certain period under the past Administration.
      We are at a moral crossroads.  We should bring to the attention of the creditors holding the bond the facts that the bank is insolvent and that, in effect, it is not a case of our not wanting to pay but of our not being able to do so...

      Consider the debt of €1.25 billion.  The attention of the creditors will be in sharp focus because the banking system, the Irish-owned banks, are in debt to the ECB and our Central Bank at a level of approximately €150 billion.  It is the forbearance and tolerance of citizens that keeps the financial edifice and engineering of the eurozone and the greater financial system of the developed world in place.  We have been doing considerable work, facing enormous challenges.  Through the great work of the Minister for Finance, Deputy Noonan, and the Taoiseach, we are bearing the load of trying to bring about a fiscal adjustment in line with the troika agreement signed in November 2010.  All that work is important and must be done but the legacy debt is outside the responsibility of the people of this State.

      One and a quarter billion euro is almost half the budget [measures] introduced in December.  It is eight times the sum that will be raised from the household charge and twice that which will be raised by the VAT increase.  The debt crisis in Ireland and other countries cannot be solved by adding more debt...  Loading more debt on this country to pay legacy debt is like suggesting a drink problem can be solved by another whisky.

Minister for Finance (Deputy Michael Noonan): 

      I thank Deputy Mathews for raising this very important issue.  The repayment of the bond in question is an obligation of the bank and will be repaid by the bank.  It is important to be clear that it is the bank and not the Exchequer which will meet this obligation. [Need anyone point the following to the Minister, that the 'bank' has no own assets or capital over and above that which has been committed to it by the State and that the Promissory Notes are being financed by the Exchequer?]

      The Government has committed to ensuring that there is no forced or coerced involvement by the private sector burden sharing on Irish senior bank paper or Irish sovereign debt without the agreement of the ECB.  This commitment has been agreed with our external partners and is the basis on which Ireland's future financing strategy is built.  While the cost to the Irish taxpayer has been and will remain significant, the Government clearly recognises the need to work as part of the eurozone in order to ensure a return to the funding markets in the future.  The only EU state where private sector involvement will apply is Greece.

      The following was agreed by all 27 member states at the euro summit last October:

      15. As far as our general approach to private sector involvement in the euro area is concerned, we reiterate our decision taken on 21 July 2011 that Greece requires an exceptional and unique solution.

      16. All other euro area Member States solemnly reaffirm their inflexible determination to honor fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms.  The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.

      This was agreed by the Heads of State and Government at their meeting in October, and Ireland was included in the 27 states that agreed to it. [Minister Noonan fails to note here that it was on insistence of his own Taoiseach that article 15 does not include Irish banking sector resolution-related debts. And he deflects the arguments made by Deputy Mathews on feasibility of repaying these debts.]

      It is not correct to state that only taxpayers have borne the burden of rescuing the Irish banks.  Holders of equity in the banks have been effectively wiped out in burden sharing while holders of subordinated debt have incurred a €15.5 billion share of the burden to date, including €5.6 billion since this Government took office less than a year ago. [Again, Minister Noonan is dis-ingenious in his comments. Equity holders and bond holders are contractually in line for these losses. Taxpayers are not. In effect, Minister suggests that there is some sort of equivalence between treating harshly contracted parties to an undertaking and treating harshly an innocent by-stander. There is no such equivalence.]

      To impose burden sharing on senior bondholders, or to postpone the repayment of this bond at this point in time, is not in Ireland's best interest.  What is in the Irish people's best interest is that we regain our financial independence and that we place ourselves in a position to re-enter the financial markets at the earliest possible date...  We do not need to scupper our recovery, scupper the goodwill generated or alienate our partners by taking unilateral action which in the medium to long term will prove wholly counterproductive. [This is an outright conjecture by the Minister that is unfounded in fact. It is not in the interest of the Irish people to simply regain access to financial markets. It is only of such interest if we can regain it at a lower cost than alternative funding provided. Furthermore, his statement assumes that not repaying Anglo bondholders will cause the detrimental impact on 'goodwill' and the 'financial markets'. This remains to be tested and proven.]

      If we were to postpone or suspend payments to creditors of IBRC, this would have a significant impact on both the bank and, ultimately, the State. The senior debt, unsecured as it is, is an obligation of the bank. If the bank does not meet such an obligation, it would lead to a default and, following that, most likely insolvency. Insolvency would result in a very significant increase in the cost to the State to resolve the IBRC. [What cost? The Minister scaremongers the public, but cannot name a single tangible expected cost. Why is the interest of the bank aligned with the interest of the State, Minister?] ... Further, the financial market's view of Ireland as a place to do business or invest would be seriously undermined. [Is Minister Noonan seriously suggesting that Ireland's reputation as a place to do business or invest dependent so critically on a bust bank with worst history of speculative decision-making ability to repay its insolvent borrowings? Would IDA confirm they are directly referencing Irish taxpayers willingness to cover private sector losses in any undertaking, no matter how risky, as some sort of the 'investment promotion' positive for Ireland? Can Minister Noonan confirm that he has done the analysis of the effects that bonds repayments by Anglo, and the resultant increases in the sovereign debt have on sustainability of our Government's reputation in the bond markets? Does he not know/ understand that any investor looking at his statements will immediately price into their valuation of Government bonds the possibility that the Irish Government can at will, out of the blue simply hike its own debt pile in the future to suit some other risky private sector fiasco? What does that risk alone do to our 'reputation'?]

Deputy Peter Mathews: 

      While I will not get into a long debate, Greece will be the beneficiary of at least a 60% write-down of its debt obligations. The Greeks got the attention of their creditors by going out in the streets and having riots and by people being killed. We have knuckled down to correcting a fiscal imbalance and, at the same time, we have stayed silent. We have been straitjacketed by the legacy debt. Our loan losses in the banking system were €100 billion. While I know the shareholders and some of the subordinated bondholders suffered, the remaining losses were in the banks without being declared. The ECB stepped in to redeem bondholders to date, which was a mistake. We are compounding the mistake by going along the same route now.

      We have got to be honest about it and open up the discussion. We are not defaulting; we are opening a discussion. I made the point that we cannot pay. I use the word "we" euphemistically or collectively in regard to the bank and the State. We cannot pay because of the guarantee that extends over the bank. It is a case of us lifting the telephone and asking, "Can we have your attention, please?"  We cannot pay and we want to open a discussion and explain to exactly how the creditor liabilities of our banking system remain, and how they should be written down. There is further writing down to do. We have a €60 billion to €75 billion of write-down to organise and negotiate.

      To use an analogy, we have a steeplechase race with about four miles to go.  We have big jumps ahead.  Normally, a steeplechase horse will start with about 12 stone on its back.  Ireland's legacy debt of private debt, non-financial corporate debt and national debt when it peaks out at €120 billion is the equivalent of 24 stone on the back.  It is not a possible race to run.

Deputy Michael Noonan: 

      I do not disagree with Deputy Mathews' analysis.  However, we are in a situation which we inherited from our predecessors, who entered into solemn and legally enforceable commitments in respect of Anglo Irish Bank, as it was then.  Of course, Deputy Mathews is correct that we should do everything possible to reduce the debt burden on the taxpayers of Ireland and to enhance Ireland's capacity to repay its debts.  We are working on that and making some progress. [So that's it, folks. The Last Refuge of the Scoundrel = the arguments the Minister puts forward for expropriating personal property and income through higher taxation and reduced services for which we paid and continue to pay is: We are where we are. This alone should be very re-assuring to the future investors here.]

02/11/2011: A DofF note on Anglo Bonds Repayments

Here's the bull***t that passes for 'advisory analysis' for politicians - the copy of the note sent out to Government TDs from a specific party based on the Department of Finance information. I am publishing it here without any specific comments - judge for yourselves reading it - my only general comment is that it is uses a number of deceitful tricks, false juxtapositions and selective omissions to present the case for repaying unsecured unguaranteed bondholders in Anglo Irish Bank / IBRC.

(You can click on the pages to enlarge the text. I am publishing it without an explicit HT so as not reveal my source).

24/09/2011: Anglo Bonds and National Accounts

Note: corrected figures below (hat tip to @ReynoldsJulia via twitter).

Per Nama Wine Lake blog - an unparalleled true public service site on Irish debacle called Nama and many matters economic and financial, Irish Government (err... aka ex-Anglo Irish Bank, aka Irish Bank Resolution Corporation*) is on track to repay USD $1bn (€725m) unsecured unguaranteed senior Anglo bond on 2nd November 2011.

The gutless, completely irrational absurdity of this action being apparent to pretty much anyone around the world obviously needs no backing by numbers, but in the spirit of our times, let's provide some illustrations.

According to the latest QNA, in current market prices terms, Irish GNP grew in H1 2011 by a whooping grand total 0f €307 mln from €64,337 mln in H1 2010 to €65,012 mln in H1 2011, when measured in real terms. This means that Anglo bondholders payout forthcoming in November will be equivalent of erasing 28 months and 10 days worth of our economic growth.

According to the CSO data on national earnings, released on September 8, 2011, Ireland's current average earnings across the economy stand at €687.24 per week, implying annualized average earnings of €35,736.48. Irish tax calculator from Delloite provides net after-tax (& USC) income on such earnings of €28,287.39 per annum. This means that Anglo bond payout in November is equivalent to employment cost of 25,630 individuals.

According to CSO's latest QNHS data, in April-June 2011 there were 304,500 unemployed individuals in Ireland. This means the jobs that Anglo bond payout could cover are equivalent to 8.42% of the current unemployment pool.


I am not suggesting for a minute that we should simply use the money to 'create' government jobs - anyone who reads this blog or my articles in the press etc would know I have no time for Government-sponsored jobs 'creation'. But, folks, the above numbers are startling. We are about to p***ss into the proverbial wind the amount of money that is enough to cover our entire economy's growth over 2 years, 4 months and 10 days! For what? To underwrite 'credibility' of the institution that is a so completely and comprehensively insolvent?

* Note 1 that Anglo still calls itself Anglo (until October 14th) and still insists it is a bank as the web page http://www.angloirishbank.ie/ states clearly [emphasis mine] that: "As a Nationalised Bank since January 2009, the key objective of Anglo Irish Bank’s Board and new senior management team is to run the Bank in the public interest... The Bank continues to provide business lending, treasury and private banking services to our range of customers across all our locations."

Note 2:
The above, of course, assumes that €725mln exposure is hedged against currency fluctuations. If not, as Nama Wine Lake points out, the exposure rises to ca €740mln. The above figures therefore change to:

• GNP growth equivalent of 2 years, 4 months and 28 days
• Number of average earnings jobs of 26,160, plus one part-time job
• 8.59% of currently unemployed
  

Economics 6/11/10: Two charts - IRL & Spain

Two interesting charts on 5 year bonds for Ireland and Spain, courtesy of CMA:
What's clear from these charts is the extent of inter-links between banks and sovereign credit default swaps. In Spain at least three core banks - La Caixa, BBVA and Banco Santander act as relative diversifiers away from the sovereign risk since late October. In Ireland - all of the banks carry higher risk than sovereign. Another interesting feature is a significant counter-move in the Anglo CDS since late September. This, undoubtedly underpinned by the large-scale bonds redemption undertaken by Anglo at the end of September. Thirdly, an interesting feature of the Irish data is that CDS contracts on Anglo, IL&P and AIB are now trading at virtually identical implied probability of default.

Lastly, Irish sovereign debt is now trading at probability of default higher than that of the Spanish banks!

Economics 2/10/10: EU Commission official view of Minister Lenihan's plans

Much debate has been thrown around about the EU Commission position on the latest Government announcements concerning banks recapitalizations. Here is the fact (linked here) - note comments and emphasis are mine:

Full quote: MEMO/10/465, Brussels, 30 September 2010 "Statement by Competition Commissioner Almunia on Irish banks"

"European Competition Commissioner Joaquin Almunia welcomes the comprehensive statement issued by the Irish Finance Minister on banking. Commissioner Almunia said:

"I welcome the statement on banking which brings clarity with regard to the remaining transfer of assets to NAMA and the capital needs of some banks and building societies. [Note there is no finality assertion here on the estimates]. Regarding NAMA, the announced changes to the way it manages loans are in line with the Commission's approval of the NAMA scheme.

"Concerning Anglo-Irish Bank, from a competition point of view, it is clear that the foreseen restructuring and resolution of the bank addresses competition distortions created by the large amounts of aid at stake. Once the Commission receives the details of the plan, it will proceed rapidly towards taking a final decision. [The gombeens haven't yet supplied the Anglo Plan to the Commission, despite the claims made today on RTE Radio by Minister Hanafin to the contrary]

"I also welcome the announcement that subordinated debt holders will make a significant contribution towards meeting the costs of Anglo. This is in line with the Commission's principles on burden sharing since it both addresses moral hazard and limits the amount of aid, with benefits to the taxpayers. [So Commission operates under the direct assumption that subbies will be soaked. And that this will correspond to the spirit of the European common markets.]

"I note that Allied Irish Bank will need to receive further capital in the form of State aid, which will have to be notified to the Commission for approval. I will of course follow this process very closely. I have no doubt that, as in all previous cases, the collaboration between the Irish authorities and the European Commission will be satisfactory. [No blanket endorsement of new AIB capital injections]

"I note positively that Bank of Ireland will be able to continue the restructuring process without further recourse to State resources. The Commission in July 2010 approved the aid and the restructuring plan of Bank of Ireland, and is monitoring its implementation."

"With regard to building societies INBS and EBS, the Commission remains in close contact with the Irish authorities. For INBS, the Commission will await the notification of the additional capital as well as the details on the institution's future, and will assess them thoroughly and swiftly. For EBS, the Commission is in the process of finalising its initial assessment of the restructuring plan submitted end May 2010. "

So let's recap Commission's official opinion:

• Anglo subs must be haircut;
• No Anglo plan delivered to the Commission;
• No Anglo recapitalization additions endorsed;
• No AIB recapitalizations (announced by Minister Lenihan) are endorsed
• No INBS and EBS measures endorsed
  

Economics 28/9/10: Anglo's bondholders must go

Reuters say Ireland should abandon the Anglo seniors

(emphasis mine)

"The Irish government will reveal the full horror of the cost of rescuing Anglo Irish on Sept. 30. It has already signaled bad news for the 2.5 billion euros of subordinated debt, but it is desperately trying to draw the line and support the 14.1 billion euros of senior debt.

"It's cosseting the bondholders because it fears further damage to its own creditworthiness if it walks away. But if the Anglo bill is as big as outsiders fear, its support will have the opposite effect. Even as the Irish prime minister talked on Sept. 28 of a "manageable plan," the spread on Irish sovereign debt widened to a record 475 basis points.

"The last official estimate of the rescue bill, 25 billion euros, looks hopelessly optimistic. Ratings agency S&P estimates it at 35 billion euros, while BarCap says 48 billion for the sector, or over a quarter of Ireland's 163 billion euro GDP. [My own estimate of 38.6bn on the upper side is now patently below external consensus, despite being branded 'outrageous' and 'outlandish' by several insiders in the past]

"The Sept. 30 statement is expected to contain a best estimate and a worst case. If the best estimate is near S&P's figure, further downgrades of Ireland's sovereign debt are likely. However, if the government were to abandon the senior bondholders, the saving -- equivalent to a tenth of Ireland's GDP -- would give the state the chance to work its way out of its economic hole."

Here we have: S&P, RBS, Barclays, Reuters, WSJ, FT, Sunday Times (Irish edition - hat tip to F.F.) and all genuinely independent analysts are now saying - shave the seniors, burn the subordinates. Government still resisting. For how long can it afford demolishing our own economy to prolong the inevitable?