Like some beancounter’s version of the dance of the seven veils, a NAMA source has revealed another flash of Anglo flesh to the Sunday Tribune – that the haircut on Anglo’s Tranche 2 will be in the high 50s. This prediction was also voiced by “valuation sources”. With Anglo’s nominal Tranche 2 loans still estimated at €8bn, that translates into a loss of up to €4.8bn. According to the Sunday Tribune this is giving rise to fears that Anglo will need another recapitalisation – a prospect raised here last week but denied by NAMA who said the delay with Anglo was solely related to loan paperwork and nothing else, though yesterday’s Tribune says the delay is now down to “the complexity of the structures used by the bank when they were issuing the loans and the initial delay in transferring loans belonging to tranche one”. Anglo’s Tranche 2 is now expected to be transferred to NAMA by the middle of next month according to the Tribune.
Let’s recap on the timeline for the approval of Anglo’s restructuring plan submitted to the EU at the end of May 2010. According to Mike Aynsley, Anglo CEO, he expects the EU response at the end of July or beginning of August. And Anglo are looking for approval for the injection of up to €22bn of our money – they’ve had €14.3bn (€4bn last year and injections of €8.3bn and €2.0bn announced this year) so far and they only have approval for another €0.14bn. Brian Lenihan broke EU State-aid rules when he wrote to Anglo in December 2009 giving commitments which the EU had not approved – he should now have learned his lesson in that regard.
Despite NAMA’s denials – and having regard to what Anglo termed “factual errors” in NAMA’s assurance to Paddy McKillen that Anglo has not raised objections to transferring Paddy’s loans on the grounds of eligibility – it seems probable that Anglo will need a further recapitalisation when Tranche 2 is transferred (see the background numbers in last week’s post). And because there has not been EU approval of the Anglo restructuring plan, that might be the reason Anglo’s Tranche 2 is not being transferred now. Of course Anglo may not need a recapitalisation of the full €4.8bn because of potential profits in other parts of the Anglo empire, though it may need more because of unreported losses on the non-NAMA portfolio – it is hard to imagine that the €0.14bn undrawn approval would be sufficient to absorb the losses in Tranche 2.
For the many people who are calling for Anglo to be shut down or the pouring of money into the Anglo black hole to be abandoned, now is the time to act. In a matter of weeks, protests may be academic because the money may have been largely spent.
NAMA Wine Lake 
First of all, excellent work on the blog, keep it up.
In relation to the 4.8 billion discount on the 2nd tranche, you ignore that the majority of this discount has been accounted for in the 22bn figure.
If we apply a 55% discount to NAMA loans and a total government investment of 22bn to Anglo’s last balance sheet the bottom line equity remains almost exactly the same, from (4.170bn with Anglo haircuts to 4.182 with 55% NAMA discounts and the total 22bn investment)
Therefore the difference to made up due to a 60% discount on this tranche would be 400m (8bn x 5%)
Scarab, thanks for the comments.
When you refer to €4170m, you’re presumably talking about the net equity sum in Anglo’s accounts for the 15 months ending 31 Dec 2009 (page 40 PDF of the attached http://www.angloirishbank.com/About-Us/Reports/Annual_Report_Accounts_2009/Annual_Report_Accounts_PDF.pdf).
That is of course after the €4bn injection in mid 2009 and also after the €8.3bn retrospective injection in December 2009 and also after taking a €10.12bn loss on the provision against the €35.602bn NAMA-bound Anglo loans.
I don’t think there’s any difference between what we’re both saying in that the €22bn that the State is apparently asking the EU to approve now as we speak will be sufficient to absorb the loss in the Anglo Tranche 2 transfer. The EU of course hasn’t approved the €22bn. So far the State has injected €14.3bn and has EU approval to inject up to €14.44bn (€4bn approval in 2009 and €10.44bn approval in 2010). So the point I’m raising now is that a) it seems likely that Anglo/the government will need to get approval from the EU to inject billions (perhaps €5bn or so) into Anglo in order that Tranche 2 can pass to NAMA and b) for those people objecting to €22bn being poured into Anglo, the injections to date have totaled €14.3bn and if another €5bn goes in with Tranche 2, then any argument about Anglo will be about the remaining €3bn because €19bn will as a matter of historical fact been injected and can’t be retrieved.
Will Anglo need more than €22bn overall? That’s a different question. However if you take the loss on the NAMA bound loans of €35.6bn at say 60% (€21.4bn) and then add on losses on the non-NAMA loans (also of €36bn – banker Peter Mathews suggests that €12bn might be a reasonable estimate of losses on these non-NAMA loans) then you will have losses of say €33bn – as you say Anglo had capital of €4bn at the end of 2009 (after receiving €10.3bn from the State but also after taking losses of €10bn on the NAMA-loans and €4bn on the non-NAMA loans). So let’s work through the numbers
NAMA loans provision €10bn
Non-NAM loans provision €4bn
Injections from State €10bn
Capital at 31/12/2009 €4bn
Further losses on NAMA €11bn (€21.4bn – €10bn)
Further non-NAMA losses €8bn (€12bn – €4bn)
Future Capital required €15bn (€4bn – €11bn – €8bn)
So NAMA would need €25bn of capital for Anglo, not €22bn based on the above figures. So I would suggest that Anglo will need more than €22bn. However that is a debate for another day perhaps.
The immediate issue is that those who wish to stop pouring money into Anglo have probably a matter of weeks to act because after that, the issue will be largely academic.