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Archive for August 9th, 2010

The run-up to Christmas 2009 was probably the most momentous period, professionally and personally, in the life of our Minister for Finance, Brian Lenihan. On 16th December, 2009 he was admitted to hospital reportedly with a suspected hernia. A few days later, he was confirmed with having cancer near his pancreas though it is unclear if it is pancreatic cancer. Commercial TV channel, TV3, broadcast details of the illness on 26th December, a broadcast greeted with howls of protest from many quarters accusing TV3 of an invasion of privacy. The news was generally met with a mixture of personal sympathy and professional concern – professional concern because most people recognise the economic crises facing the State and the pivotal role the Minister for Finance has in  policy. Brian Lenihan has since undergone treatment and has rarely commented on his health. He did state in April 2010 that he was receiving robust medical treatment but insisted that his condition was not affecting him in discharging his ministerial duties. And just last month when speaking on the subject he insisted he is well enough to get on with the job, “in robust good health” is how he characterised himself. Though lots of factors will be at play from how early the disease is detected to the nature of the treatment, the World Health Authority estimates that survival rates are less than 5% after 5 years. The exact nature of the cancer in Brian Lenihan’s case and its prognosis is not known but nobody is suggesting other than it is serious.

So a momentous time on a personal level. However there was also a frenzy of activity with dealing with the financial crisis. On 22nd December, 2009 the board of NAMA was announced and Brian Lenihan gave interviews to journalists to flesh out the role of NAMA. December 2009 also saw the government make its submission to the EC seeking approval of NAMA. And indeed NAMA was coming to life with the first bank valuations for tranche 1 being received before Christmas. Although much of the activity at NAMA was taking place out of the public gaze, the public and politicians alike knew in principle that the project was moving forward and much of the way in which NAMA would operate in the early days was given extensive debate/question time in the Oireachtas.

It was also a momentous period with respect to the banks, and after the €440bn blanket guarantee given to the State’s banks in September 2008, it was the time when probably the next biggest single financial commitment was given by the State. On 22nd December, 2009 Brian Lenihan is now known to have written to both Anglo Irish Bank (Anglo) and to the Irish Nationwide Building Society (INBS)  giving both financial institutions unlimited undertakings in respect of their capital bases. We know about these letters because they are detailed in the EU’s Decisions (Anglo here and INBS here) allowing temporary and limited State injections into Anglo and INBS. With the Anglo Decision, the EU notes that the letter from the Minister broke State-aid rules. With the INBS Decision, the EU goes further and notes “with regret” that the Minister broke State-aid rules. Although contemporaneously with the letters in December, 2009 the Minister did open discussions with the EU on what he was doing the fact remains that the letters constituted unlawful and unapproved State-aid when given. The EU eventually gave their Decisions in March 2010. The Minister announced the injections of capital into Anglo and INBS at the end of March 2010. At that point it was a fait accompli and there had not been any debate in the Oireachtas on the quantum or principle or alternatives. In retrospect the actions of the Minister had something of the maverick about them and it is astonishing that the government seem to have been bounced with little notice into giving the commitments. And in respect of Anglo the EU approval was limited – the EU approved a cumulative total of €14.44bn to be injected into Anglo (€4bn approval in 2009 and €10.44bn in March 2010). To date the government has announced that it has given Anglo €14.3bn which brings us pretty close to the limit authorised by the EU. The EU has required Anglo to submit a restructuring plan so that further State-aid cost could be examined in context. Anglo submitted version one of that plan in November 2009 which was roundly lambasted by the EU as lacking credibility, clarity and realism. A second plan was submitted at the end of May 2010 with the Anglo CEO predicting shortly thereafter that the EU would respond by the end of July or start of August. Last Friday, in a downbeat statement on Anglo’s future, the CEO indicated that it would be at least September when the EU responded.

A theme dealt with on here a few times in recent weeks has been the speculation that Anglo is unable to transfer its second tranche to NAMA without getting another substantial injection. Last Friday the Anglo CEO stated that the first part (€1.4bn) of the second tranche of Anglo loans (estimated to be €8bn gross) was to transfer to NAMA over the weekend. If the expected discount is 60% on the €1.4bn then that will wipe out the government’s previously un-drawn-down EU approved €14.44bn – of course Anglo may have some non-trading profits to cushion some part of the losses (eg profits on redeeming some bondholders) but it would seem to me at least that Anglo can’t transfer any large tranche without getting a further injection. NAMA have stated that the delay in tranche two is a result of “the amount of paperwork involved in the process. A spokesman for NAMA said yesterday [19th July, 2010] said there was no other reason for the delay”.

And yesterday the Sunday Business Post reported that Brian Lenihan might be about to give Anglo another commitment. Has Minister Lenihan sought approval from the EU? Plainly nothing formal has been announced by the EU and indeed the apparent delay in approving the Anglo restructuring plan doesn’t augur well. So the question now is is the Minister about to, for the third time in less than a year, break the law on State-aid and sign a commitment to Anglo for further State-support even though the EU has not given its approval? And is any commitment (which may be for upto €8bn if the “upper limit” of a €22bn injection to Anglo is still valid) going to be given without any democratic oversight, debate or examination of alternatives?

UPDATE: 10th August, 2010. Brian Lenihan has broken State-aid rules for the third time in twelve months. The EU has confirmed today that absent any formal Decision, a further €8.581bn was injected into Anglo in June 2010 by the Irish government, bringing to €22.881bn the capitalisation of Anglo to date (€4bn approved in 2009 and €10.3bn which was approved in 2010 plus €8.581bn in June 2010). The EU has approved a further €1.473bn injection but that has apparently not been made by the government yet. With the further approval of €1.473bn, we seem to be providing for upto €24.454bn (€4bn in 2009, €10.44bn in March 2010 and €10.054bn today) of injections into Anglo. It is possible that not all of this is dead money – it has been mooted that €2-3bn might be seed money for Anglo’s new bank if the EU give approval. This blog has no political motivation and is on record for praising Brian Lenihan. However this unlawful expenditure (and although the EU have given approval today to the expenditure, at the time it was incurred it was unlawful) shows a shocking disregard for the democratic institutions in the State and indeed of the EU as regards State-aid and from an economic perspective displays a worrying absence of planning and forethought – it seems that almost two years after the crisis we are still being bounced into generationally-expensive decisions.

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