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Archive for September 6th, 2010

According to Richard Curran in yesterday’s Sunday Business Post “management at Anglo have made discreet enquiries as to how much the bank might get for the €37.7 billion of loans it is not selling to Nama, as part of a rapid wind down. It estimates it would get just 30 per cent of that figure”. As noted here last week the cumulative present provision is 19.9% (equating to a value of over 80c in the euro). The SBP don’t say what is meant by a “rapid wind down” – 6 months or 6 years? Yesterday Anglo CEO, Mike Aynsley talked to the Tribune about realizing 10c in the euro in a firesale scenario which probably places a “rapid wind down” closer to 6 years than 6 months and indeed a 4-6 year wind down is the minimum being talked about by Senator Dan Boyle of the coalition Green Party or Labour finance spokesperson Joan Burton, not to mention independent banking consultant Peter Mathews. However if these non-NAMA loans are only worth 30c in the euro over a 6 year period then is a 19.9% provision sufficient? The suggested response here last week was no, it wasn’t but doesn’t this latest admission of Anglo’s simply confirm the inadequacy of its provisions and the consequent likelihood of Anglo’s bailout increasing from the upper limit of €25bn cited by the Anglo CEO and Central Bank governor to well above €30bn?

The 30c in the euro is also interesting from the point of view of NAMA. NAMA is paying for loans by reference to 30th November 2009 and Irish property prices are off 10% from that date. NAMA has paid Anglo an average of 42c in the euro for tranches 1 and 2 – that is based on an uplift of about 10% from Current Market Value to Long Term Economic Value and a deduction of 12% for foreclosure and enforcement costs and a NAMA premium. This forecast by Anglo implies that future NAMA tranches will have higher than 58% haircuts (65-70% haircuts) and that the profile of non-NAMA loans is practically the same as that for NAMA loans, another suggestion from here last week.

Lastly it is worth reminding ourselves again of the unreliability of information coming out of Anglo under present CEO Mike Aynsley’s auspices. In addition to a roundly criticized restructuring plan. Six months after taking over the role, Mike Aynsley told the Irish Times in March 2010 that “detailed financial examination by the bank and its advisers had shown it would cost between €6 billion and €9 billion – in addition to the €4 billion already invested in the bank – to restructure the lender and run the bank as a going concern.” 150 days later the cost has practically doubled from a maximum of €13bn in March to €25bn today (and the €25bn is a net figure which will exclude the seed capital of a new bank). So can we believe any figures that emanate from Anglo? Of course the figures could be far better than projected but the fear is that they will be worse.

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