Whilst Anglo CEO, Mike Aynsley is reported by Simon Carswell in the Irish Times on Saturday last as estimating the cost of the new proposal for Anglo at between €25-28.5bn, Alan Dukes never said it would be €39bn. This entry examines what Alan Dukes did in fact say.
Alan Dukes appeared on Vincent Browne’s programme on TV3 on Thursday last 9th September, 2010. Other guests included independent banking consultant Peter Mathews, a former Icelandic finance minister and Donal Brennan of the Irish Left Review. The exchange that gave rise to the €39bn starts at 22 mins 20 seconds into the programme and the initial exchange went something like this:
Vincent Browne: What is Anglo going to cost us?
Alan Dukes : The latest ministerial announcement requires the Central bank and the rest of us to come up with by the end of this month the best forecast we can make of what the total expected losses will be in Anglo. And that requires us to have foreknowledge of the kind of haircut on the assets that are going be transferred into NAMA and a corresponding judgement /assessment of the losses that we can expect on that part of the remaining loanbook in Anglo that is in problem (sic) and an estimation of what we would have regarded as the base for the good bank of whether those loans will continue to perform as we think.
What followed was a like a good old wild west verbal shootout. And looking at the three participants, Vincent Browne, Alan Dukes and Peter Mathews put me in mind of western characters, the worthy, toiler of the land, honest Vincent Browne, the “aah shucks” decent skin Alan Dukes and the suave banker Peter Mathews – stick a Stetson of varying brim sizes on all three and you might see what I mean. The two other guests might have been wearing prairie bonnets as they were merely bystanders to the exchanges. Anyway Vincent, Peter and Alan were firing figures at each other like crazy, mixing up billions and millions, rounding in an unconventional way (€38bn became €30bn) and attributing different meanings to the same terms (performing loans pay interest according to Vincent, Alan says they comply with the loan agreement which of course might permit rolled up interest). Now the precise derivation of the €39bn was 60% of €40bn (reverse calculated by taking €70bn of total loans, which in itself was a rounding, and deducting Alan Dukes’ rounded down €30bn for non-NAMA) plus 50% of the non-NAMA €30bn. So a €24bn loss for the NAMA loans and a €15bn loss for the non-NAMA loans.
From the €39bn you would presumably deduct the €6bn of existing Anglo capital giving you a net bailout of €33bn. You will see from the programme that Alan Dukes was concerned that whatever estimate was produced at the end of this month (September, not October) would be credible and wouldn’t be subject to the drip drip of a further billion here, a further five billion there as time went on. He wanted the estimate to err on the conservative side. It would be unfair also to say he asserted the Anglo losses would be €39bn but he didn’t deny that figure when it was fired at him by Vincent. Peter must feel vindicated to a degree because this level of losses is the same as his forecasts for some time.
So what is the difference between Mike Aynsley’s €25-28.5bn and Alan Dukes’ €33bn (ie gross losses less the Anglo capital base)? Difficult to say. Alan Dukes was talking in rounded terms and he said himself he was erring on the conservative side. There may be gains if bondholders are negotiated with – Anglo made a paper profit of over €1bn last year by buying back bonds at below their face value. Whatever analysis takes place between now and the end of September, I hope will also closely examine any residual exposure to Anglo from its derivatives.
NAMA Wine Lake 