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Archive for February 9th, 2011

Anglo Irish Bank chairman, Alan Dukes certainly upset a lot of people yesterday. His bank announced record 12-month Irish corporate losses of €17.6bn, which upset the entire nation. He gave a presentation at University College Cork to the Association of Compliance Officers in Ireland and the Financial Services Innovation Centre where he claimed that Irish banks need another €50bn of state injections on top of the €46bn already shoveled into the banks (to be clear that extra €50bn includes the €35bn of the IMF/EU bailout earmarked for the banks). That claim upset the Department of Finance and is at odds with the governor of the Central Bank of Ireland who claims that an extra €10bn for the banks should be sufficient. Alan Dukes also said that NAMA would need €75bn of funding, considerably more than previously understood. NAMA is reported to have responded with a statement (though alas it is not available from the NAMA website yet) to the effect that Dukes’ claims were rubbish and that the agency would only need €37bn to acquire its intended portfolio of loans. The agency has already acquired €71bn of loans at par or nominal value (which was also the position before Christmas). It seems that there is another €5bn of €20m+ exposures to be transferred (which will presumably include Paddy McKillen’s €2.1bn) and that there is some €12bn of sub-€20m exposures at AIB and BoI. This €12bn sub-€20m total at AIB and BoI seems to reflect the success of the lobbying by AIB to exclude associated lending from the sub-€20m transfers, because the previous estimate of these smaller loans was €16.6bn. For interest, NAMA told the Supreme Court today that it has had discussions with the European Commission and seem to have approval to a slippage to the end-of-February-2011 deadline to absorb all loans.

So just to remind ourselves, here is the history of NAMA’s estimates of its ultimate loan portfolio, both the nominal value and how much NAMA would pay for the loans.

Date Loans (Nominal) Loans (NAMA) Haircut
Oct 2009 (1) €77bn €54bn 30%
Feb 2010 (2) €83bn €54bn 35%
June 2010 (3) €81bn €41bn 50%
Sept 2010 (4) €73bn €30bn 56%
Nov 2010 (5) €90bn €38bn 58%
9th Feb 2011 €88bn €37bn 58%

(1) The NAMA draft Business Plan

(2) The EU Decision approving the NAMA scheme

(3) The NAMA Business Plan

(4) Minister for Finance, Brian Lenihan announcement on 30th Sept, 2010 which said that sub-€20m exposures at AIB and Bank of Ireland were not to be transferred to NAMA. Previously the threshold for these two banks was €5m.

(5)  IMF/EU bailout and the decision to include all land and development exposures at AIB and BoI, that is the €20m threshold was removed. An estimated €16.6bn of sub-€20m loans at AIB/BoI were to be absorbed.

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Whenever I hear the words “routine” and “IMF” in the same sentence, my attention is pricked because I remember Minister for Finance, Brian Lenihan’s denials last October, that his first trip to the IMF in Washington since he was appointed to the finance ministry in May 2008, was anything other than “routine”.

Remember his dark warnings to journalists back then – “I really do not want to see a headline in Ireland saying ‘Minister meets IMF’ at present. No more can be read into it than that [routine meeting]. I think that’s very important, and I’d like that stated on the record and part of the story.” Set against the context of what transpired the following month with the actual IMF bailout, who wouldn’t be suspicious when they hear claims of matters being “routine” when the IMF is concerned.

The reason this is relevant now is that we hear from the Irish Times today that the IMF is due in Ireland “this week” for what is described by a Central Bank spokesperson as a “routine” meeting. However only last week at the weekly IMF press briefing, it was said that “well, the elections are later this month on the 25th, and we will have the formal review mission for Ireland. I think the first and second reviews might be combined and take place just after that”. What has accelerated and brought forward this present meeting? Why, it’s the banks of course.

So what’s the latest crisis? Deposits are still flying out the door and it is likely that between the ECB and the Central Bank of Ireland there is close to €190bn of emergency liquidity assistance in Irish banks at the end of January 2011 (we’ll find out this Friday morning when the CBI releases data). The PCAR and PLAR (PCAR IV by my counting) reviews have been ongoing for some weeks with Barclays Capital, the Boston Consulting Group and Blackrock doing the digging this time around, being overseen by Central Bank governor Patrick Honohan who gave us an interim glimpse into progress a couple of weeks ago when he said that the loan losses would be a “little larger” than expected. Yesterday government appointee to the role of Anglo Irish Bank chairman, Alan Dukes claimed that the banks would need €50bn of funds on top of the €46bn so far injected. This €50bn is understood to include the €35bn banking element of the IMF/EU/ECB/bilateral bailout. Alan Dukes’ assessment of funding needs is at odds with our Central Bank governor who thinks that only €10bn of the €35bn fund available from the bailout will in fact be needed. Bank of Ireland has been flouncing around in what increasingly look like desperate attempts to avoid majority state control at the end of February, 2011 and is faced with a €214m preference share dividend payment in 11 days. The sale of EBS seems to be stalling. AIB is cutting it fine with finalizing the sale of Bank Zachodni WBK, only after which will the State convert the Convertible Non Voting shares into equity shares (and there seems to be a deadline for that of 28th February). NAMA has stalled on the sub-€20m AIB/BoI loan acquisitions with the NAMA Bill (which would give effect to an accelerated valuation methodology) shelved until after the general election, and even then it may require EC approval. And of course NAMA itself might find itself in jeopardy if the Supreme Court judges aspects of its operation unconstitutional today. Yes there is quite a lot going on at the moment in the banking sector.

But the two-headed monster hasn’t gone away – our banks are still starved of liquidity and the outlook for solvency is uncertain. So I am not really surprised at the arrival of an EU/ECB/IMF delegation to review matters, and I think we might see some major new initiatives flowing from events this week. These might include an extension to the deadline for banks fulfilling capital requirements, changes to the capital requirements (injections needn’t be in “equity shares” for example), attempts to put brakes on the ECB/CBI emergency liquidity measures and who knows, perhaps even initiatives on bondholders, including senior bondholders. “Routine”? I don’t think so.

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