On Wednesday, just 48 hours ago, Irish Life and Permanent (ILP) published its annual report and accounts for 2010. The balance sheet is reproduced below. It doesn’t show a bad position at all with net capital of €1.6bn. And yet 24 hours later, the Central Bank of Ireland stress tests showed the bank needed €4bn of additional capital. Okay, €0.3bn of this was a “capital buffer” but the ILP still needed €3.7bn to cover imminent losses.
People ask why Anglo could show such positive results in 2008 and claim that its losses on property lending would be capped at €500m. Has the accounting profession learned nothing since? Sadly it’s not an April Fool’s Day joke.
NAMA Wine Lake 
“The deed facility is an unconditional facility guaranteed by the Government and counter guaranteed by Anglo,” Anglo chief executive Mike Aynsley told the Irish Independent.
“There is no collateral, the guarantees are the collateral.”
Oh well, I thought they just made this stuff up.
NWL
How much of the 40 billion is “collateralized” by invisiable collateral?
Accountancy is not a legitimate activity. Accountants mark a banks deposits as liabilities, and its loans as assets. That sums it all up really.
@OMF, with an accountant’s hat on, I have some sympathy for the profession. From a bank’s perspective when a customer puts €100 into their deposit account, the bank recognises the €100 cash as an asset and also a €100 debt to the customer. When you see the “deposits” line under liabilities in a bank’s balance sheet that is the liability the bank has to the customer for his €100 deposit. Alternately look at the position from the depositor’s point of view, the bank owes him the €100 that he put into his deposit account and the bank is therefore a debtor from the depositor’s perspective so logically the depositor is a creditor from the bank’s perspective.
The more general sympathy for accountants is that they are generally preparing historical accounts and the auditors are simply saying that the accounts at a particular point give a fair view of the financial position of a company *at that point* and by reference to laws (accounting standards, principles) and one of the most damaging standards has been IFRS 9 which has up to recently prevented accountants from looking to the future. There are moves in train to reform the standard but to the best of my knowledge no Irish bank has yet adopted the optional new reforms.
There is a more detail on IFRS 9 here
https://namawinelake.wordpress.com/2010/10/28/honohan-criticises-accountants-for-failing-to-show-true-and-fair-views-of-financial-performance-but-stops-short-of-mandating-the-implementation-of-ifrs-9/
@OMF
Also another non accountant way of looking at this apparent vacuum of common sense is to look on deposits which need a yield.
Once upon a time money was independent of yield – the currency we use now has already been hyper inflated to near infinity.
This yield is a liability to a bank.
What gives it value is its yield potential only.
We now live in a world of negative real yields (capital needs to destroy itself to continue to give).
If the central banks were altruistic and truely believed in their monetory system they would have destroyed the shadow banking sector and then increased interest rates to the remaining deposits.
Punishing malinvestment
But their goal is the protection of their clients not the currency which just needs enough confidence to remain the medium of exchange and tax.
There is only one form of money in a debt based system that is also a asset.
During times of negative yield currency will flow into this asset balancing the books.
Golds recent rise since the inception of the Euro is no coincidence as it no longer has a set price on the CB balance sheet.
The Euro is in reality a dollar killer – but they must push the knife slowly.
The euro masters want dollar reserves to flow.
Accountants learn? That has given me a great laugh. They just sit down using their trained brainlessness and if someone who regurgitated better than them at Uni they will follow them anywhere saying 1 + 1 = 3.
Of course if they regurgitated better at Uni they will be the ones saying 1 + 1 = 3 or 4 or whatever the desired result is.