Who is making out like bandits, with the IBRC scheme?

We’re still awaiting the detail of what is now planned with the liquidation of Irish Bank Resolution Corporation which houses the legacy loans of Anglo Irish Bank and Irish Nationwide Building Society, but already we can have a pretty good stab at those who will make a killing out of this. There will be losers also, and we examine those.

Winners:

You are: if the scheme works out as I expect it too, there will be reduced debt, reduced deficit and smaller budget adjustments needed. Now, the Troika might insist any short term savings are ignored and that we simply accelerate progress in balancing our budget, but from the information gleaned so far, we face the prospect of vastly reduced interest and cash repayments. However, you will still be angry that there is no debt write-down (a transfer of debt from promissory note to NAMA bond is a transfer from sovereign debt to contingent debt) and that we are still shouldering the entire cost of bailing out our banks. So you are a winner by reference to yesterday’s position, but compared to September 2008, you are still very clearly a loser.

KPMG: Yes the audit firm that was responsible for the audits of AIB (bailout cost €20bn), INBS (bailout cost €5bn) and Irish Life and Permanent (bailout cost €4bn) has been given the plum role in liquidating IBRC. Fine Gael deputy and banking expert Peter Mathews was incandescent yesterday, and some of you might feel likewise. But was any firm untainted by the banking bust from 2008 onwards? Arguably Mazars.

Lawyers: We don’t know which law firm drafted the IBRC Act 2013. It might conceivably have been Arthur Cox, but whoever it was, there will have been consultation and drafting fees.

NAMA staff: NAMA has emerged from this as a winner, as it will be NAMA which takes over IBRC. Poor old NAMA CEO Brendan McDonagh has been getting by on a €365,000 salary compared to €500,000 paid to IBRC CEO Mike Aynsley. So Brendan should be in line for a pay increase, if there is any fairness in this world. Similarly asset managers will now have expanded portfolios and will face more complicated decisions.

Advisers: We don’t know if there were third party advisers to the arrangement that has been so far announced, but Minister for Finance Michael Noonan’s past form would suggest he doesn’t have a bathroom break these days without a tender and impact statement, so  I would be surprised if there wasn’t an investment bank or consultancy lurking somewhere getting €1,000 per hour per person fees.

Bondholders. The status of the bondholders remains unclear. In the Department of Finance Q&A issued this morning, it states in relation to litigation – which will include litigation where at least three sets of bondholders, Enid, Assenagon and Fir Tree –  “The effect of the IBRC Act is to place an immediate stay on all proceedings against IBRC that are before the courts (including counter‐claims which do not give rise to a set‐off). Claimants who have issued proceedings against IBRC will now have to pursue and prove their debt to the Special Liquidators. Such claimants will rank as unsecured creditors in the liquidation. If a claimant is also a debtor of IBRC, and that debt is sold to NAMA or a third party buyer, such buyer will acquire the debt subject to that claimant’s pre‐existing valid and enforceable claims and counterclaims that give rise to an enforceable right of set‐off against IBRC.” If IBRC loses its appeal against Assenagon in March 2013 in London, then it faces €210m of costs and there is also an appeal judgment due in New York where Fir Tree who hold USD $200m of subordinated bonds are ultimately trying to position themselves to secure full repayment. Until, the status of these cases are clarified and what assets are available to satisfy judgments, I am regarding bondholders as winners.

Losers

Paddy McKillen: if I were a betting person, I would have said that Paddy McKillen has a reasonably good chance of winning his appeal in London this week, against a High Court judgment last year which rejected his claims that the Barclay brothers had engaged in shenanigans to wrest control from Paddy, of the Maybourne group of hotels. However, you might recall that Paddy fought tooth and nail to have his loans at Anglo (and other NAMA banks) stay put, and not be acquired by the Agency. Paddy went to the High Court and Supreme Court in Ireland where he ultimately fought NAMA to a draw, and NAMA decided to leave Paddy’s loans rest at Anglo. Well, now that NAMA is set to acquire ALL of IBRC’s loans, Paddy will either have to refinance the loans elsewhere, and we appear to be talking about €360m-odd for both IBRC and Bank of Ireland, or Paddy will need to submit to the NAMA machine. And given NAMA’s control over some remaining Derek Quinlan loans, and given the history between Paddy and NAMA, it must be a nervous time for the developer and businessman this morning. IBRC and Mike Aynsley appeared to be bessie mates with Paddy, but over at Treasury Buildings, there is no love lost.

IBRC staff: there will be close scrutiny in coming days on any redundancy deals struck with IBRC staff, particularly senior staff like the Australian CEO, Mike Aynsley who was scheduled to continue in post until March 2018 when he will be 60. Recently Minister Noonan stated in the Dail that the CEO’s contract contained standard termination provisions. The IBRC pension scheme was in reasonable shape and without a deficit. Somehow I can’t see the departing staff, estimated on here at about 300 receiving just the statutory two weeks per year of service. And the estimate on here is that 300 staff will be out of work by the end of 2013 which will be one of the biggest single job losses in the State this year.

IBRC depositors who had more than €100,000 on deposit. This is more of a theoretical loss because it is understood that the relatively minor deposits – €518m at 30th June 2012, page 24 of the H1, 2012 report – all related to legacy loans which IBRC was managing. So a businessman might have had a €2m loan but maintained his working capital in a deposit account at IBRC. So any loss suffered by that businessman on his deposit in excess of €100,000 will probably be offset against the outstanding loan. The Central Bank of Ireland has this morning confirmed that depositors will receive the first €100,000 back, but I would expect any deposits to be offset against outstanding loans.

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