What does bank's proposal mean for main players?
Published 10/04/2010 | 05:00
Anglo Irish Bank is proposing to pump a further €700m into the Quinn Group, which already owes the nationalised lender €2.8bn, in return for a majority stake. What does this mean for Anglo and its largest borrower? George Garvey looks for some answers.
Q: Anglo is bust. Why does it want to give the Quinn Group even more money?
A: With outstanding loans of €2.8bn, the Quinn Group is Anglo's biggest borrower. However, Anglo's loan security ranks behind Quinn Group's bondholders and other banks. In return for €700m, Anglo will receive a majority stake in the Quinn Group.
Q: Is this not a case of throwing good money after bad?
A: Not according to Anglo. Of the €700m, €150m will go to Quinn Insurance, with the remaining €550m going to Quinn Group's bondholders, who seem to have cast-iron guarantees from Quinn Insurance. Anglo hopes that, in return for €550m, the bondholders will release Quinn Insurance from these guarantees and that, following the injection of €150m, the Financial Regulator will allow Quinn Insurance to exit administration. This would restore control of Quinn Insurance to the Quinn Group.
Q: What are the chances of the Financial Regulator agreeing to this deal?
A: Not good. Ever since provisional administrators were appointed to Quinn Insurance on March 30, it has become clear that there has been a breakdown of trust between the Quinn Group, Quinn Insurance and the regulator.
Q: What does the Anglo plan mean for the Quinn Group?
A: Quinn Insurance was the Quinn Group's main cash generator. With debts to banks and bondholders of at least €4bn, the Quinn Group desperately needs the Quinn Insurance cash flow. If the Financial Regulator accepted the Anglo plan, the Quinn Group would regain control of Quinn Insurance. This would greatly strengthen the Quinn Group's hand in its negotiations with its banks.
Q: What does the plan mean for Anglo?
A: With €36bn of bad loans, the last thing Anglo needs is another big borrower going belly up. If the Financial Regulator agreed to the plan, it would significantly improve the security of Anglo's loans to the Quinn Group, resulting in far smaller writedowns.
Q: What does the Anglo plan mean for Quinn Insurance and its policyholders?
A: The benefits are less obvious here. The last thing any insurance company needs is uncertainty. Policyholders have to be absolutely sure that they will be paid when they make a claim. If they are not, they will take their business elsewhere. Now that doubts have been raised about the future of the Quinn Group, policyholders are likely to flee in droves if Quinn Insurance is returned to its control.
Q: What does the plan mean for the Financial Regulator?
A: This is make or break time for Financial Regulator Matthew Elderfield. This is a battle he cannot afford to lose. If his decision to appoint provisional administrators to Quinn Insurance is reversed by the High Court next week, his authority will have been fatally undermined.
Q: If the appointment of administrators is confirmed, what are the implications for the Quinn Group?
A: With its main cash artery severed, it is difficult to see how the rest of the Quinn Group could survive. A decision in favour of the regulator would almost certainly mark the end of the Quinn Group in anything resembling its current form.
Q: What would a decision in favour of the regulator mean for Anglo?
A: The implications are almost as grim. If the High Court confirms the appointment of administrators, it will almost certainly trigger a collapse of the wider Quinn Group. Given its poor security, this would almost certainly force Anglo to take a huge writedown on its exposure to the Quinn Group. With public opinion already extremely hostile to Anglo, this could be the event that finally persuades the Government to close the bank.