Wimps at Anglo cry 'foul'
Sunday April 13 2008
DO you still believe in the stock market? You do? Even after all the carnage? Yes. The carnage is part of the market.
A paradox has surfaced: some of the big players no longer believe in the market. They always thought it was there to serve their narrow interests. Now, they are suffering from shock.
One of the darlings of the Irish stock market has been wounded. It doesn't like its chosen battlefield any more.
For many years Anglo Irish Bank was the market hero. It topped the pops with investors. Its big shots were the beneficiaries of market booty. Its chief executives regularly walked off with the best pay packages in Ireland; they received options galore, bonuses by the bucketful. Anglo's share price soared. It was a dynamic outfit; a brave lender; it had brilliantly bet the bank on property.
Anglo was the business, the go-go bank.
All that ended on St Patrick's Day. Ireland's one- time market idol took a bath.
Then, a day later, on March 18, Anglo learned how to whinge.
Over the St Patrick's weekend Bear Stearns had been rescued; banks worldwide were under pressure; rumours even circulated about giant US investment house Lehman Brothers being in trouble. On March 17, the Lex column in the Financial Times fingered Anglo Irish and HBOS as being vulnerable to a commercial property collapse in Ireland and the UK.
Lex is a serious column with a global following.
Hedge funds sold Anglo short. The shares lost 15 per cent.
Anglo cried "foul". They were feeling the rough edge of the market.
Not only had high fliers from hedge funds sold Anglo shares short around St Patrick's Day, they had probably also tipped off a few pals. They were sharing their bearish views with brokers, bankers, punters and journalists -- in fact, anyone who would listen. Once they had dumped the stock, they wanted the world to know. They were driving sentiment downwards.
If that helped the shares to tank, they would be delighted. Others could always take a contrary view and squeeze them. That's what makes a market.
Suddenly, Anglo smelled a conspiracy. Suddenly, the market which Anglo's bosses had learned to love was out to "get" them. The bank began to whinge about false rumours.
What a volte face. There was no whingeing from Anglo when false rumours of a takeover of Anglo were spreading like wildfire and inflating the share price. There was no whingeing from Anglo when brokers were issuing circulars galore urging hedge funds and rich clients to buy the stock.
Market fans believed that Anglo boss David Drumm and his cohorts were magicians, making super profits from lending into the property boom.
On March 19, the UK's financial regulator decided to investigate HBOS. A day later our own sleepier local version followed. Our regulator announced an inquest into dealings in Anglo.
The Irish Regulator's entry bears all the marks of a public relations exercise. It was probably embarrassed by its UK counterpart 's decision to sniff around dealings in HBOS. So it decided to throw a few shapes.
Ireland's Financial Regulator is a past master at public relations. It is all action, often after the event. Its history is riddled with flamboyant press releases after mysterious market antics have been uncovered -- by someone else.
While the frenetic dealings in Anglo Irish shares were taking place on St Patrick's Day, where was the busy Regulator?
You guessed it. Closed for the day. The markets were open, but the Regulator was on leave. A bit like the gardai abandoning Moyross in Limerick for a bank holiday and then trying to solve the crime 24 hours too late.
Today, the part-time watchdog is puffing and blowing. It has launched a class of an investigation into share dealings in Anglo.
Last week, in answer to my question about the Regulator's closure on a day when the Irish market was open, the less than forthcoming watchdog replied in language which would make the Kremlin blush.
"Our transaction monitoring and reporting system is part of an integrated system designed by the Committee of European Securities Regulators and operational in all member states."
What a confidence booster to the consumer!
It went on to protest lamely that the watchdog "observes public holidays. Staff are also on call out of hours should any issue arise."
The Kremlin on Dublin's College Green, badly needs a result; let us hope it is not seeking a scalp. Nor should the Regulator think that it has a duty to protect a company's value. Its duty is to the punter, not to a sulky market player.
Perhaps the Financial Regulator does not understand the stock market? The market thrives on whisper, rumour and innuendo. It is a deadly place to operate. It is no comfort zone for saints, and sometimes a sanctuary for scoundrels.
Perhaps the Financial Regulator is a little naive: selling short is just as legitimate as buying stock. Hedge funds even borrow stock to sell short. That is the market. Hedge funds have an uncanny ability to spot a weakness.
Worse still, there remains a convincing investment case for dumping Anglo's stock. No Irish bank is so heavily into property, the market's current nightmare.
Rumours about Anglo have been doing the rounds for months.
As a result, Anglo long ago lost its status as the market's favourite son. Brokers are always looking for an angle to generate commission. If they think a publicly quoted company is in trouble they sell the stock and spread the word. The sight of a grown-up bank bleating over such activities is a bit rich.
Anglo has reacted with a stunning petulance. Its decision to send a solicitor's letter to Merrion Capital, copy it to the Regulator and to confront Davy (its own broker), does little to convince punters that all is well in the ugly sister of Irish banks.
Davy is corporate broker to Anglo. Imagine the justifiable scepticism if Davy was reassuring investors that all was well with Anglo. The firm would be lethally conflicted. In recent times I have been no fan of Davy for a relentless bullishness of the market; but if the brokers were really urging investors to dump shares in a bank for whom they act as corporate agents, it is time to applaud them.
Last week, news broke that Anglo was suing a building company director for €24m. The case was the first forced sale of a large development site since the credit crunch broke. There will be more.
On Tuesday, just as the media carried the ominous story of the €24m court case, shares in Anglo began to retreat again. Anglo's shares had initially rallied from a low of €6.95 to €9.35. Last week, they began to tumble, sliding back to close at €8.08.
Perhaps the rumour mongers were at it again?
Or perhaps the rumourmongers were right? Like it or not, that is the market.
- Shane Ross
