Business Irish

Friday 24 November 2017

Yen-sterling contract cost lender €80m in net losses

Joe Brennan and Emmet Oliver

The cost of a disastrous yen-sterling contract that Anglo's former management entered into in May 2008 has resulted in an €80m net loss for the bank.

The complicated financial arrangement was designed to cut the group's overall net funding costs at a time when they were spiralling out of control.

It was anticipated by Anglo that the structure of the deal would result in no net loss as a result of currency fluctuations.

Anglo revealed in its interim report last summer that it had racked up a €181m pre-tax loss on the foreign exchange contracts, but that it resulted in an after-tax benefit of €17m.

However, in the annual report, it said: "Because of the significant operating losses incurred by the group in the nine months to December 31, 2009, €97m of taxation benefit has not been recognised, resulting in ... an after-tax cost of €80m."


The bank has also reported a write-down of €471m on CDOs linked to the US sub-prime crisis.

CDOs (or Collateralised Debt Obligations) are securities made famous for losing their value dramatically during the sub-prime crisis. They are asset-backed securities, usually secured on real estate or corporate loans.

Because they are valued according to mark-to-market rules, they lost value rapidly when the sub-prime crisis struck in 2007.

Anglo incurred an impairment charge of €471m in the 15 months to the end of 2009, with €141m incurred in the six months ending March 31, 2009, with the remainder taking place in the nine months to December 31, 2009.

The bank gives a full breakdown of what caused the impairment in its annual report.

Some €150m arose on a CDO secured on commercial real estate, €111m was caused by a CDO investment with a US bank, €112m arose in respect of CDOs indirectly linked to the US sub-prime mortgage market, while €42m was linked to a collateralised loan obligation. There were also some losses caused by other investment securities.

The CDOs and other securities are included in Anglo Irish Bank's Available For Sale assets (AFS), these are assets which can be used for liquidity purposes or as collateral.

Irish Independent

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