Wednesday 23 October 2019

Emmet Oliver: Anglo the destroyer can't be killed off as it devours wealth

Emmet Oliver

IT'S finally official -- Anglo Irish Bank has destroyed more wealth than any other company in Irish history. Its record loss of €12.7bn is unlikely to be matched by another Irish company for decades, if ever.

Flicking through the annual report and accounts, one can find all sorts of gruesome records set by the bank.

Write-offs on loans given to directors past and present, for example, are likely to set another record of €108m. The losses on Anglo's property loan book, including NAMA, meanwhile, come to a staggering €15.1bn -- another likely record.

But instead of being an Irish record breaker, Anglo is more akin to a national financial tragedy.

While the taxpayer must pay the price for these astonishing figures, it appears there is no way to kill off the institution and staunch the flow of red ink from its balance sheet.

This week, Finance Minister Brian Lenihan, in a moment he hardly enjoyed, ordered that the bank would receive another €8.3bn in capital from the State, with another €10bn likely to be needed to absorb more further property-loan losses. It is a bitter financial pill for taxpayers to swallow.

But swallow it they must, according to the Government, and, not surprisingly, the bank itself. A liquidation of the institution would be catastrophic, the bank and the Government argue -- and they may well be right.

But what is infuriating to many is that the bank and the Government, up until this week, have not felt the need to share the rationale for keeping the institution open.

When you are injecting €8.3bn into a bank that failed to adhere to even the most basic standards of corporate governance, is it too much to ask to see a few scraps of paper that explain the decision and why alternatives cannot be pursued? Apparently so.

The main advocate for keeping the bank open, former Finance Minister Alan Dukes has been doing an extensive tour of radio studios to flatten the idea that the bank can be liquidated and bondholders forced to absorb its losses.

As ever Dukes can be a persuasive speaker, but radio and television interviews with a relatively inexperienced bank chairman are not sufficient. The public, and Ireland's business community, deserve some detailed facts on why the bank must be kept open in the short or medium term.

The public are understandably furious at suggestions that the only reason that the institution is being kept alive is to pay off its junior and senior bondholders.

This is maddening -- and it could be argued that the bank could do more to reduce these liabilities by talking to bondholders and seeking voluntary arrangements to exchange their current securities for newer, less expensive, securities.

Irish banks have been done such "liability management'' exercises already for subordinated bonds, but the question they need to ask now is can this type of deal move further up the credit ladder?

The idea that all senior bonds at Anglo Irish can be repudiated is far-fetched. It is particularly far-fetched because Anglo simply has too much debt for a small country like Ireland to be repudiating.

The problem is the sheer size of the Anglo Irish balance sheet, with liabilities topping €89bn. Ireland has lots of smaller lenders, with toxic loans, that could arguably be killed off (anyone for Irish Nationwide?) without anyone really noticing, even on the markets. But Anglo does not fall into that category unfortunately.

So if there is no exit from the nightmare at this time; what is one to do? Get angry and seek reform and accountability is the rather unsatisfying answer. Anglo's wretched state was obviously brought about by the individuals who led the bank, particularly chief executive David Drumm, but these individuals existed within a system that failed to police them properly.

Don't take this reporter's word for it. Ask the bankers who are now running the bank, most of them from outside Ireland. Yesterday, these foreign bankers -- sitting in their new environment at Anglo headquarters in St Stephen's Green -- spoke eloquently about Anglo and its massive shortcomings.

The new finance director Maarten van Eden said banking was not "rocket science'', but any bank that existed almost exclusively to lend money to purchase one asset class -- property -- housed the seeds of its own destruction.

Van Eden, an economist by training, went further than just criticism of the previous regime at the bank; he repudiated their almost every deed. He said a property crash was always going to happen, at some point, and Anglo executives were going to get caught out. They were not talented during their time running the bank "just lucky".

It is a harsh criticism, but based on yesterday's figures few will disagree with his reasoning. Anglo now finds itself with the worst of problems in banking -- its debtors won't provide payment, while its creditors will only accept payment.

With such towering and eye-watering losses, sensible people might presume that a tide of accountability has flowed from all these events. But this is not the case.

Yes, David Drumm and Sean FitzPatrick have departed the bank, but the regulatory staff who failed to see the threat that Anglo presented to the entire economy are still at their desks. Their presence at the top of the regulatory system is as big as running sore as Anglo Irish Bank itself.

Irish Independent

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