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Posts tagged ‘machholz blog’

NAMA changes were designed to keep Bank of Ireland private ????

Was the real reason for increasing the minimum on some NAMA loans from €5m to €20m to avoid a capital crisis at Bank of Ireland that would have seen the State take majority ownership of that bank?
namawinelake | October 3, 2010 at 1:20 pm | Categories: NAMA | URL: http://wp.me/pNlCf-En

Bank of Ireland has been working closely with NAMA for approximately nine months
It just didn’t make sense. The Minister for Finance announced on Thursday morning last that “the Government has decided, having consulted with the NAMA Board and the European Commission, that where the total exposure of a debtor is below a €20 million threshold in AIB [that’s Allied Irish Banks not to be confused by our foreign friends with Anglo Irish Bank] and Bank of Ireland, that debtor’s loans will not now be transferred to NAMA. The threshold had previously been set at €5 million. This change will ensure that NAMA can operate to the highest level of efficiency and effectiveness in the management of its loan portfolio and allow for the completion of all NAMA transfers by end-year”. The €5m lower limit will remain for Anglo and of course INBS and EBS have no lower limits (page 8 of the draft NAMA Business Plan in October 2009).
Why the announcement didn’t make sense:
(1) The priority is to get certainty on Anglo – not BoI or AIB. Anglo is now required to transfer its remaining €19bn of loans to NAMA by the end of October 2010. Anglo will then have a remaining €38bn of non-NAMA loans that are intended to go to the proposed Asset Recovery Bank. If Anglo is the priority then why not apply the €20m limit to Anglo as well as AIB and BoI? It is not clear how many loans or what value of loans that would re-route away from NAMA but in the context of the €38bn non-NAMA loans, it was likely to be relatively minor.
(2) The deadline for completing the NAMA transfers is February 2011. This is an EU-imposed deadline and if the deadline is not met, then the stars will not fall from the skies – the State will merely ask for an extension. EC Competition Commissioner Joaquin Almunia must now be an expert on the Irish banking crisis given the approvals sought in the last couple of years from his Commission. Surely he would not reject a request to extend the February 2011 deadline by a few months, particularly if the process was substantially completed by then.
(3) Why not apply the €20m limit to INBS and EBS? Wouldn’t that have resulted in a quicker transfer of their NAMA portfolios also?
(4) Given that NAMA’s principle was to cleanse banks of a particularly toxic class of assets, surely the retention of €6.6bn of these loans (the effect, the Minister told us of raising the limit at AIB and BoI was that €4.5bn of NAMA-eligible loans would remain at AIB and €2.1bn would remain at BoI) would undermine that principle?
It seemingly became clear in the middle of last week that AIB didn’t have a future in the short term without majority State control, though the feigned surprise at AIB at the decision by the Financial Regulator that the bank needed another €3bn of capital, was, to say the very least, amusing. So that meant that Anglo, EBS, INBS and AIB are effectively nationalized. Was the fear that if Bank of Ireland needed further capital, then that would signal the defeat of a government strategy that sought to avoid nationalization in September 2008? Let’s look.
(1) On 30th March 2010, our new-ish Financial Regulator, Matthew Elderfield announced the results of what he called a Prudential Capital Assessment Review. In respect of BoI he announced “ (1) An additional €2.66bn of equity capital to meet the base case target of 7% equity, and, (2) In meeting this requirement provided at least €0.25 bn of new Core Tier 1 is raised, then Bank of Ireland also meets (a) the base case target of 8% Core Tier 1, and, (b) the stress target of 4% Core Tier 1.” Now this all seems very complex but the Regulator did simplify things a bit when he gave the formula for the new capital requirements which started “Start with Current Capital of bank and forecast Operating Results Deduct impairments on NAMA loans Deduct impairments on non -NAMA loans until 2012”
So Bank of Ireland had to work out its capital requirements by reference to forecast losses on NAMA and non-NAMA loans. Like other financial institutions in Ireland, Bank of Ireland chooses to hide behind the temporary discretion allowed in IFRS 9 to avoid showing realistic estimates of losses on its loans. However the Financial Regulator was going to apply a more prudent measure of losses and reports in June 2010 suggested he was applying a 45% discount to AIB’s portfolio after AIB suffered a 42.3% loss in Tranche 1 – it remains unclear what discount he applied to BoI. The effect of raising the minimum NAMA loan from €5m to €20m reduced BoI’s NAMA-bound portfolio by €2.1bn and was reported by Bank of Ireland as “comprising land and development loans of circa €1.9 billion and associated loans of circa €0.2 billion. At 30 June 2010, the impaired element of this portfolio was €1.6 billion against which Bank of Ireland held IFRS provisions of €0.8 billion”. Was a 40% impairment charge enough (see below)?
Now subsequent to the Financial Regulator’s review, BoI went about raising €3.4bn of capital with a rights issue of €1.9bn, a €500m institutional placing of shares and the conversion of preference shares to ordinary shares. The €1.9bn rights issue eventually became €1.73bn after a €233m debt-swap. BoI has thus far however remained outside nominal majority State control.
(2) The Minister for Finance has put the NAMA haircut on remaining BoI NAMA tranches at 42% – “Bank of Ireland has already met the Financial Regulator’s 2010 capital requirement. To date the Bank has transferred €3.75bn of loan assets to NAMA at an aggregate discount of 36%. While the final tranche of NAMA loans may have a higher discount of up to 42%, the Central Bank has confirmed that the bank has sufficient capital to meet the PCAR standard to accommodate this increase.” Let’s look at the experience of the banks with Tranches 1 and 2 and the present forecasts from the Minister’s statement.

So of the relatively good performing Participating Institutions in Tranches 1 and 2, EBS’s haircut is to increase by 58% (in relative terms) from 38% to 60%, AIB’s haircut is to increase by 33% from 45% to 60% and BoI is to increase by only 16% from 36% to 42%. The basket cases Anglo and INBS see 16-22% increases but these are from very high levels already (55% and 65%).
Why should BoI’s remaining tranche be so much better than the other relatively good performers? A couple of days ago on here we looked at the Bank of Ireland loans to McDaid Developments (Ireland) Limited – GBP £42m of loans that are reported to be exposed to 85% losses. Although Bank of Ireland has been top of the class in Tranches 1 and 2 with the lowest haircuts (36.2% weighted average) and the statements this morning apparently confirmed that BoI was alright for capital even with a 42% discount, is 42% enough? Also, like the other banks, BoI seems to have been less than realistic in reporting its non-NAMA losses.
Of course by avoiding NAMA’s apparently stringent valuation and due diligence process, Bank of Ireland avoids crystallizing the true level of losses on €2.1bn of loans. And in so doing is perhaps avoiding a capital deficiency that might see the State having to take majority ownership of that bank also. And that is why it makes sense to increase the €5m limit to €20m despite the fact that on the face of it the decision makes no sense.

Comment:
see http://thepressnet.com/2010/10/02/majority-of-countrys-banking-system-nationalized/

http://thepressnet.com/2010/10/01/bank-of-ireland-and-accounting-gimmickry/

‘This is no mere slump, it’s the bankruptcy of a nation’

David McWilliams  has posted a new article,

‘This is no mere slump, it’s thebankruptcy of a nation’

IF Seanie Fitz is bust, well then so too is much of Ireland’s professional

class. Because they were all at the same game — buying into syndicates,

borrowing against their incomes and hoping to make fortunes.

But now that history is being rewritten, FitzPatrick suddenly is painted as a

man who acted alone. This is ludicrous. […]
full article http://www.davidmcwilliams.ie/2010/07/14/this-is-no-mere-slump-its-the-bankruptcy-of-a-nation
David has managed to forensically analyze the entire sorry saga that is now The Irish Republic is this his latest posting

We the people deserve no better than to become slaves to the gombeenisem that runs our country if we do not stand together against the Gangsters and economic terrorists that run amok in the Dail

For god sake will anybody stand up with me and fight these crooks!

see also http://thepressnet.com/2010/07/13/7457/

The realities of corruption and cronyism in Ireland

It is a sad reflection on the people of Ireland when a small group of protesters (http://www.eirigi.org/) take the time to demonstrate outside the country’s most corrupt bank on a Saturday afternoon, while at the same time over the other side of the city 8,000 young people chase fairytale promises of the X-Factor

And ignore the harsh realities of corruption and cronyism in Ireland.

With a government pouring billions down this toxic toilet and expecting the young of our country to piss off and emigrate ,is it any wonder?

(Here is a video clip with Fintan O Toole discussing this very fact http://vimeo.com/10189171 )

It is also a sad fact the Irish middle ground were absent from this demonstration ,and if we are to get rid of the current shower that are running our country and bring to justice the criminals that destroyed and sold out our country we will need to come together and join forces with all the groupings that are working to clean up our country and bring about a new government through a general election.

Protesters at Anglo Irish Bank

 


It appears the four people on ledger were arrested as well as two or three people who had been outside. All this took place in the space of ten minutes. Inspector Gannon who led the assault on Shell to Sea campaigners at Polthomas pier in Rossport was spotted among the Gardai and witnesses reported they had the clear impression that the Gardai were acting under orders that no further protests against the bank bailouts were to be tolerated.

Up to 100 Gardai are now around Anglo Irish bank with a second protest having being called by eirigi for 14.00 today. It has been confirmed that this protest will still be going ahead as will Tuesdays protest at the Dail.

We would call on people to join the anti-capitalist block at 19.00 at the Wolfe Tone statue on Tuesday (opposite Shelbourne Hotel) where we will discuss how to best respond to the attacks on bank bailout protests before proceeding to the Dail. 

Full report at source
http://www.wsm.ie/c/gardai-attack-eirigi-anglo-irish

Lunatics running the asylum!

The latest on the Greek Bailout

First is was 250 million (Irelands Contribution to the Greek bail out (2nd April)

Then on the 11. April 2010 we hear that we will be giving (€450m )

In a statement, Brian Lenihan confirmed Ireland had agreed to the deal, which he said was about safeguarding financial stability in the euro area and would be to the benefit of all member states including Ireland then!

To-day 3.05.2010 a (Bank holiday)

Finance Minister Brian Lenihan maintained the joint rescue plan with the International Monetary Fund – which amounts to 110 billion euro over a three-year period – is money “well spent”. Ireland will now contribute 1.300.000.000 Billion

After a long list of disastrous decisions be this economic terrorist

1. The guarantee on September 29th 2008

2. The nationalization of Anglo Irish

3. The € 7 billion recapitalization for AIB and BoI

4. € 4billion injection of capital last summer into Anglo

5. NAMA

6. The transfer of the preference shares in BoI into ordinary shares.
None of these interventions lived up to the expectations claimed by Lenihan

Not a single penny has been spent to create new jobs, to up-skill the unemployed

And yet 22,500.000.000 Billion has been dumped down the Anglo Irish Toxic Toilet!

How long will we the people allow the lunatics run the asylum??

Lies and dam Lies from Brian Lenihan!

Quotes from Brian Lenihan since the bank guarantee:

Source http://www.thestory.ie


photo Machholz

On Breakfast with Newstalk, April 26 2010.

First of all, that’s the position in 2009, Eurostat hasn’t decided it yet, that’s our assesment of how they will decide it, we’ll still argue the toss with them. We have to deal with 2010 yet, but let’s assume that you’re right for a minute and that all the €8bn has to be added on in 2010. Let’s assume that. We won’t be borrowing the money, we’ll be borrowing the money over a period of ten or fifteen years. We’ll actually be up fronting – in accountancy terms – the figure, but we will not in fact be borrowing… – April 26 2010.

Also on Breakfast with Newstalk

Now that I’m the shareholder in Irish Nationwide I will clearly ensure that whatever money is owed by Mr Fingleton is paid by Mr Fingleton. – April 26 2010.

Also on Breakfast with Newstalk

BL: No, no, listen, listen. This not good for the country , and it’s inaccurate. If next year we’re obliged to include the €8bn, the €8bn will not actually be borrowed next year the device of the promissory note means we borrow…

Ivan Yates: No, I know the promissory note is over ten years. You’re missing the point…

BL: No you’re missing the point! This is an accounting device! This is not real borrowing! What the markets look at is real borrowing. Not accountancy devices… – April 26 2010.

Speaking to media…

“The decisive and bold steps we have taken are not popular; and the honest and full disclosure by the Government and its agencies of the appalling mess we have uncovered within our banks has shocked the nation,” Mr Lenihan told the Dail.  “But I do believe that there is recognition among the citizens that the measures we have taken are necessary. And I believe the work of NAMA in cleaning up the banks’ balance sheets and forcing them and their borrowers to face up to their losses is winning the respect of the public.” – April 21 2010,  Irish Independent

“One of the good things about the steep discount, averaging 47 per cent, is that the residential property market will now be stabilised at a realistic level… You can now buy in confidence that the price is realistic.” – April 4 2010, Irish Independent

[Submitted by CO’D]:

The Financial Regulator has advised that all the financial institutions in Ireland will continue to be subject to normal ongoing  regulatory requirements. This very important initiative by the Government is designed to safeguard the Irish financial system and to remedy a serious disturbance in the economy caused by the recent turmoil in the international financial markets. As far as the question of ‘moral hazard’ is concerned, it will be a priority for the Government to ensure that the highest regulatory standards and standards of corporate governance apply in all of the institutions concerned including in relation to lending practices to safeguard the interests of taxpayers against any risk of financial loss. – Department of Finance statement, September 30 2008

[Submitted by CO’D]: During Dáil debate on credit institutions and financial support,

Olivia Mitchell (FG): We need to see the terms and conditions to know what will happen with regard to these people. Is there any requirement for the banks to restructure their loans? Will they be allowed to make a massive number of repossessions and have fire sales, driving house prices down further and sending the economy into even deeper recession? Has the Government any plan to deal with this?

Brian Lenihan: This is the plan.

Olivia Mitchell: […] However, we need a return to the banks of old — to the image we had of them as being dull, staid, boring, cautious and careful. We no longer have that image. What is the Government’s plan to create the conditions that will ensure this happens? What will happen to restore confidence in the banking system? If we do not restore confidence in the banking system, what the Minister is doing now——. I do not know what the Minister is laughing at.

Brian Lenihan: I am not laughing. I am allowed to smile. – October 1 2008

[Submitted by DC]: As reported by Simon Carswell in The Irish Times…

MINISTER FOR Finance Brian Lenihan has said the bank guarantee scheme was “a necessary first step” and “the cheapest bailout in the world so far”.

Mr Lenihan said the guarantee was “the cheapest bailout” compared with bank rescues in other countries, including the UK and the US, where “billions and billions of taxpayers’ money are being poured into financial institutions” – October 24 2008

Irish Times…

“We are not rushing into the banks without knowing precisely what the position is in those banks” – Nov 20 2008

During the Stabilisation of Public Finances debate, Dáil Eireann

In the context of any capitalisation the due diligence exercise will yield further information to enable us to do a far more precise identification of risk before we formulate policy on it. I would be reluctant to commit the taxpayer on any issue connected with risk without a full and definitive assessment of the risk in the institutions themselves and we must await this assessment. – Feb 5 2009

Following the publication of Anglo Irish Bank’s 2009 results. Minister Lenihan said he welcomed the increased scrutiny of Anglo as an opportunity to bring openness to the bank…

“which will ultimately allow us to draw a line under past activities”. “It is an opportunity for Anglo to employ a fully transparent approach to addressing the inappropriate activities that took place at the bank and provide comprehensive details to all stakeholders who deal with Anglo and who deal with Irish financial institutions generally.” – Irish Independent, Feb 21 2009

When challenged as to why he was not nationalising banks (at this time the State had already nationalised Anglo Irish Bank and taken a 25 per cent stake in Bank of Ireland and AIB).

“I do really want to scotch the idea that there are huge risks to the taxpayer in the valuation process because we are not nationalising these institutions.” – Irish Times,
May 18 2009

Nama Bill, Dáil Eireann.

NAMA will ensure that credit flows again to viable businesses and households by cleansing the balance sheets of Irish banks. This is essential for economic recovery and the generation of employment. It will ensure that we avoid the Japanese outcome of zombie banks that are just ticking over and not making a vibrant contribution to economic growth. – Sept 16 2009

Nama Bill, Dáil Eireann.

I am not prepared to contemplate the establishment of an entity that has no responsibility or accountability to this House. – Sept 16 2009

Nama Bill, Dáil Eireann

Nothing in the NAMA legislation will result in more repossessions of family homes. – October 14 2009

On the nationalisation of Anglo, during a debate on banking regulation in the Dáil

This decisive step was taken to safeguard the interest of the depositors of Anglo Irish Bank and the stability of the economy. I want to assure the House that this decisive step was taken to ensure the new nationalised bank will collect all debts due from persons who owe moneys to the institution. – Feb 18 2009

In response to written question from Kathleen Lynch

Taking account of the advice received the Government has proceeded with a comprehensive recapitalisation of Ireland’s two main banks and with the nationalisation of Anglo Irish Bank. The Government is also in discussions with the other covered institutions, Irish Life & Permanent, Educational Building Society and Irish National Building Society concerning their respective positions. – Feb 18 2009

In response to a written question from Arthur Morgan

The recapitalised banks have reconfirmed their commitment to an extensive credit package which will help to increase lending capacity to small and medium enterprises by 10% and to provide an additional 30% capacity for lending to first time buyers in 2009. The credit package also provides for a €100m environmental and clean energy innovation fund to be established by each bank. All the steps that I have outlined have been taken by the Government to ensure that the public interest is secured so that the financial system in Ireland meets the everyday financial needs of individuals, businesses and the overall economy. – March 26 2009

Written answer to Arthur Morgan

Our approach will facilitate a sustained flow of credit on a commercial basis to individuals, households and businesses in the real economy. – July 8 2009

When questioned on the delays in implementing Nama legislation on Morning Ireland

“We can’t have a lawyers’ bonanza and that is another good reason why we have to get this right.” – May 18 2009

Kicker; written answer to Joan Burton

Arthur Cox solicitors have been engaged by my Department since September 2008 to provide advice in relation to general banking matters including the Bank Guarantee scheme, the nationalisation of Anglo Irish Bank and the recapitalisation of AIB, Bank of Ireland and Anglo Irish Bank. The company was paid €1,628,024 in 2008 and €2,254,263 has been paid to date in 2009. The sum of €5.4 million has been allocated for legal advice for 2009 and an estimate of €3 million has been set aside for legal advice in 2010.

PriceWaterhouseCoopers was retained by the Financial Regulator in late 2008 to assist the Financial Regulator with a review of the financial and capital positions of Irish banks and to enable the Financial Regulator to advise the Government on what action needed to be taken. The work undertaken involved an initial high level assessment of the capital and liquidity levels of the institutions, stress testing of the institution’s loan portfolios over a three year period, and review the valuation of properties held as collateral against the main property loans.

The total fees paid by the Financial Regulator to the company in respect of the work was €3.8 million, which has been completed. In addition, the Financial Regulator has paid €0.84 million to Jones Lang La Salle for financial and property consultancy services in relation to the Bank Guarantee Scheme.

The National Treasury Management Agency paid a total of €7.3 million to Merrill Lynch for investment banking advice up to 30 June 2009. Following a competitive tender process in July, Rothschild have now been awarded the contract for investment banking advice. The NTMA has also retained an economist however the terms of his contract with the NTMA were agreed on a confidential basis. In addition, following a competitive tender process, the NTMA engaged HSBC and Arthur Cox to provide advice in relation to NAMA. – Sept 22 2009


NOTE: I’ve gone through the Dáil record and archives of the Times and Indo, but haven’t listened to radio or TV interviews. If anyone has a bit of time to go back and listen to a Morning Ireland/Prime Time/The Last Word/Whatever interview… t’would be useful.

* a word members of our Government like to use when scripting excuses for the negative outcomes that result from badly implemented policy or regulation. Usually follows “unforeseen”.

Derivatives ???


NEW YORK (Reuters) – Warren Buffett’s Berkshire Hathaway Inc said fourth-quarter profit surged, helped by derivatives bets tied to global stock markets, though operating profit fell 40 percent as the weakened economy weighed on several businesses.

Profit rose for a third straight quarter, and full-year profit increased 61 percent, as Berkshire rebounded from perhaps its worst year since Buffett took over in 1965.

“I was quite impressed with the results,” said Vahan Janjigian, author of the book “Even Buffett Isn’t Perfect.”

“It is clearly suffering from the economic recession we have been in, but compared with most other companies involved in similar businesses, it is doing quite well,” he added.

In his annual letter to Berkshire shareholders, Buffett admitted that Berkshire’s ability to outperform that benchmark “has shrunk dramatically,” and that “our future advantage, if any, will be a small fraction of our historical edge.”

Net worth per share, which measures assets minus liabilities and is a key metric for Buffett, rose 19.8 percent, compared with a 9.6 percent drop a year earlier.

Still that lagged a 26.5 percent gain including dividends for the Standard & Poor’s 500, the first time it trailed since 2004. Berkshire’s net worth per share is up 20.3 percent annually since 1965, while the S&P 500 is up 9.3 percent. Total book value rose to $131.1 billion from $109.27 billion.

full story link

http://www.reuters.com/article/idUSTRE61Q1IF20100227?loomia_ow=t0:s0:a49:g43:r5:c0.100000:b31169752:z0

Have helped warren buffet to come in with substantial profits as fourth-quarter profits surged, helped by derivatives bets tied to global stock markets, though operating profit fell 40 percent as the weakened economy weighed on several businesses.
Profit rose for a third straight quarter, and full-year profit increased 61 percent, as Berkshire rebounded from perhaps its worst year since Buffett took over in 1965.

 

Derivatives have been the driving force for the enormous profits enjoyed by the major banks in the US in the last quarter as well

Now we see even Buffet is using them!

But on real economic activity nothing doing we are still in the dole drums and the only way the banks are going to give an encore with regards to their profits going forward is to keep using even bigger and riskier Derivatives bets

In other words “Gambling” all over again!

They will have to engineer another bubble and the stock market in the obvious choice so expect a massive turn in the markets soon

Place your bets here now!

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