Why would it cost so much to close down Anglo?

Can anyone explain this to me in simple terms;

From [broken link removed]

A liquidation would cost the State between €27 billion and €35 billion, he said, while running it down over 10 years would cost between €18 billion and €22 billion.

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How could a liquidation cost the state €27 billion? If the State stops giving Anglo any more money from today, where does the €27 billion cost come from?

Re: Morgan Kelly on Bank Robbers

Complainer said:

Can anyone explain this to me in simple terms;

From [broken link removed]


How could a liquidation cost the state €27 billion? If the State stops giving Anglo any more money from today, where does the €27 billion cost come from?

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Always did want to see the breakdown of their figures. They should release their workings.
I presume a large part of the €27 billion would come from the fact that a firesale of assets would not cover their liabilities and as the deposits and bonds are guaranteed by the State, the taxpayer would need to make up the difference.

Re: Morgan Kelly on Bank Robbers

Is the chief of Anglo expecting the public - now his boss - to accept his word without question? I would no more expect a turkey to vote for Xmas than for a well-paid bank boss to suggest that it would cheaper to close his bank down than keep it going. There should be a completely independent, all-party accessment published of the cost of the various options open to us.

Re: Morgan Kelly on Bank Robbers

Complainer said:

Can anyone explain this to me in simple terms;
How could a liquidation cost the state €27 billion? If the State stops giving Anglo any more money from today, where does the €27 billion cost come from?

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This had me scratching my head as well, but I think Sunny gives the answer. We have guaranteed Anglo's deposits and bonds, so liquidating Anglo only moves these massive liabilities over to us. And think about it, there is no way off this hook for as soon as it is intimated that the guarantee will not be renewed there would be a massive run on Anglo triggering a liquidation triggering the guarantees.

But could the Government, on that fateful day in September 2008, have left Anglo out of the guarantee? It would have triggered a mighty bloodbath with Anglo forced into liquidation but prima facie no claims on the taxpayer. The problem then would have been contagion into the Big Two which would always have needed bailing out.

The more you think about Anglo, this has been a financial holocasut of Nazi proportions - surely there will be some war crime convictions. The new boss says he has never seen anything like it, reminiscent of the Allies seeing the death camps after WWII.

Re: Morgan Kelly on Bank Robbers

Complainer said:

Time to cut the bondholders out of the guarantee now, and to restore the threshold that was in place for the the deposit guarantee (€100k, iirc).

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I don't think either of these courses work. The only people enjoying the guarantee are those whose loans/deposits mature before the guarantee expires. When these loans/deposits do mature they will simply move if the guarantee is not renewed. Similarly if the deposit guarantee is reduced to 100K that can only be done once the unlimited guarantee expires and the excess 100K depositors will simply withdraw their excess. In other words there is no way to get those who are currently protected by the guarantee to bear any losses - they can simply walk when they see any signs that this is the plan.

Any other toasting of bondholders, not covered by the guarantee, requires a declaration of bankruptcy and that simply triggers the blanket guarantee. There is no way oot

I can see how the liquidation would be a disaster. We have guaranteed its liabilities, so we are stuck with them.

But I don't see how running it down will cost us that much? Presumably they should not make any new loans and over the coming years run down the loan book and repay the deposits.

If the other banks recover, it could get to a situation where the loan book is sold to another bank.

The same should be done for the Irish Nationwide by the way. Their loan book should be sold to EBS and the Irish Nationwide closed down.

Brendan

Brendan said:

But I don't see how running it down will cost us that much? Presumably they should not make any new loans and over the coming years run down the loan book and repay the deposits.

Brendan

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I didn't understand that bit myself. All in all this was a very interesting interview but it just begs for explanations of the bland quantification of the other "worse scenarios".

This is a really important question which we have not answered yet.

I have removed all the off-topic posts about what happened back in September 2008. Feel free to start a new thread on them if you wish, but keep this thread for the costs of dealing with Anglo now, given that we have guaranteed their liabilities.

Brendan

I guess the argument is that if so much has to be invested in Anglo we should try and extract some benefit in the form of developing a going concern "good bank" divorced from the bad bank. This would then have the potential to generate operating profits and/or be fit for resale. Personally, it's hard to see any of Anglo being re-invented as a good saleable bank.

Shawady said:

The way it was explained on Prime Time last night was that the bulk of the money owed by Anglo was depositers (which no one is suggesting we renege on) and sovriegn debt (which if we defaulted on, we would not be able to borrow money).

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Can you explain what soverign debt means in this case? Is this money Anglo has borrowed from Irish govt, or other govts or what?

Brendan said:

I can see how the liquidation would be a disaster. We have guaranteed its liabilities, so we are stuck with them.

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We cannot just accept that 'we are stuck with them'. We were sold a pig in a poke. Isn't there a general legal principal that if one side to a contract is found to have bee untruthful, then all bets are off?

We need to explore every possible opportunity (including rewriting of rulebooks and legislation if necessary) to get the state (and our children and grandchildren) off this hook?

Complainer said:

Can you explain what soverign debt means in this case? Is this money Anglo has borrowed from Irish govt, or other govts or what?

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Sorry Complainer, a lot of it over my head. I got the impression it was other central banks and if we defaulted on it, it would be extremely difficult to go back to this source of borrowing in the future.
Even Joan Burton was not suggesting default on this type of debt but rather try renegotiate it but was not specific enough.
I think depositors made up 34 billion and soverign debt was 32 billion.

Shawady said:

Sorry Complainer, a lot of it over my head. I got the impression it was other central banks and if we defaulted on it, it would be extremely difficult to go back to this source of borrowing in the future.
Even Joan Burton was not suggesting default on this type of debt but rather try renegotiate it but was not specific enough.
I think depositors made up 34 billion and soverign debt was 32 billion.

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But, if Anglo were liquidated, then it will NEVER need to go back to the source of the borrowing as it would no longer exist. This argument has no merit.

And it's not the job of the Irish taxpayer to pay for the lack of due diligence of some foreign central bank who's invested in a house of cards.

csirl said:

But, if Anglo were liquidated, then it will NEVER need to go back to the source of the borrowing as it would no longer exist. This argument has no merit.

And it's not the job of the Irish taxpayer to pay for the lack of due diligence of some foreign central bank who's invested in a house of cards.

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I assumed future borrowing meant the government's borrowing to plug our deficit, and as it now owns Anglo, if it defaulted it would have difficulty raising money in the future.

I agree with second point but there does seem to be a lack of alternatives put forward. Even on Prime Time last night, Joan Burton was asked several times would Labour put more money into Anglo and she refused to give a straight answer.

csirl said:

But, if Anglo were liquidated, then it will NEVER need to go back to the source of the borrowing as it would no longer exist. This argument has no merit.

And it's not the job of the Irish taxpayer to pay for the lack of due diligence of some foreign central bank who's invested in a house of cards.

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Anglo cannot default on the debt while the guarantee is in place because it will mean that Ireland as a Soverign has defaulted on it's obligations. It's just not an option and no-one from any political party is seriously suggesting that this should happen.

This isn't just an Irish thing by the way. Look at the UK and Northern Rock. They are doing exactly the same thing. Even after splitting the bank into a good/bad bank, they are assuring senior bondholders who have gone into the bad bank that they will be paid in full if the assets being run down are insufficient.

Anglo should publish the advice they were given (by all accounts, the figures have been given by more than one source). Without this, it is impossible for us on the outside to know what the true story is.

I still think taxpayers best chance of recouping money is for some sort of business to be salvaged from the mess. A liquidation will not achieve this. Do that and we might as well burn the €4 billion we have already given as Morgan Kelly might say.

Sunny said:

I still think taxpayers best chance of recouping money is for some sort of business to be salvaged from the mess. A liquidation will not achieve this. Do that and we might as well burn the €4 billion we have already given as Morgan Kelly might say.

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It would make only slightly more sense to try to salvage a business from Anglo than it would have been for the US authorities to try to salvage a business from Bernard Madoff's operation. Anglo was a pure property bubble speculation play. It grew from insignificance on the back of the property bubble and has no expertise in lending to proper wealth-creating enterprises or supporting innovation. It has no retail or payments arms like AIB or BOI which provide unspectacular but steady profits. It issued bonds (not difficult before the global credit crunch) and took deposits and gave the money to property developers and investors, that is all.

Anglo is simply a massive government liability with no expertise outside of property speculation; it has zero goodwill value. Particularly it has NO future as a going concern. The sooner this is generally accepted, then the sooner plans for minimizing the burden on the state can be considered. Anything else is wishful thinking. The sooner it is liquidated the better for everybody.

darag said:

It would make only slightly more sense to try to salvage a business from Anglo than it would have been for the US authorities to try to salvage a business from Bernard Madoff's operation. Anglo was a pure property bubble speculation play. It grew from insignificance on the back of the property bubble and has no expertise in lending to proper wealth-creating enterprises or supporting innovation. It has no retail or payments arms like AIB or BOI which provide unspectacular but steady profits. It issued bonds (not difficult before the global credit crunch) and took deposits and gave the money to property developers and investors, that is all.

Anglo is simply a massive government liability with no expertise outside of property speculation; it has zero goodwill value. Particularly it has NO future as a going concern. The sooner this is generally accepted, then the sooner plans for minimizing the burden on the state can be considered. Anything else is wishful thinking. The sooner it is liquidated the better for everybody.

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Without the figures being published, everybody is whistling in the dark about what the best option is. They should publish the breakdown of the costs and the assumptions of the various options and let people see for themselves.

Sunny said:

Without the figures being published, everybody is whistling in the dark about what the best option is. They should publish the breakdown of the costs and the assumptions of the various options and let people see for themselves.

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We have ball park figures from their last published consolidated balance sheets but that's not the point. I was responding to your suggestion that there was value for the state in trying to maintain Anglo as a going concern. The ability to generate profit is a different and separate issue to the state of the balance sheet.

Anglo was a one-trick property bubble pony. How do you suggest Anglo could become a profitable or viable business in the absence of a new property bubble starting before the last one has even fully deflated even if it were fully recapitalized? They've never made a penny profit doing anything except lending for property development or investment during a bubble.

It was a multi-billion euro mistake not winding down Anglo two years ago. The case for winding it down is even stronger now and maintaining Anglo compounds the mistake. It is not just the government money that's being wasted, it's the fact that Anglo is consuming a huge amount of time and the resources which have been applied to fixing the Irish retail banking system; it's the biggest user of NAMA for example.

I've suggested an idea in an earlier post on how to liquidate Anglo in a reasonably controlled manner. Have you any thoughts on that suggestion?

darag said:

It would make only slightly more sense to try to salvage a business from Anglo than it would have been for the US authorities to try to salvage a business from Bernard Madoff's operation. Anglo was a pure property bubble speculation play. It grew from insignificance on the back of the property bubble and has no expertise in lending to proper wealth-creating enterprises or supporting innovation. It has no retail or payments arms like AIB or BOI which provide unspectacular but steady profits. It issued bonds (not difficult before the global credit crunch) and took deposits and gave the money to property developers and investors, that is all.

Anglo is simply a massive government liability with no expertise outside of property speculation; it has zero goodwill value. Particularly it has NO future as a going concern. The sooner this is generally accepted, then the sooner plans for minimizing the burden on the state can be considered. Anything else is wishful thinking. The sooner it is liquidated the better for everybody.

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I'd agree with most of that. I don't believe there's much Anglo can do to reduce its total deficit, all it can do is postpone the funding of the deficit by being kept on life support

If we wind it down immediately won't the depositors and bondholders pretty much have to be paid immediately?

Once the uniformed decision to nationalise had been made (uninformed because of the incompetence and dishonesty of a small group) the only question was how long we could hold on to the funding from depositors and bondholders.

Having to pay them back immediately from government borrowings rather than over a period of time was always going to cause problems.

Winding down Anglo will also save the employee and salary costs of their 1,700 workers. Dont know what the salary levels are like, but even if they averaged only 50k and its a good rule of thumb that employee costs are generally twice wages, then we'd be saving 170 million per annum.