Why did Anglo force Quinn to convert his CFD'S?

C

chum

Registered User
Messages
109
Why did Anglo force Quinn to convert his stake and why did he only convert 15% as opposed to the 25% he had built up?
 
chum said:
Why did Anglo force Quinn to convert his stake and why did he only convert 15% as opposed to the 25% he had built up?
Click to expand...
This puzzles me also. I read the Tribune on Sunday, and the Sunday Indo, and learned a bit more than I already knew, but I still don't understand why Quinn needed to (or was forced to) sell 10%. Can anybody explain? Was Quinn aware of the golden circle?
 
The heart of a CFD is a contract either to buy or sell shares. Quinn had contracted to buy about 25% of Anglo-Irish. To complete the contract would have put him under very serious pressure. Unloading 10% alleviated that pressure (but Quinn was still hit very hard).

Some person or persons in Anglo-Irish seem to have helped Quinn by finding buyers for 10% of the shares. Quinn had to be aware that he was being helped out of a hole he had dug himself into. Whether he know who was ending up with the shares, or what arrangements were made, is not public knowledge. Your guess is as good as mine.

People in Anglo-Irish might have thought that if Quinn ended up with shares he could not afford, he would have had to sell as soon as he could, and drive the price down (this was in those long-ago days when people still believed Anglo-Irish shares might be worth something -- remember that?).
 
"People in Anglo-Irish might have thought that if Quinn ended up with shares he could not afford, he would have had to sell as soon as he could, and drive the price down (this was in those long-ago days when people still believed Anglo-Irish shares might be worth something -- remember that?)". That's more like it. I can start to see the light now! I thought that Quinn had actually completed the contract (i.e. had bought the 25%) . So, he hadn't completed on the contract ... and didn't want to ... right? Yet, somewhere in my twisted understanding (or lack of) of this whole thing I thought that Quinn wasn't disclosed as being the buyer of the 25% so how did Anglo know who he was?? and how did they go to him and say "we have buyers for 10%". Also why didn't Quinn just opt out of the whole 25% if he was able to opt out of 10%??
 
I imagine a phone call from Sean Quinn to somebody: "I have a problem here...". And then I imagine a discussion in Anglo-Irish Bank: "We had a phone call from somebody, and we have a problem here...".

And then I imagine Sean Quinn getting a phone call: "You have to take most of the pain, but an arrangement has been made to soften it a bit...".
 
The rounding up of investors to take on the 10% was not to help Sean Quinn - it was more to do with stabilising the share price. If 10% of Anglo was off loaded onto the market all at once it would have meant a massive fall in the share price.
 
Gotcha! Very interesting indeed. If it wasn't so damaging to the rest of us it would actually be quite an entertaining "read" as it were. Thanks for that P. I understand a little better now.
 
Mr. Quinn entered into a speculative contract to bet on the price of Anglo shares. It is unusual for CFDs to be converted to the underlying shares.
http://en.wikipedia.org/wiki/Contract_for_difference

Without knowing the real details it looks like Mr. Quinn built up the size of the CFD on margin (putting little or no money down) with a broker in London. The broker bought shares to hedge against losing money on the contract (that the shares would rise). Eventually the size of the contract amounted to 25% of the company and the broker held that many shares as a hedge.

When the CFD busted and Mr. Quinn had to buy his way out of the contract(s), he bought 15% of the shares from the broker (putting 25% of Anglo on the market at once would have tanked the share price and cost Mr. Quinn a further fortune, as I believe he would be responsible for the costs of unwinding the contract). There is then a remaining 10% of Anglo to get rid of.

What happens next is a bit of a mystery to me.
- did Mr. Quinn have that 10% that he couldn't afford to buy so he talked to Anglo?
- did the broker have the 10%?
- is there a problem that Mr. Quinn borrowed the money for the 15% of shares from Anglo? (albeit at the cost of mortgaging his personal holdings in his business assets)
- did Anglo know about the CFD all along?
- were the golden circle patsies?
- did they know the full nature of the thing?

It is not true to say that Mr. Quinn did not benefit from this arranged sale of the 10%:
- in the unwind of the CFD, 10% being sold on the market in a margin call would have increased the loss on the CFD and resulted in further margin calls.
- as a shareholder of 15% of Anglo, a share support scheme benefitted him
 
Did the Irish government not have serious concerns at the time in question about the size of the stake Quinn had built up and let Anglo know of its concerns. What caused Quinn to start unwinding his position, pressure from Anglo?
 
The government does not routinely monitor share dealings, especially when they are partly obscured by being tied to CFDs. It might not have been aware of the position Quinn was building up.

Anglo-Irish had no reason to put any pressure on Quinn. His action was good for the share price (if you accept that increasing the market value of shares is a good thing). They would have hoped that he could meet his obligations.

The pressure on Quinn probably came from a combination of the other party to the CFD (possibly a hedge fund) and Quinn's own pocket. That is where my imagined phone calls kick in.
 
I really think that Sean Quinn is the forgotten man in all of this Anglo stuff.
This is purely my opinion but Sean Quinn bet on the CFD price, hoping to make a killing if the share price went up. He only had to put a small amount of money down upfront to take that bet. He bet the wrong way though and the share price came down. At that stage he had CFDs amounting to 25% of Anglo and he would have lost major money by completing on that contract. He has already admitted to losing over a billion euro on the deal, and that was on 15%. If he had had to go through with buying the full 25% I reckon his business was at serious risk. He decided that he wasn't going through with the contracts as he would lose too much money.....

I agree with Padraigb - a couple of phones calls later and (this is where it gets murky) Anglo realised that there could be major dumping of shares on the market if they didn't help Sean Quinn out. Driving down the share price was going to cause problems for Anglo and Sean Quinn so a deal was done. Anglo twisted the arms of 10 (?) of their big customers to buy the 10% using a loan from Anglo at very little risk to themselves to prevent dumping of shares. In a way they were patsies but I'm sure if the names were to be revealed you would find that they all owe big money to Anglo and benefited from how the bank operated during the boom years.

Sean Quinn escaped having to pay for the extra 10% at a huge loss. Whether he could actually find that money is debatable - he was rapped on the knuckles for taking a couple of hundred million out of Quinn Insurance. Pretty sure that was to cover some of the CFDs on Anglo.

What I would love to know is how much the government colluded with this deal because they knew it was Sean Quinn in trouble? Bear in mind that this guy employs thousands of people, has been held up as an example of a successful business man, was taking over BUPA etc. etc. Imagine the headlines "Quinn Business Fails".

I am fascinated by how little the media have made of this whole part of the Anglo debacle. Ireland's richest man bets on shares prices, loses that bet and is facilitated in walking away from paying for that bet. I'm not sure how much all of this played in the nationalisation of Anglo but he has got to bear some of the responsibility. To me what Sean Quinn did is the truest example of greed that I've seen.
 
chum said:
Did the Irish government not have serious concerns at the time in question about the size of the stake Quinn had built up and let Anglo know of its concerns. What caused Quinn to start unwinding his position, pressure from Anglo?
Click to expand...

Do remember that plucky Mr. Quinn probably gave short sellers some sleepless nights when they found out the size of his holding. For this reason alone I suspect that many people influential people in Ireland were quietly pleased to see a domestic investor build this position.

However, no regulatory body should have allowed this to happen. CFDs are not really used for stake building because the investor does not hold or own the shares, the CFD broker does and if you suddenly want to convert a substantial CFD position into shares, the CFD broker would have to think long and hard before allowing you to do so (unless of course they got approval from the regulator).

As an aside, since the CFD investor does not own the shares, the CFD broker is free to release the shares that it holds as a hedge against the CFD, back in to the borrow pool. This means that Mr. Quinn was probably facilitating a lot of short selling in Anglo shares. The only way to make sure that your shares are not available to short sellers is to convert your CFD into a regular cash holding.
 
Sean Quinn back in the news with Anglo, this man bet the house on Anglo and when the bet failed it had the possibility of of wiping out Anglo thats why Anglo called Quinn in to convert his bet after all he was betting with all Anglo,s money.
 
Why would a rich self made man like quinn decide to take huge risks with financial instruments, that he probably didn`t fully understand? I suspect influential people or companies zoom in on very rich people to "invest" in their products.It just goes to show that even though he was very rich...made it the hard way....it`s still so easy to separate a fool from his money especially if the sharks or golden circle come calling.
 
Why did Quinn speculate on anglo irish banks share price by taking out a huge CFD bet that anglos share price would rise?This would initially give a boost to the share price as the broker bought anglos shares as a hedge.
For Quinn it made no sense ..betting on a rise of a banks share price, a bank totally exposed to a bubble property market.I mean if the banks shares fell it was bad news also for his core buisness, that of supplying cement and building materials to the construction industry.So he faced a double whammy.
Mr Quinn is a clever self made man who benefitted from banks and politicians to build up his buisness in the past. However he hardly got out of bed one morning and decided to take a huge gamlbe with a complicated financial instrument that he had probably never heard of.I suspect that as a prominent seriously rich buisnessman he was targeted to take this gamble.
So who encouraged and convinced him to take this diabolical gamble? I suspect some influential people , maybe politicians or anglo bankers at a very high level convinced him to do this...it was probably spun as very low risk and a very patriotic thing to do.
This his advisors hoped would keep the bubble going to a hoped for sustainable momentum and would override any short term hiccups.
I for one don`t think anglo got a surprise phone call about Mr Quinns position. I suspect that they at least knew about it all along and hoped it would buck the markets.
 
Sunrock,

We have argued in the past, but here I find myself persuaded by your post above.

Kevin Myers reported on how his bank advised he was "under-borrowed" [a phrase that will surely be used in lawsuits for years to come as evidence of mis-selling by Irish banks] and led to invest €60,000 in some property deal in Britain.
You can imagine a similar approach to Mr. Quinn as the actuaries in the bank - people who can bring a bazooka to a knife fight between economists - started looking around for a means of financing further profit-taking going forward.
"This would initially give a boost to the share price as the broker bought anglos shares as a hedge"

On a CNBC talk show this morning one contributor said - "Capitalism went too far..." and another one opined "...even Regulation was competitive."
Is Quinn's Crisis [nice alliteration there...] evidence of Anglo going too far, and is this crisis something that our current financial system with no real checks will only repeat ad nauseaum?

Speculation = gambling pure and simple, and I don't see why the taxpayer has to pick up the tab.
The powers that be privatize profits [look at the recent Anglo pay rise] and socialize losses.

"We cannot let this kind of nonsense continue - we need competent regulation now."

But hat means being in second place if you want sustainable growth.
And that means limiting the exposure of your economy to the world.
Which for a small open economy will actually limit our recovery.

Rock over there: hard place over here.

ONQ.
 
The below I took form the times. Surely this alone (while also going some way to explaining the OP) is enough to see David Drumm doing a 10 year stretch if it is true

The implosion of the fortune of the man once believed to be the country’s richest dates back to 2005 when he began to build a 28% personal stake in Anglo Irish Bank through contracts for difference.
From 2008, Anglo loaned Quinn over €2 billion to meet his margin calls and close out his position on 15% of the bank’s shares.
It also loaned €472m to 10 longstanding clients of the bank to pick up the remaining 10% of his shares.
As his position worsened, Anglo, to avoid a bondholder probe into Quinn Group’s finances, and with the approval of the former regulator, lifted a €250m personal guarantee and put €200m into the group temporarily. David Drumm, then Anglo’s boss, and Patrick Neary, the former regulator, managed to rescue Quinn.
When Anglo was nationalised in January 2009, Quinn survived — but personally shouldered more than €2 billion in losses.

Full link here. It is a good article
http://www.timesonline.co.uk/tol/news/world/ireland/article7086675.ece
 
Last edited:
yoganmahew said:
- in the unwind of the CFD, 10% being sold on the market in a margin call would have increased the loss on the CFD and resulted in further margin calls.
Click to expand...

Selling a loss making portion of a margined position, actually improves your position and protect's the remainder of your position.
 
You must log in or register to reply here.
Back
Top