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Anglo: overlooked loans re-categorisation scandal is the biggest and we'll pay for it


cyberianpan

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I've brought this up a few times but people, including the press have missed it.

The scandal:

  • Anglo consistently understated their toxic loans by over 50%
  • These toxic loans are ones where we'll have to pick up the tab
  • This is a multi billion euro scandal, the others have been small in comparison
Here's the background
To re-assure stock market investors, Anglo decided to publish way more detail than required about their loan book composition. The main extra was they gave the amount of money loaned under various categories. So "development" loans were for high risk, speculative building deals. "Investment" loans were for regular businesses that required some extra capital - these loans were seen as pretty low risk. "Development" loans are now toxic.

Anglo, without explanation suddenly reclassified €5.4 billion of investment loans to the toxic development category in December:
SBP Sunday, December 07, 2008

A number of major institutional shareholders in Anglo Irish Bank are believed to be furious with the bank’s top management after Anglo reported its exposure to developers rose from €10.4 billion at the end of March to €16.9 billion at the end of September, market sources said.

Both domestic and foreign investors were reported to be angry after Anglo revealed last week that 23 per cent of its loan book related to development exposure, compared with the 15 per cent Anglo had previously stated to be the case in March, according to one Dublin stockbroker. The increased exposure to development loans came as a shock to investors after Anglo reclassified certain investment loans and placed them in the category of development loans. Development loans are seen as much riskier than investment loans.
This is a sudden 53% increase in toxic loans. This caused a 40% drop of Anglo on the market - in fact as much as possible was sold - there were no large buyers of Anglo after this and the "director's loans" scandal the next week was merely the nail in the coffin.

Even worse if you view the PWC report it had development at a mere 12.9% - this is the figure the government wrote the bank guarantee on... yet there was 78% more toxic loans than they knew about.

What is worse is just what these re-categorised loans are :

  • loans to small-medium size professionals (solicitors, accountants)
  • Initially categorised as investments in their own business
  • In fact they were prop up loans to take the heat off over stretched developers
  • These loans were not dissimilar to the "golden 10" loan, they were designed to be easily written off & not large risk to the private investors
(note I do not have an external source for this blue portion, hence why it is very small, someone else is going to have to dig here)


This is real money - billions - that the Irish taxpayer is going to have to fork out. The whole guarantee scheme was based on a false premise.

cYp
 

He3

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This looks like an unfairly neglected angle all right.
 

blacbloc

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Have they made complete fools of Cowen and Lenihan? This is extraordinary stuff.

Another surprisingly unremarked thread I posted here yesterday - not directly on the topic of your OP but certainly related to it. It's the original copy of an article by Frank Connolly which was subsequently edited before being published. It says which ministers would not answer questions about possible interests in Anglo:

http://www.politics.ie/current-affairs/47298-reluctant-ministers-those-unanswered-questions.html
 
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cyberianpan

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This looks like an unfairly neglected angle all right.
Yup - it's a multi billion scandal - real money that we're now on the hook for .... toxic loans are where the real losses will occur, all the focus on deposits is a a side show

Anglo didn't just dupe Cowen & Lenihan - they duped their shareholders

The Financial Regulator &/or Anglo's auditors would be expected to pick up on this stuff

This is the reason why the markets don't trust any Irish banks at all- they fear the books are cooked and that those appointed to police them aren't making the right effort

We will need external money at some stage - be it for re-capitalisation of the banks, to cover state debt etc ... until the fiddles are cracked down on : Ireland won't be trusted

cYp
 

H.R. Haldeman

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Bump, because this sounds important even though I don't really understand it.

cYp: Is the point that prior to December Anglo were being dishonest (lol) about the allocations of loans into the various risk categories? And then in December, when presumably the heat was on them, they decided to come clean and re-classify these previously "good" loans into what they truly were all along, which was bad loans?

Is that the general drift?

Also, yesterday we saw that some 3% of Anglo's loan book comprised of bad loans. If we were to double this figure to 6% to account for the fact they are still being too optimistic (or, indeed, still lying) does that significantly worsen the situation for taxpayers? Because it strikes me as a layman that even 6% isn't too bad.
 

cyberianpan

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Bump, because this sounds important even though I don't really understand it.

cYp: Is the point that prior to December Anglo were being dishonest (lol) about the allocations of loans into the various risk categories? And then in December, when presumably the heat was on them, they decided to come clean and re-classify these previously "good" loans into what they truly were all along, which was bad loans?

Is that the general drift?
That is indeed the drift

Development loans= toxic as will not get much repayment
Investment loans= ok, mostly will repay

And as you say when the heat was ramped up Anglo fessed up and decided to admit they had €5.4billion more of toxic loans (some of which may repay)

Because it strikes me as a layman that even 6% isn't too bad.
I'm not sure what their loan book stands at - it was about €80 billion - so 6% is only about €5 billion ... I guess there's about 750,000 tax payers in the country - so only €6,666 per head ...

cYp
 
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yehbut_nobut

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The PWC report only looked at affairs up to 10 December right? when were the loans reclasssified?
 

Digout

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Did either Lenihan or Cowen tell the dail that there was not a run on the bank?
 

cyberianpan

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The PWC report only looked at affairs up to 10 December right? when were the loans reclasssified?
That I understand it was at an investor relations conference ...on I think Mon or Tue 02nd Decmeber

The PWC report relied mostly on finalised figures as at end of Sept 2008 (even though they dug into things up until mid December)

It was the understanding of most people that PWC had found this issue after an internal whisteblower admitted it.

cYp
 

yehbut_nobut

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yehbut_nobut

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Did either Lenihan or Cowen tell the dail that there was not a run on the bank?

lenihan told the 8pm press conference on 15th January (where he announced the plan to nationalise instead of racapitalise) that there was no run on the bank.

Cleverly, he seems to have avoided stating it in the house (though I may be wrong on that). Manseragh didn't, however. Ive started a thread on it, as I think its worth a separate discussion.

http://www.politics.ie/oireachtas/47597-lying-misleading-oireachtas-what-there-sanctions.html
 

He3

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If Martin Mansergh 'stated authoritatively' that there was no run on the bank, when in fact there was a run on the bank, we know exactly what Martin Mansergh's authoritative word is worth.
 

cyberianpan

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If Martin Mansergh 'stated authoritatively' that there was no run on the bank, when in fact there was a run on the bank, we know exactly what Martin Mansergh's authoritative word is worth.
Mansergh will simply split hairs about the phrase "run on a bank"... I'd say he's probably busy editing the wikipedia entry now

But back to the main issue:


  1. why did Anglo suddenly sneak this bad news into an investor relations conference ? (they buried it in an appendix & didn't even discuss it with the analyst's)
  2. was it indeed uncovered by PWC ?
  3. If so - when ?
  4. When did Lenihan find out ?
  5. Were the €6.4 billion of re-categorised loans , normal loans ? (as per the small text at the start cyberianpan understands they were loans on very peculiar terms)
cYp
 

cyberianpan

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I'm going to bump this:

In early December €6.4 billion extra in toxic development loans suddenly slunk into the back pages of an Anglo report - causing a 40% share price drop and international investors to pull out.

Given high bad debts in development loans : that's a few billion we'll have to pay extra (way more than the Golden Circle & Directors loans added together)

We didn't know about them when we extended the State Guarantee to the banks


  • Who found these billions ?
  • Where did they come from ?
  • When was Lenihan told ?
cYp
 

realist

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Sorry if I'm off topic but the EU Commission approved the nationalisation with the following provision
"as long as the takeover is not accompanied by "a capital injection, assumption of liabilities or other state measures".

Could that mean that the taxpayer is not liable for the debt? Or is that just wishful thinking on my behalf?
 

cyberianpan

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Sorry if I'm off topic but the EU Commission approved the nationalisation with the following provision
"as long as the takeover is not accompanied by "a capital injection, assumption of liabilities or other state measures".

Could that mean that the taxpayer is not liable for the debt? Or is that just wishful thinking on my behalf?
I presume their thoughts are something along the lines of that Anglo should now be run as a free standing company - i.e. no state aid - though would need to see the quote in context

The problem with Anglo is the guarantee more so than the takeover

And it look like we're on the hook for a good few more billion than we could have known than when we made the guarantee

cYp
 

FutureTaoiseach

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If it is indeed true that loans were used to manipulate the share-price, then that raises questions about possible insider-trading i.e. trading on the basis of inside information not yet released to the market as a whole. The underlying question is were the recipients of the loans intent on using them - at the solicitation of persons on the board - to manipulate by design the share-price of Anglo. If so then the authorities should draw the relevant conclusions and take the necessary steps to right an injustice to ordinary shareholders in the company and to the Irish people.
 

realist

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I presume their thoughts are something along the lines of that Anglo should now be run as a free standing company - i.e. no state aid - though would need to see the quote in context

The problem with Anglo is the guarantee more so than the takeover

And it look like we're on the hook for a good few more billion than we could have known than when we made the guarantee

cYp
I know I'm probably clutching at straws here but anyway here are the EU press releases re the guarantee and the takeover. (When I try to link to the EU site it doesn't seem to work so if you key in the Ref no. on google it comes up.)

The Takeover: IP/09/271
The Guarantee: IP/08/1497

Could the guarantee be revoked due to the extra debt discovered in December, especially if it appears to have been hidden in October? I'm not an accountant or lawyer so please forgive my ignorance but any port in a storm and all that!
 

MsAnneThrope

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We didn't know about them when we extended the State Guarantee to the banks

  • Who found these billions ?
  • Where did they come from ?
  • When was Lenihan told ?
cYp
Great thread and posts from 6 months ago cYp. I'm only seeing it for the first time since you linked to it in a separate post today. Was it ever established exactly when Lenihan found out?
 

cyberianpan

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Great thread and posts from 6 months ago cYp. I'm only seeing it for the first time since you linked to it in a separate post today. Was it ever established exactly when Lenihan found out?
There has been no public information as to who found this or when

I got really mad when I saw it as I realised it was a few billion more for us to pay... the press's eye was on the relatively paltry golden circle at the time

Also that I understand these loans are at the worse end of the performance spectrum (see small text on OP, though I have no public source for this)


cYp
 
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