AFTER the revelations of a horrendous capital hole of €9.3bn for 2010, and potentially a further €10bn over the next number of years, defending a future for Anglo Irish Bank has become a very difficult task for the Irish Government.
However, there are two key reasons why the Government is continuing to support the bank as a going concern:
Macro impact: the bank’s current and potential role in supporting liquidity to the Irish economy, particularly the Irish small/medium business sector. Also, by winding down Anglo Irish Bank, the impact of a ‘fire sale’ of the Anglo loan book on the existing Irish banking market would be highly detrimental to the sector.
lRetrieval of capital: the potential that the State can retrieve some of the invested capital used to support the bank in the years to come through a trade sale.
The contraction of liquidity in Irish lending has been drastic, particular among the foreign-owned banks operating in Ireland.
Anglo is an incumbent and has strong relationships across many sectors in the economy, outside of its property exposure. In a well-defined focus, it has a role to play as lending provider in the small- to-medium sized enterprise sector where it holds a 20pc market share.
Discontinuing Anglo Irish Bank and winding it down as a franchise virtually eliminates any chance of a retrieval of value from the capital committed by the State.
There is no certainty that winding up the bank will prove any less costly than providing support as a going concern.
Whether the bill for winding up Anglo Irish Bank is €20bn, €30bn or potentially €60bn as the Finance Minister indicates, it would have a destabilising impact on the sector.
The fall of a bank with a €72bn lending book — €35bn after the National Asset Management Agency — with the loss of deposits and the potential house-of-cards effect on the remaining sector, are all justifiable reasons for the continued support of Anglo.
Closing down the loan book of the bank simply forces a massive liquidation event on all non-property borrowers in the Irish economy.
As a going concern, Anglo may be able to create some value for its franchise in the coming years.
The most significant threat to the future of Anglo Irish Bank comes in three forms:
The complete loss of credibility as a counter-party.
A decision from the EU that the state influence at the bank is distorting competition in Irish banking.
Its shocking capital hole.
The need for a strong independent management, strong capital levels and a cohesive strategy can mitigate the counter-party risk issue over time.
However, Anglo will need to demonstrate its ability to survive in the funding markets independently from government.
Plans to create a “good bank/bad bank” are believed to be advancing to EU level. The single key question for the EU concerning Anglo Irish Bank is whether the state ownership of the bank will distort the competitive landscape in the Irish banking industry. This question must be resolved before a “good bank” can compete in the Irish market.
Finally, the state bill for supporting Anglo has already breached the most negative assumptions flagged during the imposition of the bank guarantee scheme.
Defending Anglo should not be a political decision or an emotional one, but an economic one. If the bill for winding the bank down is greater than that for investing in its support, then the State must act to minimise the final long-term cost to Ireland — however unpopular the decision appears.
- Kevin McConnell
I have for many years invested in the stock market (a Day trader ) at the beginning used to invest in companies like IBM and INTEL and small companies like PGNX and Trinity Bio Tec etc.
I would start by putting in a small amount of money and then If the trade went against me I would put in more and then more and at some time I would start thinking well it must go up sometime and then double down and hen I would find myself looking for reasons to put even more funds into a bad trade
Reading the above article I recognize the very reasons I would use, It would cost more if I left the trade so I must stick with it and sometime in the futures it will go up again.
It’s a good company a big company has huge assets and so on
As a trader now for the last 14 years I have to say that the reasons the Minister has put forward and the Minster bought and paid for media seem to be supporting are just laughably.
I have learned to become a discerning investor, and have learned painful facts of life about the financial world.
The market is unforgiving and has no loyalty. There are two worlds for the market one is the makeup spin world that the ordinary retail investor belongs (Mostly you and me)
Then there is the real world, after you strip away the spin (like stripping an onion) the smart money world .this world is made up of the institutional investors, the big guys, the smart money.
These are the guys that manipulate the media and reports, publish up-grades to a stock
e .g .Such and such received an increased price target from a broker to –day .You see there are so many vested interests manipulating the news that it is practically impossible in truth to give good advice on any stock .It all boils down to the thrust wordiness of the company’s Management, their past performance and the strength of their balance sheet (technical and fundamental analyzes) and Business model. Now to any investor looking at the Anglo proposal and the available information
It would be red flagged .this is what’s known as a basket case! Doing a technical and fundamental analyzes on the available information it’s a lost cause and no more money should be put into this dead loss! There is no upside, this will gobble up any amount of funds you have and will become a dumping for other lost causes as well (losses for other Banks)
No amount of money will retrieve the thrust that has been lost in the business model this bank had!
The damage that has being caused by this Bank is worse than ENRON, Lehman Brothers! Or World com and must be closed down now!
The Brand ANGLO is dead and anything or anyone to do with is toxic.
As an investor my advice is get out and cut your losses now! You would have a better chance to revive any one of the above companies, and the yanks with their infinite amount of capital chose to closes down their Turkeys (lost causes).in the states this would be shut down To-day Period!
The management would be in Handcuffs and some would be in Jail now.
There is the real possibility of huge class actions been taken against Anglo Irish Bank, the Irish Government and against the senior management!
Keeping this Bank on life support is just plain madness, but a bad investor will always find a reason to stay in a bad trade no matter what.