Anglo Irish Bank Director Alan Dukes supports NAMA- surprise surprise

Dukes fails to answer the hard questions on NAMA

Alan Dukes was appointed as director of Anglo Irish Bank by the government and is certainly not an independent commentator on the NAMA proposals. He has long had a reputation as an independent thinker. This reputation is undeserved. He has never come up with creative economic policies. He always has a tendency to talk down to people. Unfortunately on NAMA he is devoid of creativity. He comes across as an elitist who lectures others. The fact that he was a former leader of FG is immaterial. He no longer represents party policy on the issue. In short he has moved away from FG. He should now do the decent thing and join FF- a party whose policy he appears to support. In addition he has always been close to Garret Fitzgerald who has also come out in favour of the NAMA approach.

In the Irish Times article Fitzgerald stated that "I have hitherto avoided any comment on the relative merits of NAMA vis-à-vis other possible approaches because I have not felt competent to comment on the finer points of what is a highly technical issue". Fitzgerald has already come off second best in his battle with the 46 economists who have grave misgivings about NAMA. Professor Karl Whelan exposed the flaws in the Fitzgerald thinking in a debate with him on Newstalk radio. In reality Garret Fitzgerald lacks sufficient understanding of the flaws inherent in NAMA. He has failed to satisfactorily address the ten questions posed by Professor Brian Lucey.

Neither for that matter has Alan Dukes. Today Richard Crowley interviewed Dukes on RTE Radios This Week programme.
Not once did Dukes express any concern for the taxpayers. As far as Dukes is concerned the taxpayers can bail out the banks and to hell with the consequences. He failed to convincingly articulate reasons why we should accept NAMA. He failed to answer with conviction on the purchase price of assets. He fudged his answer. He rubbished the FG proposals without spelling out convincing reasons for so doing. Dukes and Fitzgerald have failed to push for RADICAL changes in the NAMA proposals-which are likely to go through. They are doing a disservice to the country. This is not about political point scoring. It is about securing the best deal for the taxpayer and the country.

Just to pose ONE of Professor Lucey’s ten questions

· Why does no independent analyst support the governments view on NAMA? This includes the Swedish finance minister who ran their bad bank system, who said to the Irish Times that he “favours the more severe mark-to-market write-down of assets rather than a ‘through the cycle’ valuation.”, and that “it (NAMA) does not sound like the right solution to buy assets from private banks.” It also includes the IMF who said " Insolvent institutions (with insufficient cash flows) should be closed, merged, or temporarily placed in public ownership until private sector solutions can be developed ... there have been numerous instances (for example, Japan, Sweden and the United States)

Don’t expect answers from Garret Fitzgerald and Alan Dukes. Too much respect has been shown to both of them. Both have been found wanting on NAMA.

Ireland:Government nationalises Anglo Irish Bank-Plan to inject €1.5bn into the bank dropped

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The Government has announced plans to take complete control of Anglo Irish Bank, saying its previous plan to inject money into the bank is not the best way to secure its viability....
The Government had planned to inject €1.5bn into the bank, taking 75% of the voting rights in the process...The bank will continue to operate as normal and depositors and creditors should continue to transact as normal.. The Government statement said shareholders' rights would be respected, and that legislation will outline plans for compensation.(RTE)

Fine Gael has issued the following statement:

Anglo U-turn the Correct Decision but Latest in Long Line of Climb downs
The Government have been forced to abandon their own recapitalisation plan for Anglo Irish Bank and have directly adopted the plan set out by Fine Gael in this regard just yesterday, according to Fine Gael Deputy Leader Richard Bruton T.D. He was speaking after the Government announced the nationalisation of Anglo Irish Bank this evening.

"In December Fine Gael said it was not appropriate for the Government to pour taxpayers' money in to a recapitalisation plan for Anglo Irish Bank, given the information that had emerged regarding Anglo's lending practises. We formed the view that the public were entitled to have trust and confidence in the banks that they were being asked to recapitalise. This trust and confidence was clearly not there for Anglo. The Government, however, regardless of the advice offered ploughed on with a plan to put €1.5bn of taxpayers' money in to Anglo.

"Tonight the Government have finally been forced in to recognising their mistaken approach to this bank. They have adopted the plans set out by Enda Kenny yesterday in relation to Anglo Irish Bank, the latest Fine Gael proposal that they have been forced in to adopting. The handling of this issue confirms, once again, that the Government are all at sea on economic policy and are lurching from one u-turn to the next. First it was the multiple u-turns on the Budget, then the requirement for recapitalisation of Irish banks, then the idea of a pay freeze, and then finally their u-turn on Anglo Irish Bank's entitlement to be included in the recapitalisation programme.

"This latest of u-turns, while the correct decision that will help protect the viability of the remaining banks, does not bode well for the steady and assured management of the economy in the future. Finally, the Government needs to clarify if today's announcement has the effect of extending the State guarantee to any additional liabilities of the bank, including the owners of €2bn in perpetual preference shares."

Government Announces Recapitalisation of AIB, Bank of Ireland and Anglo Irish Bank (Cost €5.5 billion)

From the Department of Finance

......In relation to Anglo Irish Bank, the Minister for Finance announces an initial investment of €1.5 billion of core tier 1 capital to assist in restructuring the bank’s capital. The Government will continue to reinforce the position of Anglo Irish Bank and will make further capital available if required so that it remains a sound and viable institution. The investment will be in the form of €1.5 billion of perpetual preference shares with a fixed annual dividend of 10%. The preference shares carry 75% of the voting rights of Anglo Irish Bank. The investment is subject to the approval of the ordinary shareholders at a general meeting which will be convened as soon as possible. On the basis of positive contact with the European Commission, the Minister said he was confident that the Anglo proposal will meet with EU State Aid requirements when formally notified in due course.

Good progress continues to be made in the capital discussions with other institutions. In particular, subject to shareholder and regulatory approval, the Government has agreed with Bank of Ireland and Allied Irish Banks plc that they will each issue €2bn of perpetual preference shares to the State with a fixed annual dividend of 8%. These shares will have voting rights in respect of change of control and any changes in the capital structure. They will also confer 25% of the voting rights in respect of appointments of directors and 25% of the directors on the board, currently including any directors to be appointed in connection with the Government’s Guarantee Scheme.

All the institutions may redeem the preference shares within 5 years at the issue price or after 5 years at 125% of the issue price. The preference shares are non-convertible and will be treated as core tier 1 capital by the Financial Regulator and are replaceable only with other core/equity tier 1 capital.
The capital injection for Anglo Irish Bank is likely to take place following an Extraordinary General Meeting in mid-January, and for Allied Irish Bank and Bank of Ireland, by the end of the first quarter of 2009.

The Government has a substantial pool of additional capital available to underwrite and otherwise support the issuance of core tier 1 capital by the relevant institutions.The Government need not be the principal source of this additional capital and encourages each institution to access private sources of capital. Nonetheless, the Government is prepared to underwrite further issuance of core tier 1 capital and both Allied Irish Banks plc and Bank of Ireland have indicated an interest in such an underwriting in an amount of up to €1 billion each.
The measures announced today have been designed having regarded to the recent European Commission Recapitalisation Communication and are subject to State aid approval....

Ireland:Government announces €10 billion fund to recapitalize financial institutions (Banks and Building Societies)

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Text of Statement by the Government on the Recapitalisation of Credit Institutions

The Government has today decided on an approach to the recapitalisation of credit institutions. The Government’s objective is to ensure the long-term sustainability of the banking sector in Ireland and to underpin its contribution through the availability of credit to individuals and businesses in the real economy. This initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals.

The Government noted that recapitalisation is recognised by the European Commission as one of the key measures that may be used by Member States to preserve stability and proper functioning of financial markets, and that it believes that in current market conditions even fundamentally sound banks may require additional capital to respond to widespread market perception that higher capital ratios are appropriate for the sector internationally.

The Government decision followed the Minister for Finance’s statement of 28 November 2008 which confirmed the State’s willingness to supplement and encourage private investment in the recapitalisation of credit institutions in Ireland with State participation.
In that context, the Government has decided either through the National Pensions Reserve Fund or otherwise and subject to terms and conditions, to support, alongside existing shareholders and private investors, a recapitalisation programme for credit institutions in Ireland of up to €10 billion.

The State’s investment may take the form of preference shares and/or ordinary shares and the State may where appropriate participate on an underwriting basis. In principle existing shareholders will be expected to have the right to subscribe for new capital on the same terms as the Government.
A key principle in the operation of such a fund will be to secure the interests of the taxpayers through an appropriate return on, and appropriate terms for, the investment.

The next step in this process will be for the Minister for Finance to initiate detailed engagement with the credit institutions themselves in respect of specific proposals.
In order to safeguard fully the interests of the taxpayer, State investment will be assessed on a case-by-case basis in an objective and non-discriminatory manner, having regard to the systemic importance of the institution, the importance of maintaining the stability of the financial system in the State, and the most effective and economical use of resources available to the State and each credit institution’s particular requirement for capital. Any State investment will be undertaken in line with best practice in the EU and elsewhere and consistent with EU State aid rules and in particular the recent European Commission communication on recapitalisation.
Recapitalised institutions may be required to comply with such requirements as to transparency and commercial conduct as the Minister sees fit.

The National Pensions Reserve Fund Act, 2000 will be amended, as necessary.
Discussions with the relevant credit institutions are ongoing, and the institutions continue to progress proposals for private investment. Institutions are being asked to submit their proposals by early January.
The Government guarantee Scheme remains in place.
14 December 2008

Irish Government decision to guarantee Irish banks' deposits and debts for two years stabilises banking system

Yesterday Irish banking shares imploded. It was not unreasonable to expect a large run on the banks today if the Government had failed to act. The Financial Regulator and Governor of the Central Bank warned the Government that immediate action was necessary to safeguard the Irish financial system.Hence the Governments decision. The decision has the broad support of the opposition.

The Government decision to offer a guarantee of 400 billion euros will last for two years and covers liabilities at AIB, Bank of Ireland , Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and EBS. The guarantee covers retail, commercial and inter-bank deposits as well as covered bonds, senior debt and dated subordinated debt. The Irish approach contrasts strongly with that adopted in Belgium and the U.K., where governments have injected capital into individual banks, or seized them.

Assets of Irish banks are estimated at 500 billion euro whilst liabilities amount to 400 billion euro. If the guarantee were called in, in full-unlikely ever to happen- 37 years income tax receipts would be required to pay it off. Naturally enough there is concern among tax payers that those who may have behaved irresponsibly have been insulated. Money was doled out often irrationally by banks to elements in the Irish property sector. Whilst Irish banks have sizeable exposure to the property market,the problems in the Irish banking sector appear to be relatively minor. Subprime lending is not a major problem. Banks are highly profitable.

Naturally enough with this announcement bank shares rebounded today.

FG has posed the following questions:
1. What is the total exposure of the Irish taxpayer for providing this guarantee and how will the taxpayers' interest be protected?
2. What new regulations are being implemented immediately that will ensure that Irish banks will not be using the new guarantee to continue engaging in risky lending or derivative trading? The onus is now on the Regulator to ensure that the banks lending capacity is used to provide credit to sound Irish enterprises.
3. What return will the taxpayer get for providing this guarantee? What charge will the banks pay for this new facility?
4. What new oversight powers will the Government have on behalf of the Taxpayer to monitor the activities of Irish banks and is there any requirement for new legislation?
5. Has the Government satisfied itself that the banks have come clean about bad debts on their books and that banks are adequately capitalised?
6. What limits have been put on the pay and bonuses of senior executive of the banks who will avail of this facility?

Anglo Irish Bank clients plan €500m revenge fund-Sunday Independent

According to Shane Ross in the Sunday Independent "A GROUP of clients of Anglo Irish Banks, including big builders and entrepreneurs, plan to set up a large investment fund to buy shares in the troubled bank.
A meeting took place in a Dublin hotel recently in which it was decided to buy shares worth up to €500m. Gerry Gannon of Gannon Homes and Sean Quinn are thought to have been targeted to join the consortium. Quinn is already a large shareholder.
Sources close to the group suggest that each member will be asked to put in several million euro. When the fund reaches €500m, it will be leveraged up with borrowings to buy further Anglo shares. ................................................"
Sunday Independent

The Telegraph snipes at Ireland and its economy as usual

The following is posted by grumpylarry in the Telegraph

“The Irish it would appear are not as well served by the EMU as they would have us believe. Or could it be that they don't understand money and finance quite as well as they think. In my last blog I highlighted the problems some of their east European labour was suffering due to the downturn in the Irish economy. It would appear that the many of the 'New Irish' now find themselves broke, unable to speak the language, depending on charity to eat, struggling to keep a roof over their head or homeless, and too ashamed to go home. They may well be joined by the native inhabitants of the emerald isle, and this time they wont have the wicked British to blame…”

It is accompanied by a picture from the late 1800s or early 1900s which gives an image of abject poverty. The picture has the caption ”YOU CAN'T BLAME US THIS TIME.” The gloating is based on ignorance.

The Telegraph has never got over the fact that we are an independent people since 1921/22. Of course there are serious problems in the Irish property market. I have documented them from time to time. Nevertheless there is not a scintilla of evidence to suggest that Anglo Irish Bank, AIB or Bank of Ireland face collapse. These banks are robust and quite profitable.

It is a bit rich to listen from lectures from the UK on Irish problems.

Has not grumpylarry heard about Northern Rock, the UK bank that got a £25bn bailout from the British government recently?
Has he forgotten the Lawson boom/bust?