Anglo Irish Bank to wind down its operations?

[patslatt]

The government was advised by financial advisers that with Anglo's debtors paying off debts and a manageable level of loan losses,Anglo can meet its obligations to service its debts and customer deposits.

On the other hand,the stock market valued the shares at a paltry sum in relation to the balance sheet assets. Presumably,the stock market felt that Anglo could not escape the consequences of imploding commercial real estate values in its mortgages portfolio despite typical banking industrry claims that such mortgages are well diversified and cross-collateralised. Over time,the drop in property prices and further large drops yet to come would lead to mortage defaults and massive writedowns in mortgages.

The key question for the government if the stock market valuation is correct is: could Anglo wind down its operations over time in an orderly manner? As loans defaulted,the dramatic loss of liquidity would make it difficult for Anglo to service its debts. It would be forced to look at three principal options to raise capital.

First,Anglo could mount an aggressive programme of taking possession of properties in default and collateralised properties in order to sell them,but in the present illiquid market it would realise maybe a fraction of book values. Second,it could borrow on the strength of the government's sovereign debt guarantee. However,given the extreme pressures on the government's budgetary deficit,it would be irresponsible for the government to allow much further borrowing. Third,Anglo could look for further equity investment by the government.

The government's strategy may be to provide the absolute minimal level of capital under the second and third options,hoping that the capital requirements will be modest. The problem is that property prices could easily drop 40% from the peak in residential housing,bringing prices back into line with the ratio of housing prices to incomes in the mid-1990s. And the drop may not stop there given the tendency of markets to overshoot on the downside. So it is quite possible that the mark to market devaluations in Anglo's mortgages could be catastrophic,requiring the government to put possibly as much as €10 billion into the company to keep it compliant with Basle II capital requirement on bank capital.

If the government follows the first option and sells off assets,the market for commercial property could become very depressed. This could cause severe problems for the the two major banks,AIB and Bank of Ireland. But it could well be the best option,since lowering prices clears markets and puts assets in strong hands,enabling the recovery process to begin. The alternative is the failed Japanese strategy of keeping afloat zombie banks and zombie companies which cost Japan a decade of economic growth.

[Digout]

The more FF friendly developers will be let off the hook regarding their loans, i.e. they will be wrote down big time.

This is all about looking after the builders.

[wombat]

If the government follows the first option and sells off assets,the market for commercial property could become very depressed. This could cause severe problems for the the two major banks,AIB and Bank of Ireland. But it could well be the best option,since lowering prices clears markets and puts assets in strong hands,enabling the recovery process to begin.

We seem to be like the kid in the Emperor's New Clothes - everyone knows property is worth a fraction of what the banks say but no one in authority is ready to bite the particular bullet. Banks make their money by handling other people's money and AIB and BOI are making huge operating profits - look at you statement if you doubt it. If they call in their property loans, the market value of the property will be revealed, at which time, someone in Frankfurt will buy the remains and start operating a bank here on German/Dutch/Swiss lines. The common belief is that Banks need to be Irish owned to serve the interests of the Irish market/consumers - does anyone still believe that AIB/BOI are doing this i.e what is the downside to the Banks being run from Frankfurt?

[stanley]

We seem to be like the kid in the Emperor's New Clothes - everyone knows property is worth a fraction of what the banks say but no one in authority is ready to bite the particular bullet. Banks make their money by handling other people's money and AIB and BOI are making huge operating profits - look at you statement if you doubt it. If they call in their property loans, the market value of the property will be revealed, at which time, someone in Frankfurt will buy the remains and start operating a bank here on German/Dutch/Swiss lines. The common belief is that Banks need to be Irish owned to serve the interests of the Irish market/consumers - does anyone still believe that AIB/BOI are doing this i.e what is the downside to the Banks being run from Frankfurt?

If Ger/Nl/Sw banking operations came in and took over AIB and BoI they would cut the staffing numbers within 3 months by as much as 50% and rip through the overhead costs like a knife through butter.

[patslatt]

If Ger/Nl/Sw banking operations came in and took over AIB and BoI they would cut the staffing numbers within 3 months by as much as 50% and rip through the overhead costs like a knife through butter.

What evidence is there of overstaffing?