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