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

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    Politics.ie Member cyberianpan's Avatar
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    Default Anglo: overlooked loans re-categorisation scandal is the biggest and we'll pay for it

    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
    "Yawn , am I alive yet ?"

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    This looks like an unfairly neglected angle all right.
    "It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair.

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    Politics.ie Member blacbloc's Avatar
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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-affai...questions.html
    Last edited by blacbloc; 21st February 2009 at 05:27 PM.

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by He3 View Post
    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
    "Yawn , am I alive yet ?"

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    Politics.ie Member H.R. Haldeman's Avatar
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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.

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by H.R. Haldeman View Post
    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
    Last edited by cyberianpan; 21st February 2009 at 09:03 PM.
    "Yawn , am I alive yet ?"

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    The PWC report only looked at affairs up to 10 December right? when were the loans reclasssified?
    “A healthy social life is found only, when in the mirror of each soul the whole community finds its reflection, and when in the whole community the virtue of each one is living” R. Steiner

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    Politics.ie Member Digout's Avatar
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    Did either Lenihan or Cowen tell the dail that there was not a run on the bank?

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by yehbut_nobut View Post
    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
    "Yawn , am I alive yet ?"

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    Quote Originally Posted by Digout View Post
    Did either Lenihan or Cowen tell the dail that there was not a run on the bank?

    Seanad Debate Tuesday, 20 January 2009
    (Martin Manseragh being questioned by senators on the governments actions)

    Deputy Martin Mansergh: I am stating authoritatively that there was no run on Anglo Irish Bank.
    Has someone lied to the house?
    “A healthy social life is found only, when in the mirror of each soul the whole community finds its reflection, and when in the whole community the virtue of each one is living” R. Steiner

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