Tuesday, September 18, 2012

Who got bailed out in Anglo?

The question of restructuring the Promissory Notes used in 2010 to recapitalise Anglo Irish Bank (€25.3 billion) and Irish Nationwide (€5.3 billion) has been ongoing for more than a year now. [A smaller promissory note of €0.25 billion was also provided to EBS.]

As well as a €25.3 billion of Promissory Notes which were provided in four tranches in 2010, Anglo Irish Bank also received €4 billion of cash from the Exchequer in 2009.  In total €29.3 billion has been committed to the bailout of this bank.

Obviously, the problems emerged on the asset side of the bank and this is an incredible amount of money to have to provide to a bank that, on the night of the guarantee, had about €73 billion of loans to customers outstanding.  This loans have proved to worth only about half that amount.

So who was owed money by Anglo on the night of the guarantee?  Who was in line to face losses given that more than half the value of the loans issued by the bank were not going to be repaid?  Here is an abridged and amended version of the liability side of the Anglo Irish Bank balance sheet as reported for the 30th of September 2008.

Anglo Liabilities

At the time of the guarantee Anglo owed over €100 billion.  The €4 billion of shareholder equity was wiped out pretty much as soon as the bank began to provide for the massive losses on its loan book.  During 2009 and 2010, €3.3 billion of losses were imposed on subordinated creditors of the bank.  After these €7 billion of losses, the first five creditors on the above list were repaid in full.

On the night of the bank guarantee there was just under €11 billion of senior unsecured bonds in issue from Anglo Irish Bank.  Most of the money provided to Anglo Irish Bank did not go to ensure repayments to bondholders could be made; it went to depositors.

Of the €72 billion of deposits in Anglo on the 30th of September 2008, around €19 billion were in customer accounts which comprised “demand, notice and fixed term deposit accounts from personal savers with maturities of up to two years” .  For the €32 billion of non-retail deposits the annual report says:

Non-retail deposits are sourced from commercial entities, charities, public sector bodies, pension funds, credit unions and other non-bank financial institutions. At 30 September 2008 non-retail deposits were more concentrated and shorter in duration than at the prior year end. 

In addition, at 30 September 2008 non-retail deposits included €7.3 billion of deposits from Irish Life Assurance plc, a non-bank affiliate of the Irish Life & Permanent group, which matured on or before 3 October 2008.

Of the €20 billion of deposits from banks, half were on terms that would require them to be repaid in eight days or less.  In fact, of the total deposits held by the bank, around €47 billion had an agreed maturity or notice period of less than one month.  The bailout of Anglo was of deposits from banking and non-banking institutions and also the individual customer accounts of (wealthy) depositors.

Although in line to absorb losses,  the €11 billion of senior unsecured bonds in Anglo on the night of the guarantee did not consume the €29 billion that has been committed to the bank.

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