Ireland’s black hole of banking, (AKA Anglo Irish Bank), has received another 4 billion Euros of Government aid, but could need a further 3.5 billion to remain solvent as the country’s embattled government continues to try and keep the country’s financial system afloat.
The latest capital injection, which came Friday, takes the total of Government aid to Anglo, Allied Irish bank and Bank of Ireland to 11 billion Euros. Bank of Ireland and Allied Irish Bank have already received 3.5 billion Euros in state help. To put that in context, the 11 billion Euros is equal to $A19 billion, which is more than the profits of all the Australian banks in a good year!
It’s an incredible sum of money, especially for a Government deeply in debt, with a deficit soaring, tax revenues dropping, credit rating cut and unemployment rising rapidly.
But they had no choice: Anglo has too much money financing property across Ireland and its collapse would through into question 64 billion of deposits at the bank.
Anglo, whose affairs are being probed by police (it was raided by the republic’s fraud squad in February) and by regulators, reported a pre-tax loss of 4.1 billion Euros in the six months to March as the value of land and development assets collapsed. Media reports in Dublin at the weekend say the bank has an estimated 20% of its assets impaired. At that level banks are usually insolvent (they only have capital of 8%-12% of assets at best).
While revealing the huge 4.1 billion euro impairment charge for the September half year, Anglo said that the level of “past due” and “impaired” loans had skyrocketed to 23.6 billion Euros in March (more than $A41 billion) from ‘just’ 2.5 billion last September when the old, disgraced board and management were still in control.
Anglo though is a scandal in progress. It is broke and getting broker, despite all the money pumped in by the government.
Anglo reported losses of 4 billion Euros for the six months to March 31, compared with a 667 million profit in the same period last year. Provisions for bad loans were 4.1 billion, compared with just 33 million Euros last year. Shareholders funds — at 0.1% of total assets — have been wiped out. It is short of capital and subordinated bondholders will be wiped out soon by the next capital injection, which could top 4 billion Euros with property values continuing to collapse across Ireland.
It wrote off 308 million Euros from around 450 million of loans made last year to 10 clients to fund their purchase of a big stake in the bank in an effort to prevent a further collapse in its share price. It wrote off 31 million on loans to former directors but declined to name them. Those 10 clients bought shares from a major shareholder who had built up a stake beyond an allowable level. The old board authorised the loans to prevent the shares from being dumped on the market.
Last December it was revealed that for eight years the bank had failed to disclose “directors’ loans” to Sean FitzPatrick, the former CEO and chairman.
He received 84 million Euros of loans last year, having been as high as 122 million at the end of September 2007. It’s been reported that the bank transferred these loans to other institutions twice a year, as each audit period. Senior management have revealed they knew of this practice, but did nothing to halt it. That had gone on for eight years without any disclosure.
Other directors received tens of millions of Euros of loans from the bank as well.
Regulators and the police are now also investigating the transfer of 8 billion of Euros in deposits from Irish Life and Permanent just days before Anglo’s financial year end last September 30, ostensibly to bolster its books.
Worries about a run on Anglo deposits had already forced the government to intervene in September, guaranteeing the entire liabilities of the Irish banking system — 440 billion Euros of deposits and term debt at the six domestic lenders, including 64 billion Euros at Anglo. But in the end it was forced to inject capital into three banks and take control of them.
That started the run of Governments around the world guaranteeing their banks, including Australia, as the global financial system quaked after Lehman Brothers failed. Merrill Lynch, and Wachovia were rescued, Washington Mutual failed and was taken over and a string of European banks were bailed out, rescued or taken over, including most of the UK banking system.
And in Germany Wednesday night, the Federal Government will take control of its biggest financial basket case, Hypo Real Estate, which has so far cost taxpayers 102 billion Euros of aid and support.
Eight months it almost collapse and the German Government started pumping in state funds that would eventually reach 102 billion Euros, HRE shareholders meet and will agree to the takeover of the company, which was Germany’s second largest real estate lender, and its Dublin based Depfa bank. It will be the first major nationalisation in Germany for years.
At the same time the German parliament will see an official inquiry start into HRE’s collapse, the role and nature of the problems at DEPFA (which seem to have helped undermine the stability of the Irish financial system).