You failed to spot my use of singular over plural
Sorry missed that
You failed to spot my use of singular over plural
Sorry missed that
No discussion of the central issue? The bad loans are the crux, right?
We now know they are around 3% of the loan book…isn’t that a surprisingly reasonable amount? Doesn’t it mean the taxpayer has a very good chance of making a profit out of the loan book in the long/medium-long term?
we now know that anglo tell us that the are right and the international financial markets totally wrong. There was no property collapse and the fundementals are sound. The state stands no chance of going down the plughole.
Now which one is right
BOE, please take it easy with the sarcastic and patronising tone. I am not an economist and haven’t a clue about this stuff. And I’m not playing a silly game of I-hate-the-government-more-than-you. So please, if you are going to answer please do so constructively.
I was under the impression that with state directors now on the board, and all this crap having come out, and the regulator finally having woken up, and the eyes of the world on them, that this report was in effect a cleaned-up version of what was going on. If this impression is incorrect, I’ll stand corrected.
The problem for the government is that, even if they wanted to write down the assets realistically, their hands are somewhat tied by:
There is a game of see no evil, hear no evil going on here. IMO, there will be insufficient provisions made for bad debts until the loans actually default. This is what Anglo has done; there were, as far as I can see, no provisions made for future losses, but I haven’t had time to read the report closely. The roll-ups and the holidays continue.
Uh-oh. Take a look at p 76 of the report Derivative Financial Instruments.
Anglo have a notional interest rate swap (IRS) exposure of 153Bn. Thats perfectly reasonable.
The Fair Values column lists IRS assets as 882m and liabilitites as 915m.
I assume “assets” is accountant-speak for swaps with +ve Net Present Value, and “liabilities” means swaps with negative NPV.
Net NPV of the 153Bn Anglo swap book is therefore -33m.
Two things look odd to me.
(1) Firsly, given the massive interest rate moves we have had, the NPVs look small. swapratesonline.com/historic-eur … rates.html
To take a simplfied example, if interest rates fall from 4% to 2% a 100m 10y notional swap acquires an NPV of about 14m.
(2) Anglo’s primary legitimate use of IRS would be to swap their own bond issuance to floating rate - they should be net
receivers of the fixed rate in the swap market. This means their swap book should have a very large +ve NPV, because rates have rallied so much. In fact their reported number is negative (-33m). Why?
Its easy to be paranoid given everything that has happened. But it looks like something is fucked up in Anglos derivatives book.
Interesting bungaloid. There’s also a couple of bits on that page that I don’t understand:
Interest rate futures - bought and sold 15,648
Exchange traded options - bought and sold 12,684
These have no Fair values attached to them. Is this normal? Does this mean they have not been marked to market?
I note that at the end of 2007 the total derivative book was 179.797 bn, but by 2008 it had become 268.271 bn a nearly 50% increase. 2006 was 103.041 bn. Is this normal???
There are a number of sections that say “held and written” or “bought and sold” - I’d feel more comfortable if these were broken down according to how much was each way (to see that they are balanced).
I also note that this section was not in the preliminary results…
I agree it could be paranoia, but derivatives are what has screwed up many companies.
The 2006 report has a much more detailed breakdown of the composition of the loan book (written/held etc.):
angloirishbank.com/Investors … 2006.pdf
(Doc p. 82, Adobe p. 84)
"That oul sleight of hand one again;
“Included in loan repayments for the year ended 30 September 2008 is €22m (2007: €21m) relating to
amounts which were repaid shortly before year end by Sean FitzPatrick and another former Director.
These repayments were made from deposits held with the Bank.
The amounts were subsequently redrawn
shortly after year end and placed back on deposit with the Bank and, accordingly, €21m
(2007: €17m) is included in loan advances during the year.” (Copied from Slugger - Scaramoosh).
It was in their culture to swish money around at year end it would seem.
Yes, that is weird.
The size of anglos IRS book increased by more than 70% in 2008 (from 88Bn to 153Bn).
In a year when the interbank trading practically collapsed, anglo are suddenly trading up a storm in over-the-counter swaps?
Where’s the gulp emoticon… on second thoughts, as we are on the hook for this, where’s the vomit one. I notice that no sections of the PWC report that have been published are on the derivative book.
From my reading the 2006 report, it looks like Anglo were selling as well as buying, i.e. they were not just offsetting their loan risks. The levels being written make them look like a textbook Taleb example. Who would have predicted two years ago that interest rates would head to zero? Was that outside the bell curve? But I find these things difficult to get my head around so am probably talking tosh again!
Futures and exchange traded options tend to be traded on margin and so the mark to market is settled in cash daily. There’s probably an entry on the income statement to recognise any inflows or outflows.
This is different from forward contracts or over-the-coutner options which would be a net asset or liability.
How do we interpret this?
Does it mean that the geniuses at PWC did not check valuations of Anglo’s 153Bn notional swap book? They did not ask why Anglo did 70Bn of swaps in 2008, nearly doubling the size of the IRS book?
With clear evidence of concealment and crookery at the highest levels of this institution, they took derivatives valuations at face value?
I’m about to start giggling uncontrollably. Anglo = AIG-lite? Nah, it’s irresponsible to say it. Sure they’d never be as bad at writing derivatives as that global organisation that could attract the best and brightest…
Would I be right in saying that if you have a large derivatives exposure that you have to keep trading as market conditions change (whether that be FX or interest rates or whatever) because you have to keep re-hedging? Could this be a reason why Anglo is being kept going?
Ok for the mere mortal including me map that in real world terms, Anglo is the bagman for the international bankers/financiers scamming left right and centre? i.e. the Government have no choice but to play the global game… help me please HELP ME!!!
Um. Why was AIG not just nationalised or force merged? Because the exposure it had was so large? I don’t know.
I think scamming would be the wrong word. Derivatives offer a way to insure risk. In the real world, insurers have to maintain deep pools of capital to cover future risks, the actuarial occurrence of which is reasonably well known - it is known how many people will write off their cars or how many houses will burn down. Derivatives are a bit different, in terms of knowledge of the risks, but the principles are the same - anyone writing stuff should be able to pay it. So, was Anglo writing a load of insurance? Who was it reinsuring it with? Is there a mismatch between what it was writing and what it was reinsuring? (i.e. was it writing insurance on falling interest rates, but betting that commodities would rise or some such?).
Again, I don’t know the answers, but the ballooning of the derivative book over the last few years is astonishing, albeit in times when interest rates moved quickly one way and then very quickly the other…
edit: yes, I think the government has no choice but to let the bank that became a hedge fund continue as a hedge fund under the guise of a bank.
I have been ignoring this aspect - the derivs -and will continue to do so tonight as I need to sleep…
One point - given the client list they have in the trib today, its a fucking rogues gallery so anything could be lurking in the undergrowth…oh crapp
My guess is that the Anglo Irish trading desk got itself into trouble in 2007/2008 and tried to trade its way out. No other reasonable explanation for adding E100 billion in two years. Shades of Nick Leeson. (and lot of others over the years). If the traders had pulled off a trading coup with that kind of ramp up in expose we would have heard about it, or rather Anglo Irish would not have needed a bail out when it did.
But I’m forgetting something - this is the cute hoors bank. Now what would a cute hoor do if their developers / cronies bank business model starts to go tits-up, as it did mid 2007? Make a big speculative play on derivatives to bump up the cash flow and generate a cushion (and maybe hit the jackpot) in order to create a breathing space either to save the business, or failing that, to liquidate and make a clean exit with the loot?
No, they would never have done that…
So it looks like we might have to add another E10 billion to E20 billion plus to the final bill to the taxpayer if the ramp up in swaps was a pure speculative play.
I’ve just noticed that the Group total derivatives book is lower than the Bank total derivatives book. How can this be? I would have thought that the Group had to encompass all the activities of the bank and then some?