Anglo remains vulnerable to betting on price falls

[Green_Bear]

Anglo Irish Bank remains vulnerable to investors betting on further sharp price falls, despite Sean Quinn and his family buying outright a 15% exposure they previously held indirectly through huge loss-making wagers, market experts say.

London investment banks lending stock to short sellers may have helped persuade the Quinns to acknowledge their losses on the stock market bets, contracts for difference (CFD), and buy out the 15% stake in the bank, traders said.

Credit Suisse and Dresdner Kleinwort reported big changes in their holdings in Anglo Irish shares, as the Quinn family unwound their CFD positions over a week ago. >>>

Anglo remains vulnerable to betting on price falls
Eamon Quinn
tribune.ie/business/article/ … ice-falls/

[Green_Bear]

Shares in Anglo Irish Bank may have recovered some of the ground they lost earlier this month, but the bank is still vulnerable to short-selling
London analysts have speculated that Sean Quinn faced a margin call on his huge CFD position in Anglo

Anglo Irish Bank is not out of the woods yet. Notwithstanding the rally in financial stocks early last week which boosted Anglo’s share price ahead of its Irish peers – but still only brought it back to June levels – the whiff of panic still lingers around the bank.

Cloud of panic still hangs over Anglo Irish
Eamon Quinn
tribune.ie/business/news/art … glo-irish/

[Green_Bear]

Banks are different. They really are businesses based on confidence and a national supervisor of banks, or Central Bank regulator, appears to be allowed to act in ways considered unorthodox in other businesses. But the reasons for the Central Bank and Financial Services Authority here allowing a single family to build a huge indirect stake in the country’s third-largest bank through risky CFDs is baffling. It’s not as if the banking supervisor had not seen investors losing many millions on CFD bets in the recent past, and right on its own doorstep here in Dublin. Anglo Irish, Ryanair and Elan had attracted spread-betting and CFD clients for years.

Last February, the Sunday Tribune reviewed the huge losses that investors in CFDs have suffered here in recent years. We wrote then: "Many were attracted to CFDs because the derivative products allowed them to leverage up stock market positions for only a small outlay. Typically, a CFD client for as little as €100,000 could acquire exposure to €1m worth of shares. By the spring of 2006, CFD trading on the Dublin market had soared – even the hefty losses CFD clients suffered the previous year, when Elan shares slumped in a Monday lunchtime meltdown, had failed to stem the growth of the derivative stock instruments in Ireland. CFD clients in Elan at the time suffered €50m in losses and some clients defaulted on their margin calls. Most Dublin stockbrokers continued to sell CFD services provided by London-based brokers.

The committee on banking supervision at the Bank for International Settlements in Geneva, the banker to central banks, lays down straightforward guidelines on banking ownership. Here’s what its so-called Core Principle No 4 has to say to regulators on a change of “significant ownership” in banks: The “supervisor has the power to review and reject any proposals to transfer significant interests held directly or indirectly in existing banks to other parties”. And it adds: “There are requirements to obtain supervisory approval or provide immediate notification changes that would result in a change in ownership, including beneficial ownership, or the exercise of voting rights over a particular threshold or change in controlling interest.”

Anglo is still exposed despite CFD unwinding
Eamon Quinn
tribune.ie/business/markets/ … obusiness/

[Green_Bear]

Anglo Irish has been one of the most aggressive property lenders and many in the City believe it is vulnerable to a further fall in values, which is expected to result in a number of property companies going to the wall.

RBC Capital market analyst Hank Calenti said: ‘If the economic situation continues to deteriorate and Anglo Irish is unable to raise funds in the wholesale markets, the management has little room for error.’ He added: ‘Anglo is probably one of the most susceptible to a commercial property decline in the UK.’

But senior figures at Anglo Irish say that, rather than suffering, it is in line to make record profits this year, even after making provisions for falling values in its loan book - provisions it believes will be less severe than the market fears. It says it is not looking to axe any of its 550 UK staff.

Unlike most of its UK rivals, Anglo Irish insiders suggest, it has no need to raise more cash from shareholders. It stresses all its lending is secured against property assets and that its borrowers’ equity-to-loan ratio is among the highest of any UK bank.

Fears grow for Anglo Irish over fall in land values
Nick Mathiason, The Observer, Sunday July 20 2008
guardian.co.uk/business/2008/jul/20/banking

[BrendanG]

Fall in Anglo shares on loan signals short selling dip - IT

THE PROPORTION of Anglo Irish Bank’s shares on loan - an indicator of the level of short selling on the bank’s share price declining - fell in July for the first time this year, new figures show.

The percentage of Anglo’s stock on loan dropped to 14 per cent last month from 15.2 per cent in June.

However, of the four publicly quoted Irish banks, Anglo still has the highest amount of shares on loan, according to figures released by the Brussels-based securities settlements firm Euroclear.

Stock on loan for AIB, Bank of Ireland and Irish Life & Permanent increased last month to their highest levels this year. The rising proportion of the banks’ stock on loan shows that the level of short selling against the banks is likely to have increased last month as their share prices fell further.

Short-selling investors - who profit from betting on share prices declining - have enjoyed significant gains this year. The Isef index of Irish financial stocks has fallen 50 per cent this year, as the four listed banks have shed €17 billion in value. The banks are now worth less than AIB’s market value at its peak in February 2007.

Short selling is a common practice. Investors borrow shares from long-term investors and sell them in the hope that the price will fall, allowing them to buy them back more cheaply and make a profit.

Bank of Ireland’s percentage of shares on loan increased in July to its highest level this year. Its stock on loan rose by more than two percentage points to 9 per cent. AIB’s loaned stock rose to 4 per cent in July from 2.64 per cent the previous month, while Irish Life & Permanent’s loaned stock rose to 11 per cent from 10.8 per cent.

The decline in Anglo’s stock on loan is thought to be linked to businessman Seán Quinn converting his investment in the bank from contracts for difference (CFDs) derivative products into shares.

Mr Quinn announced on July 15th that he and his family were converting their CFD positions into a stake of almost 15 per cent.

The conversion has the potential to take a large amount of Anglo’s stock that could be used by investors taking short positions in the bank out of circulation.

CFD investors do not buy shares but take a leveraged position on the stock by putting up an initial outlay or deposit and borrowing the remainder of the stock’s value.

The underlying shares on CFD positions, which are held by third parties, can be loaned to other investors. Long-term stockholders can earn money by lending stock out to investors in the short term.

Mr Quinn is estimated to have lost up to €1 billion on his investment in Anglo from the fall in the bank’s share price over the last 15 months. Anglo’s share price has plummeted 70 per cent since its peak at €17.85 in May 2007.

The monthly statistics for stock on loan shows that the level of betting against the Irish banks has been rising steadily since the start of this year. The drop in Anglo’s stock on loan in July is the first significant decline in a bank’s shares on loan this year. AIB’s stock on loan fell slightly in March.

Some bankers have privately criticised hedge funds and short-term investors who take short positions for exacerbating their share price falls. The economic downturn and falling property values have made the Irish banks targets for short sellers seeking profits.

Euroclear says its figures do not reflect the exact level of short selling in particular companies, as loaned stock can be used for other purposes. However, market sources said the figures show the stocks that are most susceptible to short sellers.