Unanswered questions on how banks ‘hid’ their losses


#1

Unanswered questions on how banks ‘hid’ their losses - -> irishtimes.com/business/sect … -1.1597997


#2

Hard to believe our ‘green jersey’ media can still produce such junk
Flabbergasted by his answer to the first question
Clearly he has no counting skills himself or even some contacts in the Irish banks

When most of AIBs tier 1 is a deferred tax asset
When we have had almost zero foreclosures (high percentage paying no interest / rent in Western world)
When 54% of all mortgages date from 2006 to 2008 (Davy August 17 2012 Report Appendix page 53)
davy.ie/content/email/mortgage20120817.pdf
When the Irish system (Nama+Banks+Central Bank+Sovereign) have become addicts to Draghi’s 0% 3m rolling money (the ultimate loss avoidance tool on which all PIGS nations are attached)

Why can’t the Germans take our economic sovereignty in trust for future Irish generations

Save us from this !


#3

He probably means the loans to developers that started to go bad a few years before the bank bailout.

Anglo should have been clearly fubared to an auditor from around 2005. No one was paying off loans but they were allowing developers to roll up interest which was then being booked as profits. An investor pouring over the audited figures would simply have seen loans growing, large profits and a well funded bank.

According to the Anglo auditors - a bank can make profits despite no one paying back loans just so long as they keep the funding side growing.


#4

WTF are you talking about? The developers WERE paying back their loans back then for the majority part. Aside from which, Anglo’s lending was ALWAYS based on cash flows and not the actual value of properties. E.g. repayment of loans comes from the tenants in shops or offices in a development. As far as I know, at least up to June 2008 these cash-flows / repayments were still flowing in. What the auditors (and more to the point, the regulator and DOF) should have flagged had a basis in a much more substantial reality than what you’re representing above.


#5

This is strongly likely because he was recruited from Ulster Bank after all!


#6

I doubt that repayment of Anglo loans for the most part was based on rent from tenants in shops or offices.


#7

Don’t doubt. I’m right.


#8

But developers were interested in selling units, not renting them. When developers couldn’t sell (post 2006), they were unable to repay.


#9

What percentage of Anglo loans were for office, shopping centre and residential?

Their central favoured model that they built their business on was lending based on cash flows generated.

As far as I know, when they did lend for residential, they would want the developer to be able to cover repayments from his existing cash-flows that they could see currently in his books. (Unless a politician had given a borrower the nod etc.)

This was Anglo’s model, that they based their whole business and success on.

And what brought it all crashing down was not defaults on loans. - It was that the markets wouldn’t lend to them anymore. And Institutional funds/deposits started getting out. More likely due to the kind of metrics I linked to in my post above, in conjunction with the world-wide developments that froze up these funding markets.

The reason they were able to borrow so well on these markets previously was due to the character and ‘solidity’ of their incoming cash-flows. This was the “Anglo model”.


#10

A developers cash-flow (during the bubble) came from selling finished units, not renting them. If you can’t sell, you can’t repay.

By 2007, €17.5 billion (25% of Anglo’s overall loan book) was lending to developers.


#11

Not sure that was the Anglo that I knew and dealt with

All banks lend on cash flow (they are not that stupid), or at least potential cash flow from a development
What nailed Anglo was their strategy of lending interest only in perpituity
If you had a cash flow (of any type), they would give you sufficient debt against it to soak up 85% of cash in interest
Whatever debt figure that produced, they would get an advisor to value the asset at 10% above the debt figure
It produced a teriffic ROCE / ROA and a perpetually growing balance sheet (they never wanted repayment)
Because most of the debt was 1-3m rolling, they had control over you (in theory)
Their problem was when they came sell the underlying assets that generated the cash flow
Suddenly, a garage business in New Ross was not worth 20x earnings

The irony of the above is this is EXACTLY the funding model the ECB / Draghi is using with us :angry:


#12

Not with Anglo.

Let’s look to the shopping centres we all know, and who the Owners and Landlords are. They are all property development companies.

E.g. Blanchardstown SC: Green Property Development Ltd… Dundrum SC: Crossridge Developments… Liffey Valley: Grosvenor Estates.

And the same holds for office developments and other commercial property in Anglo’s portfolio if you look. This was the majority of their development portfolio.

Yes, some residential apartment developments were sold on. But as I said, this was not Anglo’s main business or model they made loans on. It was secondary, and as far as I know would only be done if the developer’s cash flows from his other developments (from commercial tenants) could cover the repayments (interest only, no problem, yes we all know this.)

EDIT - Remember the conniptions about upwards only rent review in this country.


#13

But none of those companies feature as top Anglo borrowers.

However, these developers feature as top Anglo borrowers:

  • Ballymore Homes
  • Gannon Homes
  • Joe O’Reilly (Castlethorn)
  • Bernard McNamara
  • O’Flynn

All were heavily involved in residential development, where selling units is key to cashflow.


#14

Those are the top ‘bad’ borrowers presented in the media who owe Anglo.

What percentage are they of the Anglo loan book?

Those developers are also Galway tent people. I don’t doubt there were political associations that made Anglo divert from their core model, and they indeed facilitated residential development to a degree.

This argument will go nowhere. I am confident of my facts through a personal knowledge of Anglo’s operations. I will have to revert with some evidence or this will just go around and around.


#15

@roc
If you are correct, the Anglo loanbook would have been valuable. It was not…


#16

No, because the collateral was now worth a fraction. This had implications for both the funders of the transactions and the borrowers.

When the funding dried up, interest only payments were no longer viable. Anglo now needed to call in these loans, in effect.

But that was not in the developers’ game plan. - What? Pay the full value of the loan they took out when they would be left with an asset worth a fraction of that?

Perhaps the developers they lent to could have covered these loans (Personally I believe many could have). What upset me most about the whole debacle was how they were given the time to SQUIRREL AWAY the money they had made during the boom… It was not only institutional depositors who got their money away at this time, it was also the developers I believe. I would say they also started to divert cash-flows to try and cover themselves. Just like a lot of the BTL crowd. (In fact there are a lot of analogies to be made there. E.g. Strategic default).

David Drumm in late 2007: *“People outside Ireland are ignoring the wealth that has been created. We’ve had 13 years of extraordinary growth. It’s not so much the last days of the Roman Empire and the mad Irish squandering the wealth. They’ve been squirreling it, here and overseas…” *


#17

The majority of the Anglo loan book was in development land. In times where real estate crashes, it’s development land that suffers most. That is why Anglo imploded as spectacularly as it did. Sure, there were exceptions to the rules (Liam Carroll was one of the developers whose loans were apparently based on cash flow) - but in the vast majority of cases, the collateral for loans was over-valued land.

As for the banks “hiding” their losses. Honestly, I find that to be a load of poppycock. The real question that needs to be answered is why did the politicians overpay for stakes in BOI/AIB? Why did we instigate the monster that was NAMA? Why have so much of the developer class been protected? Why were foreign speculators holding banking paper made whole? Look at Bank of Ireland. The Irish State pumped a fortune into this institution at a high price relative to the level of ownership it was getting. Then, when the bottom was reached in the market, the government sold their stakes to private equity, who have since doubled their investment. Why did we turn around this institution only to give it away to Americans for a song?

The bankers did exactly what you would have expected them to, they covered their own asses and looked after their own interests. There’s no mystery in that. Again, the question I ask is why didn’t our politicians look after OUR interests. They are public servants, not servants of the cosy Irish elite - where is the inquiry into them?


#18

You obviously never read the Anglo’s public accounts from 2003-2008 and the restated ones for 2007-2008. Of the 70B book 20B/25B was financed from short term hot money deposits. That money disappeared during 2006-2008. Most of the rest of the book was financed from < 1Y capital markets. In 2007 the rollover stopped.

Anglo collapsed because of depositor flight and lending medium, borrowing short. Did not matter how many developers were paying back their loans. Anglo collapsed the rest of the Irish banking system because the other bank with the connivance of the CB tried to cover up the depositor flight using cross deposits. Basically cheque kiting.

Anglo collpased for the same reason banks have collapsed for the last six hundred years. The depositors left, the funding stopped, and they could not pay back their short term debt.

Oh yes, and Anglo also lost around 10B from pure gambling plays with f/x and IRS derivatives. The derivate loses on their own would have collapsed Anglo with out all the other illegal activities. Like the vastly inflated valuation of loan deals.

No losses have been hidden or were hidden. Its all easily found in the public accounts. All accounting 101 stuff. All hidden in plain sight. You just have to look.


#19

You obviously didn’t read the other posts I made on this thread.

I know it didn’t matter how many developers were paying back (or not) their loans. That is the very point I have been arguing from the start of this thread if you look.

Neither did I say anything about the Indo story of hidden losses which is bollox of course. And I have in fact gone through the accounts 2000-2008 - you can see I even plotted some of the information from them myself here - viewtopic.php?f=46&t=60270

My post to YM above is countering a point which as you have said in your post, is irrelevant to the Anglo story. I know well it’s irrelevant, well, as far as this - the only way Anglo could have made up for the loss of its funding was to recall the loans back in, in full. Obviously, that was not going to happen.

However there is the point to be made that if right from the very start of Anglo’s troubles becoming somewhat public, existing client developer deposit accounts in Anglo had been frozen, there is no doubt that substantially more could have been recuperated for the taxpayer… But instead they were given every opportunity to make their exit.


#20

I took these figures from the Anglo annual reports a while back, there may be copy paste errors.

[code] 1999 2000 2001 2002 2003
Loans to banks 3,386,700,000 3,887,800,000 5,798,800,000
Loans 4,420,200,000 7,793,500,000 10,952,000,000 13,356,500,000 17,268,500,000
Bank Deposits 1,956,100,000 2,452,400,000 3,763,800,000 3,097,400,000 3,290,100,000
Customer deps 3,500,400,000 6,471,500,000 8,862,300,000 11,836,100,000 14,577,600,000
Debt Securities 101,200,000 928,400,000 1,217,400,000 1,919,200,000 4,557,900,000
Subordinate 133,700,000 328,700,000 476,600,000 467,300,000 429,000,000

                 2004           2005            2006             2007           2008

Loans to banks 6,210,600,000 6,253,600,000 10,350,000,000 12,051,000,000 14,002,000,000
Loans 23,723,800,000 34,099,000,000 48,718,000,000 65,949,000,000 72,151,000,000
Bank Deposits 2,605,900,000 7,150,700,000 13,336,000,000 7,601,000,000 20,453,000,000
Customer deps 19,546,000,000 25,159,700,000 32,748,000,000 52,686,000,000 51,499,000,000
Debt Securities 6,944,500,000 9,404,100,000 15,060,000,000 23,588,000,000 17,280,000,000
Subordinate 1,133,300,000 1,181,700,000 2,297,000,000 5,274,000,000 4,948,000,000[/code]

In 2005 the bank deposits from other banks leaps from a steady 2-3B to 7B, then the following year to 13B. Knowing now about the green jersey transactions later, these bank deposits are something I’d like to see a few more details on.