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Thursday, January 15, 2009

Nationalisation the Irish solution to the Anglo Irish problem

Some time ago I got a contribution on a post on Anglo Irish from a pensioner who invested a significant sum in Anglo Irish and now it was almost gone. Tonight’s nationalisation effectively ends that investment and its people like him who I have most sympathy for tonight, his money is gone and he will have to accept whatever the government proposes as compensation and to add insult to injury he’ll now see his taxes go to fund the bank into the future.
According to George Lee the government u-turn occurred as significant investors had withdrawn money during the week and there was a fear of a run on the bank. Interestingly the move occurred just hours ahead of the EGM when shareholders were set to ask hard questions of the directors and executives not just in relation to the loans to the former CEO and Chairman Sean Fitzpatrick and as to who in the bank knew what and at what stage but also in relation to the role of the auditors and the Irish Financial Services Regulatory Authority. The defence by IFSRA at the Dail committee this week that officials knew in Autumn 2007 about the activities of Sean Fitzpatrick yet did nothing as they were “too busy” raised many eyebrows among investors. No other issue has publicly brought so much attention to IFSRA so one wonders as to the extent of the matter that officials considered more important than the mere borrowing of in excess of €78M by an official from his own bank that had kept IFSRA busy at this time!
Based on the share price about 35% of the banks present capitalisation is presently tied up in a loan to Mr Fitzpatrick. I hope that Mr Fitzpatrick will be able to meet his obligations to his new shareholder and it would be interesting to have heard from the EGM where the money was invested by Mr Fitzpatrick and as to how he proposed to repay. The reason for the EGM has now disappeared but it goes ahead without a motion on recapitalisation.

Other questions need to be answered about the purchase of shares in Anglo by Sean Quinn and as to how this purchase was financed. As with the Fitzpatrick loan the purchase was less than transparent. I actually expected the government to move much faster at Anglo and I posted about a month ago that it could well happen over the Christmas when most markets are closed. It is certainly very unusual for a nationalisation to happen over a working night and not a week-end. Is it any wonder that the NY Times described Ireland as the wild west of European finance? The state will find it cheaper to buy the bank using the NTMA rather than re-capitalise. Trading in shares will be suspended. But what now for the country’s newest civil servants, what will happen the bank?
It seems to me that the bank is finished. Fianna Fail, the builders and the bankers may look on the nationalisation as the end of an era. However with the right management I hope something could be saved and it could be the start of a new epoch. But this move is a reluctant move and the government statement shows no sense fo being committed for the long haul or bing prepaed to resell in the medium term. There is a certain irony of Fianna Fail and the Green Party complete with Trevor Sargent who famously produced cheques sent to members of Dublin County Council from developers now stepping in to save developers from collapse by shoring up the bank that lent them money in the first place. The golden circle of Fianna Fail, money and speculators continues to thrive despite fiscal adversity using as cover an excuse that if one bank fails they’re all in trouble. Lets see the state taking as supportive a role with pension schemes many as insolvent as Anglo Irish Bank. I think an inspector should be appointed to look forensically at the bank’s activity in the past and deal with historic issues and that a management team be appointed to work through the bank’s commercial debts/loans and see what can be retrieved from that for the benefit of the new shareholder, the citizen.

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