Thursday, April 23, 2009

Lenihan rattled by McWilliams...

In today's Indo our Minister for Finance attempts to reply to David McWilliam's opinion piece from yesterday. It's fairly clear that Lenihan doesn't want to hear any criticism, constructive or otherwise of his (mis)handling of the banks:

Informed and reasoned contributions to the debate about all the options available to Government are very welcome. Unfortunately, yesterday's contribution from Mr McWilliams fails on both scores.

He then totally fails to address David's point which is that NAMA and a blanket guarantee of bank liabilities can't co-exist without creating a huge moral hazard - If NAMA makes their previous sins go away and the guarantee gives them the financial credability of Ireland when borrowing money what incentive is there for them to act rationally? Bear in mind that nobody us suggesting that the protection for retail investors be dropped - just that once NAMA is up and running the bank should be on a viable footing and aren't supposed to need government backing.

I think that given the circumstances Mr. McWilliams has been pretty mild. Sooner or later Lenihan's going to have to answer questions like:

  1. Why hasn't the managment of the banks been cleared out?
  2. Why did the government voluntarily take non-voting preference equity which leaves them with *no authority* at the boardroom table?
  3. How will NAMA value assets?
  4. Why did he hack at the income of the middle class instead of confronting the unsustainable costs of the public sector?
  5. Why isn't the government forcing the ESB and Bord Gais to reduce prices? Doing so would have a bigger practical effect than restoring the Xmas bonus.

Tuesday, April 21, 2009

Indo's advice to B of I stockholders: Put more money in!

"Ordinary shareholders in Bank of Ireland will be happy to inject €1.5bn in fresh capital, predicts Paddy Stronge"

In last Sunday's Independent there was a wonderfully reassuring piece from banker Paddy Stronge, in which he explains that if you're one of the lucky investors in Bank of Ireland who've seen 90% of their value erased all will end up well if you put more money in. Seriously!

Apparently B of I can't sell its bad loans to Nama at a discount from what the bank thinks they are worth:
It would be unwise to rely on Peter Bacon to determine the appropriate valuations as he has not reviewed the individual loans to be transferred.

The bank's own detailed assessments, independently confirmed, are likely to be much more accurate.

However, if Nama were to somehow insist on unreasonable write downs of the loans, the bank's directors would be in an untenable position. They have a fiduciary duty to look after the interests of their shareholders.

Which means that Nama is just going to have to buy the loans at B of I's valuation, because otherwise B of I will, will, will .. do something. I wonder if they'll come with the rose-tinted crystal ball that was used to value them?

At this point, the bank will be in a strong position to raise new capital from its existing shareholders. The bank will need to raise €1.5bn from the existing shareholders before December 31, 2009, to ensure that the Government cannot exercise its option, under the recapitalisation scheme, to purchase 10 per cent of the ordinary shares of the bank at 20c a share.

The take-up by the Government of Bank of Ireland shares at such a low price would be a disastrous permanent dilution to be borne by the ordinary shareholders. Many shareholders have already lost more than 90 per cent of the monies they have invested in Bank of Ireland and there would be little chance of significant recovery in the share price if the Government were to exercise this option.

Leading to the logical conclusion that:

At that point, though it may seem difficult for shareholders who have already lost thousands, the final endgame is for them to commit further funds to the bank, thereby avoiding nationalisation and helping the share price to make solid gains in the years ahead.

Thursday, April 16, 2009

ESB Creating 'Jobs' with your money

Why are the media so uncritical of the ESB? We pay some of the highest electricity rates in Europe. I now pay three times what I was paying in California, and that was with Enron on the rampage.

Today the Semi State monolith announced it was going to 'create' 3600 jobs. Bear in mind that this will be done with taxpayers money. Why couldn't they just give the money back to their long suffering customers?

In the short term the ESB is doing the government a favor but is also improving its profile with the public, who are starting to ask questions about its punitive charges of over 14c/Kwh.

In the long term the ESB also wins because it makes itself larger, thus justifying its charges and can also hold these jobs hostage when a future government sees sense and tells it to reduce its prices.

If you doubt me on this hear it from Mr McManus himself:

Padraig McManus, ESB chief executive, said job-creation needed to be a priority for companies that had the resources to invest.

I'm sorry - what did he just say? Since when has creating jobs been a priority of private enterprise? Or is this a public enterprise engaged in a turf war?

By engaging in this kind of meddling the ESB is sending a clear signal to enterpeneurs that it will muscle in on them if they set up here. If you were going to invest in alternative energy and had a choice as to where you do business would you do it in a country where semi state agencies like Dublin Bus get away with using their state-backed monopoly status to strangle competitors at birth?

Wednesday, April 15, 2009

Vincent Browne Thinks 'Retail Deposits' Are From Supermarkets...

Does anyone edit Vincent's stuff before it goes out? In today's Irish Times the great man says:

We got a glimpse of who the Anglo Irish depositors and lenders were, courtesy of Brian Lenihan on January 20th last. Anglo Irish had 300,000 retail depositors, of whom only 72,000 were Irish. The number of corporate depositors was 12,000, of whom 3,500 were Irish and 8,500 non-Irish.

So, to be clear, the beneficiaries have been these high-net-worth individuals, then the depositors who had deposits of over €100,000, retail depositors (mainly supermarkets of whom only a few are Irish) and corporate depositors (a large number of whom were non-Irish).

Which is fine, but I always thought that a "Retail Depositor" was someone like your or me who uses a bank. If, as Vincent says, the "Retail Depositors" are 'mostly supermarkets' then Anglo appears to have held a global monopoly on supermarket bank deposits as it held 300,000 of them....

Thursday, April 2, 2009

"Idea's Campaign" Continues to get coverage from uncritical press

Why haven't the press started asking the hard questions:

  1. Who's actually behind this?
  2. Who decides which ideas make the cut?
  3. Why are there virtually no ideas that involve cutting expenditure being published?

Meanwhile the idea I gave to Mr McWilliams is now the second most popular one he has. Bizarrely enough nothing like it has been presented by the 'ideas campaign'...