Cantillon

Inside the world of business

Has Dukes gone native in Anglo chair?

ANGLO IRISH Bank chairman Alan Dukes threw around some pretty spectacular figures in his speech to the Association of Compliance Officers in Ireland on Tuesday. Delivered on the day that the Minister for Finance was granted a High Court order to merge the rump of Anglo with the post-Nama shell of Nationwide, and Anglo announced a record Irish corporate loss of €17.6 billion, his speech raised more questions than it answered.

To create a healthy banking sector Dukes suggested a figure “in the region” of €50 billion in new capital would be required. “Asset recovery vehicles” – presumably Nama and whatever other such bodies may appear over coming years – will need €75 billion in State funding for 10 years.

The obvious first question is why the Anglo chairman chose to make his remarks on a day when his bank was already the subject of intense media focus? Was it a technique learned in his political days; get all the bad news out in one day?

As a government appointee to the Anglo board, should we presume his comments carry some imprimatur from the Department of Finance? If so, yesterday’s decision to postpone further recapitalisation of the Irish banking sector looks even more unusual. Not for the first time since his appointment Dukes’s actions beg the question: has he gone native and become a banking insider?

FF lives down to IMF’s worst fears

YOU REALLY would have to wonder just how much worse things would have to get before Fianna Fáil will finally put the country before the party.

The decision to call Fine Gael and Labour’s bluff over the next round of bank recapitalisation might be a political master stroke, but it further erodes what is left of Ireland’s credibility and goodwill with the EU and the IMF.

The Central Bank – in its role as proxy for the ECB – was quick to distance itself from the decision and the IMF has taken an equally dim view. The Washington-based fund has particular cause for annoyance. The decision was announced within hours of the IMF issuing its first review of Ireland’s performance in implementing the agreement with the IMF and the EU.

That report was about as positive as could be hoped for, but did caution that: “The fragile political environment could create unwarranted delays.” Right on cue the Government lived down to the IMF’s worst expectations.

Pressure will no doubt come on Fine Gael and Labour to make clear whether – if they form the next government – they will proceed immediately with the recapitalisation.

Even if they do give a straight answer the question – which is unlikely – there is no prospect of a coalition government being in place by the February 28th deadline for the injections as agreed with the EU and the IMF.

Thus Fianna Fáil will have the dubious double distinction of having brought Ireland to position where it needed a bailout and then engineered a situation that will ensure its terms are broken within three months.

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Could be plenty of votes in negative equity issue

NEGATIVE EQUITY is an issue that has attracted some attention in the general election campaign, with Fine Gael leading the way with its mortgage-interest-based wheeze.

Hoping to capitalise on the issue is the Debt Offset Campaign fronted by Arthur Doolan, the Green Party member who led the anti-Nama fraction in the party.

The Debt Offset Campaign (offsetdebt.net) is proposing what in effect amounts to another round of debt buybacks by the banks, but this time round the proceeds would be used to forgive negative equity.

The proposal is complex and has several perquisites, not least the willingness of holders of Irish bank debt to participate in further debt buybacks. Then there is the issue of finding new lenders prepared to come into the market and finance the buybacks. The campaign has solutions to these obvious problems, but arguably the biggest flaw in the proposal is that it ignores the fact that the taxpayer still has to pump billions more into the banks by way of capital to meet expected losses. Any proceeds from any further debt buybacks that could be engineered would most likely be used to offset this upfront call on the taxpayer.

Unless of course the next government decided otherwise. It will be interesting to see if the idea – or any other similar proposals – gains any traction during the campaign. With some 300,000 mortgage holders believed to be in negative equity there are a lot of votes at stake.