OPINION:DURING THE last fortnight the so-called "Anglo 10" have become scapegoats.
Expressing an opinion on RTÉ Radio 1's Today with Pat Kennyprogramme that opposed the conventional wisdom led to Ulick McEvaddy being scorned. Populist commentators and Opposition politicians engaged in a headlong rush to identify villains.
Independent rational commentary was displaced by hyperbole that has verged upon the hysterical. Legitimate questions may be asked about the nature of the share support operation and Anglo’s failure to disclose important information. But to state in the Dáil or elsewhere that the Anglo 10 “were given” €450 million is patently incorrect. Indeed, it is quite possible that there was absolutely no transfer of wealth at all to these individuals in July 2008. On the contrary they have – in all probability – all lost substantial amounts of money.
Consider an investment opportunity. I offer you the chance to invest €50 in a financial product that tracks share prices. If the share price falls by 25 per cent, you lose €50. If the shares appreciate by 25 per cent, you gain €50.
Would you invest? Would you describe this investment opportunity as “heads I win, tails you lose”? I would imagine that many readers would be unwilling to engage in risky financial bets of this nature.
In essence, this was the nature of the deal that was offered to the Anglo 10. The investors purchased €451 million worth of Anglo Irish Bank shares, borrowing the money from Anglo to do so, and they were “at risk” if the share price declined by 25 per cent. Losses were capped at 25 per cent.
Effectively, Anglo Irish Bank gave them an “insurance policy” against further losses. Therefore, when the transaction was consummated in July 2008, the only wealth transfer that occurred was the value of this insurance policy. Insurance policies of this nature are commonplace and they are known as “put options”. They are easily valued and, using data from Anglo’s annual report, the value of this particular insurance policy can be put at about €40 million.
While one may argue that a €40 million wealth transfer is still significant, it is one-tenth of the number that has received recent attention. Worse, my computations assume that the loan was made at prevailing interbank interest rates. If the Anglo 10 were charged an interest rate more than that, Anglo Irish Bank may have effectively earned a profit from the sale of its insurance policy.
I do not know the fine print of the Anglo 10 transaction, but the publicly available evidence is consistent with a transaction that involved a transfer of wealth substantially less than €450 million. The most likely outcome is a wealth transfer that was somewhat less than €40 million.
Even the most extreme assumptions for this valuation could not make such a figure more than €120 million. Indeed it is possible there was no transfer of wealth to the Anglo 10 at all and, in fact, the transfer could have been negative.
Anger is forgivable given the rapid decline in our economic fortunes. Fuelling that anger with incorrect assertions and a search for scapegoats is unforgivable.
Seeking to name and shame the Anglo 10 if they did not appropriate €450 million is unfair and serves no purpose. Vilifying an individual who expressed an unpopular opinion constitutes bigotry. This is not a time to search for scapegoats – far better to address our current economic woes (and their causes) with a public discussion that reflects civility, decency and careful analysis.
Eamonn Walsh is PricewaterhouseCooper professor of accounting at the Smurfit School of Business in UCD