Monday, September 28, 2009

Economics 28/09/2009: Anglo moving staff & loans to Nama

Ahead of actual establishment of Nama, Anglo Irish Bank has internally been reallocating moving staff and loans to Nama - even before the debates in the Dail and the legislative vote on Nama.

Source close to the bank has informed me that Anglo management have internally established that
  • 100 staff members are being transferred to Anglo Nama division to be located in their new offices on Burlington Road. The staff transferred is non-lending personnel and transfers might proceed even before the legislation establishing Nama is voted on.
  • Anglo Irish Bank will face an 18 months moratorium on new lending (which begs the question as to what its staff will be doing if a large chunk of its business will be transferred to Nama, while another sizable chunk is expected to be sold in the US).
  • Staff at the bank - on selective basis - were given a questionnaire as to their preferences for either staying with the bank, going to Anglo's Nama division or leaving the lender. This process - initiated some weeks ago - has now, allegedly, been completed.
  • There has been no signalled decision on what will be the full number of staff transferred to Nama division and what staff cuts will follow at the main bank.
  • Top 20 borrowers' loans are also being transferred (ahead of Nama establishment) to Anglo's Nama division, in effect providing for advanced transfer of loans to yet-to-be-approved entity. The source used the words 'unofficial transfer'.
To reiterate - this information comes from sources close to the bank.

If these developments are confirmed, they raise several important questions relevant to Nama:
  1. Putting aside the issues of legislative process being pre-emptied by the beneficiaries of Nama transfers, what has been done to assure due attention has been given in the participating banks to managing the loans? If Anglo (and possibly other banks) are ready to unroll the entire infrastructure of managing Nama loans today, how much of their internal resources (that could have been used to properly manage stressed loans) have been diverted to the preparatory stages of Nama processes?
  2. The banks cannot set up internal divisions to manage Nama loans unless they have had some certainty on who will pay them for this function in the future and how much they will be paid. Once again, to date, Government has failed to clarify these crucial provisions. A commitment to keep 100 staff in Anglo Nama would be expected to cost the bank around Euro 15-17mln per annum in staff costs, plus additional leasing and administrative costs.
  3. Decision to move to a specified office location on new premises should be carefully vetted to avoid any potential conflicts of interest (e.g developer owning the building in which the new Nama-related division will be located should not be amongst those whose loans are being transferred to Nama). Again, has this work been performed already, suggesting that the banks are rushing off the start line before the start signal is actually given?
If I were either a Green member of the Dail or an opposition representative in the Legislature, or indeed a backbencher of FF, I would certainly like to know how commitments of resources, contractual obligations etc can be entered in with respect to Nama ahead of the forthcoming vote...

3 comments:

Badger said...

" How will the €28Bn get to the productive economy "if Anglo Irish Bank will face an 18 months moratorium on new lending"?

TrueEconomics said...

Badger - exactly!

In the case of Anglo there is no 'productive economy'.

Per leaked note to the EU Commission (see Sunday papers) Anglo is not expected to return anything to the Exchequer, which means it is going to be wound down over time.

Per Nama information we have (and my estimates confirm this - see http://trueeconomics.blogspot.com/2009/09/economics-23092009-cost-of.html) Anglo needs to transfer Euro28bn to Nama in exchange for 10.8bn in capital (not available for future lending). Euro28bn at 40-45% discount (recall that 30% discount announced by Lenihan was inclusive of rolled up interest plus it was an average across all covered banks)or the grand total of ca 15-17bn euro that will be given to Anglo at a max. This implies that net of immediate capital injection, Anglo will receive something to the tune of 4-6bn Euro in additional funds. The bank had Euro30.5bn in interbank deposits in June 2009. And there are still bondholders to worry about. Combined cash war chest of the bank, inclusive of 3.8bn injection to date will be 8-10bn Euro (rounding off). That would be short of winding down cash needed, unless the Government applies severe haircuts on bondholders.

There is no cash reserve allowing for any lending out into the real economy...

Badger said...

Dr. Constantin,

I'm not an economist, but very interested in what's happenning in Anglo (and all the banks) Would you mind giving a bit more of an explanation on what you said please? Sorry I don't have 101 economics, well I have some understanding. Put it this way if I'd like to be able to explain it to a green party member should I run into one.

Thanks