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Thread: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

  1. #16
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Quote Originally Posted by Captain Con O'Sullivan View Post
    Oh I'm with you now CF- the consultant side of things. Sorry for the misunderstanding.
    I would just like to know if this type of back to back loan arrangement is common in European banking or if it is an extraordinary Irish phenomenon.

    I'd like to know whether the string of similar arrangements in Ireland stemmed from a single influence or instigator, or whether there were coincidences. Who was responsible ?

    I would like to know exactly what involvement the Government, through the Department of Finance, The Central Bank, the Regulator or any other means had in these arrangments.

    It seems possible that the existence of these arrangements may have influenced the view of the Government that Anglo Irish was "systemic" - Alan Dukes noticeably failed to give a convincing account of why this was the case, last night on VB.

  2. #17
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Back to back loans or swaps are generally only used where there are currency transactions between two organisations/banks in differing currency jurisdictions. I have seen one bank out in Asia offering 'back to back' loans privately to customers but its high-end stuff. This little summary I found quite useful ...http://www.qfinance.com/financial-ri...-to-hedge?full

    (Relevant extract below)



    'Swaps

    Swaps are like long-dated forward contracts. They involve the exchange of a liability now, with the exchange back at a predetermined future time, and the compensation of the other party for costs in the intervening period. Swaps are used primarily to protect an investment or portfolio of borrowings. They involve a back-to-back loan between companies with a matching but opposite need. What is “swapped” is essentially a series of cash flows.

    Illustration: A UK company wishes to raise cash to invest in developing its business in the United States. It is quoted in the United Kingdom only, which means it does not have access to US capital markets and it does not have a rating, so it would be extremely difficult to borrow in the United States.

    What sources of funds are available?

    Raise equity via a UK rights issue;

    Borrow sterling from a UK bank;

    Borrow in US dollars.

    The first two of these options will appear on a balance sheet as sterling liabilities, but the asset will appear as a dollar asset, creating a translation exposure. The returns from the investment will be in dollars, which will create a translation exposure when they are converted to sterling income in the profit statement, and a transaction exposure when they need to be converted to pay interest or dividends in sterling.

    A solution is to swap the currency flows for the duration of a loan, paying or receiving a sum of money from the other party, leaving both sides in an equivalent cash flow position but having avoided specific payments in another currency. The loan would revert to the borrowing currency on maturity.

    Back to top

    Conclusion
    Managing currency and related transactions is a core part of corporate risk management within the Treasury Function. Its importance will continue to demand boardroom time and the highest standard of corporate governance. Massive and unpredictable fluctuations in currency markets have made forecasting more difficult and the need to safeguard the value of assets, liabilities and transactions is paramount.'

  3. #18
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Heard recently that Anglo weren't the only bank offering loans to buy buy shares in their own bank.

    BOI have done it too !!!

    Anyone know if this was a widespread practice across all banks ?
    I'm supporting #heyday call for an Irish General election
    (We stil need one, where the majority wake up and vote in people who want to fix the problem, not their own problems)


    Nothing Happens, when WE do Nothing !!!!

    http://www.facebook.com/generalelection
    We need change, any change is a start !!!

  4. #19
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Its perfectly fine for a publicly quoted company to buy back its own shares as long as it signals its going to do so and explains why to the Stock Exchange.

    Which doesn't apply to these operations- they appear to have been done under the counter with the express intention of conveying the impression that the 'market' was buying them.

    Very very naughty in any jurisdiction- even Hong Kong.

  5. #20
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    ang found the link I was looking for showing that the Regulator supported the "Golden 10" arrangments to support the Anglo share price.

    http://www.timesonline.co.uk/tol/new...cle7069681.ece

    David Drumm, the former Anglo Irish Bank chief executive, sent an email to a colleague in the bank saying that the controversial €500m Maple 10 share placement had been “squared” with the Financial Regulator.
    The same transaction, whereby the bank advanced loans to 10 clients to purchase a 10% stake in the bank, is currently the focus of a garda and Office of the Director of Corporate Enforcement investigation.
    A colleague of Drumm’s, Matt Moran, the chief financial officer, also sent an email saying: “Project Maple — regulator conversation done and went fine.”
    The Financial Regulator later claimed that it did not know of the terms of what it called a “sweetheart” deal. It remains unclear how it could have allowed the deal to go ahead if it did not know all the aspects of it.
    How long is the Garda investigation going to take ?
    Last edited by C. Flower; 06-11-2010 at 11:00 PM.

  6. #21
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    I'm just linking the Casey/ILP thread here that plainly says that the Regulator and Central bank were involved with instigating "Green Jersey" (?!) banking arrangements -

    http://www.politicalworld.org/showthread.php?t=2282

  7. #22
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    More on the behind the scenes work going on at government level before the banks crisis:
    A GROUP of officials in the Department of Finance, the Central Bank and the Financial Regulator discussed the stability of Anglo Irish Bank and other financial institutions in the months prior to the bank guarantee scheme being put in place in September 2008.
    The officials were part of a group know as the “domestic standing group on financial stability” which had its first meeting in July 2007. The group was established on foot of measures agreed at EU level aimed at strengthening financial stability in states. Its role was to facilitate the speedy exchange of information regarding financial stability and to prepare contingency plans in the event of any major risks.

    This group relied on a number of sources of information, including the Central Bank’s financial stability reports. Briefing material says that while these reports highlighted risks to the financial stability, these were “not seen as likely outcomes”.
    Again the DoF is being very careful to cover its own arse.
    relation to the domestic standing group on financial stability, the material says it is important to recognise that each party had sole competence for its own statutory mandate.

    “It was not the case that . . .the work of the group gave the department a role in relation to the financial stability work of the Central Bank or the prudential responsibilities of the Financial Regulator.”

    The department, it says, was responsible for advising the Minister in relation to safeguarding the stability of the financial system; the Central Bank was responsible for contributing to the stability of the financial system; while the Financial Regulator was responsible for the maintenance of “proper and orderly functioning” of institutions.
    http://www.irishtimes.com/newspaper/...273271912.html

  8. #23
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Quote Originally Posted by PaddyJoe McGillycuddy View Post
    More on the behind the scenes work going on at government level before the banks crisis:



    Again the DoF is being very careful to cover its own arse.

    http://www.irishtimes.com/newspaper/...273271912.html

    This is very revealing. edit: The DoF's account of the Domestic Stability Group's meetings and the Bank Guarantee meetings. It says that the records of the meetings could not be released. Of course they were released recently and we were also told there were no records of the Bank Guarantee meetings. I don't believe this is true. All other meetings had at least some form of hand written jotted records.


    This group relied on a number of sources of information, including the Central Bank’s financial stability reports. Briefing material says that while these reports highlighted risks to the financial stability, these were “not seen as likely outcomes”.
    The main conclusions of these reports were that the financial system would remain stable and that “imbalances evident in the lending and property market would be resolved gradually over time”. They assumed there would be a “relatively favourable global economic and financial environment”. The briefing material adds that this was the mainstream or consensus view over that period
    The material indicates that officials only became aware of the full scale of the crisis following increased engagement with Irish banks following the bank guarantee scheme. Independent reports commissioned into the six main financial institutions contained the first detailed analysis of the likely loan impairment rates
    The Regulator was certainly aware something was up with Anglo Irish, if Quinn had to borrow 169 million in an unusual fashion to fund purchase of Anglo Irish Shares. It also confirms my impression that the Department hadn't a clue about the scale and seriousness of the world economic crisis.
    Last edited by C. Flower; 29-07-2010 at 05:56 PM.

  9. #24
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    I'm just cross posting this - Ernst and Young under investigation also on related matters.

    Also under investigation for their role as auditors to Anglo by the Chartered Accountants Regulatory Board (Carb) Another investigation which is dragging on very slowly:

    Quote:
    Purcell was initially asked to investigate the circumstances of former Anglo Irish chairman Seán FitzPatrick's loans from the bank, and also the role of its former chief executive, David Drumm, and of its finance boss, Willie McAteer.

    The inquiry has since been widened to cover Anglo's deposit-switching transactions with Irish Life & Permanent, and loans it gave to the so-called "golden circle" of favoured clients to buy a 10% stake in the bank.

    Purcell is also looking into the roles of the bank's former auditors, Ernst & Young, and former Irish Life finance director Peter Fitzpatrick.
    http://www.tribune.ie/business/news/...ed-until-july/

  10. #25
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Just to pull the full timeline together: it just needs the dates of the Regulator and Central Bank emails now.

    January 2007: Sean Quinn is reported to have secretly built up a 5% stake in Anglo Irish Bank using CFDs.

    February 2007: Banking shares hit record highs, trebling in value since 2000.

    March 2007: Residential property prices fall for the first time.

    July 2007 spreads rose but mainly on account of common global factors
    - Subprime crisis starts.

    July 2007

    A GROUP of officials in the Department of Finance, the Central Bank and the Financial Regulator discussed the stability of Anglo Irish Bank and other financial institutions ...(Domestic Standing Group - DSG)
    Briefing material drawn up for the department’s secretary general shows that the positions of individual institutions were discussed. However, it states that the “full extent of the fragile position of the banks only became clear after the bank guarantee scheme was put in place”.
    The officials were part of a group know as the “domestic standing group on financial stability” which had its first meeting in July 2007. The group was established on foot of measures agreed at EU level aimed at strengthening financial stability in states. Its role was to facilitate the speedy exchange of information regarding financial stability and to prepare contingency plans in the event of any major risks.

    September 2007

    Anglo Irish find out about Sean Quinns 25 pc stake in the bank paid for by Contract for Difference and inform the Regulator. They start to try to get this reduced down to 10 pc.

    January 2008: Legal advice taken on Sean FitzPatrick 's hidden loans. He is given the all clear.

    March 2008 - Bear Stearns rescue

    AIG in March 2008 back to back loans involving 1.2 billion euro

    March 2008 RBS interbank loan

    April 24th 2008 - Brian Cowen's private dinner with Directors of Anglo Irish Bank.

    May 7 2008: Anglo Irish Bank chief executive David Drumm states the bank is in a "robust funding position."

    May 2008 .Back to back loans with Hypo Real Estate

    July 15, 2008: Sean Quinn states his family controls 15% of Anglo Irish Bank.

    24th July 2008 Con Horan approves a €169 million loan to Quinn to purchase shares in Anglo Irish Bank.
    http://www.irishtimes.com/newspaper/...275694619.html

    July 2008: 10% of Anglo Irish Bank is placed with 10 of its clients in a move not disclosed to the Irish Stock Exchange.

    Domestic Group on Financial Stability meets ? (Dates ? cf)


    A GROUP of officials in the Department of Finance, the Central Bank and the Financial Regulator discussed the stability of Anglo Irish Bank and other financial institutions in the months prior to the bank guarantee scheme being put in place in September 2008.

    (From the Report of the Governor of the Central Bank-May 2010)
    8.16 The publication of a very adverse rating agency report on INBS 148on 5 September 2008 heralded the final stage of the run-up to the guarantee. More frequent and higher level meetings between the agencies represented in the DSG (with the NTMA), took place imbued with a growing sense of urgency.149 The Department of Finance took a clear leading role at this stage (with the CBFSAI playing a less central role than might have been expected), commissioning consultants and advancing preparations for legislation to nationalise a bank and/or a building society and to provide an extensive guarantee of
    banking liabilities. The diminishing access of banks to liquidity was now an urgent focus of attention. While the INBS story had heightened concern, it was generally
    understood that it was Anglo Irish Bank that was most vulnerable on a week-to-week basis, depending in particular on how much of its maturing deposits would be rolled over.
    Consultants were engaged to scrutinise the condition of INBS and Anglo.

    8.17 As the discussions regarding procedures for crisis containment started to unfold, early on a clear consensus view emerged that no Irish bank should be allowed to fail, in the sense of having to close its doors and not repaying depositors and other lenders. This strong view departed from the textbook view that only systemically important institutions should be candidates for such protective treatment. (See below for a further discussion of systemic importance.) But it was shared without reservation by all the facing imminent underlying solvency risks.

    Meeting of the Group September 17th 2008 considered Guarantee of all deposits, bank mergers. http://www.politicalworld.org/showpost.php?p=48448&postcount=59

    Sept 17, 20 and 24 2008: David Drumm and Wilie McAteer met the Regulator to discuss the critical funding position.

    September 25, 2008: Ireland becomes the first country in the eurozone to declare it is in a "recession".

    September 29, 2008: Crisis meeting at Department of Finance after Anglo Irish Bank loses ¤4 billion in deposits over a matter of days. Allied Irish Banks and Bank of Ireland push for nationalisation of Anglo.

    Merrill Lynch draws attention to Quinn's position.

    Sept 29: Night of the Bank Guarantee: According to various sources
    the chairman and chief executives of the two main banks, AIB and Bank of Ireland, sought a meeting late on September 29th, 2008, to discuss serious concerns over the liquidity position of the Irish banking system. The Taoiseach, Minister for Finance, Attorney General, the governor of the Central Bank also attended.
    In addition, a number of senior officials from the department, the Central Bank, the Financial Regulator and the National Treasury Management Agency were present to advise. Anglo Irish Bank was not represented.

    The department says it cannot release records of these meetings under the Freedom of Information Act, which protects the confidentiality of records prepared for use at a government meeting.
    both AIB and BOI were asked for 5 billion each to loan to Anglo but it seems that this did not go ahead.

    September 30, 2008: The government announces a €400 billion guarantee of the liabilities of all six Irish banks.

    The back to back transfers involving 7.5 billion between ILP and Anglo took place over the last few days of September as this was the end of the reporting period.- This was the day after the Guarantee ??

    On October 24th and 25th, 2008 ILP and Anglo discussed the €7 billion transaction with the regulator’s head of banking supervision, Mary Burke.

    October 2008: PricewaterhouseCooper completes its report on the Irish banking system.

    October 14, 2008: Finance minister Brian Cowen calls an emergency budget

    December 3, 2008: David Drumm describes Anglo as “performing strongly” and describes profits as “robust”.

    December 18, 2008: Sean FitzPatrick resigns after shareholders find out about his €87m hidden loans.

    December 19, 2008: David Drumm resigns.

    December 21, 2008: The government announces a €1.5 billion bail-out for Anglo.

    December 29, 2008: Anglo shares hit 12c.

    January 2009, the Irish sovereign
    bonds paid about 260 basis points more than the German bond.2

    January 15, 2009: The government nationalises Anglo Irish Bank. Finance minister Brian Lenihan finds out about €7 billion in loans from IL&P to Anglo.

    January 16, 2009: Angry shareholders call for Anglo’s board to be sacked.

    January 19, 2009: Five Anglo non-executive directors resign.

    January 20, 2009: The Dail is recalled to push through the nationalisation of Anglo.

    January 25, 2009: The existence of a group of investors who secretly took on 10% of Anglo is revealed by The Sunday Times .

    January 30, 2009: The financial regulator Patrick Neary resigns.

    February 10, 2009: IL&P’s €7 billion transfer to Anglo is reported publicly for the first time

    February 11, 2009: Opposition parties call for Lenihan to resign.

    February 12, 2009: Two directors of IL&P resign. Brian Goggin admits Bank of Ireland made “mistakes”, and “lending decisions in the past are now coming home to roost”.

    February 13, 2009: Denis Casey resigns. Poll shows support for Fianna Fail has fallen to a record low of 22[/quote]

    http://www.politicalworld.org/showthread.php?t=1596
    Last edited by C. Flower; 15-11-2010 at 09:15 AM.

  11. #26
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    That's great re timeline as it would aid our understanding of how it developed over time re banking scandals.

  12. #27
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Just looking at the Comptroller and Auditor General's work on this:
    http://www.audgen.gov.ie/viewdoc.asp?DocID=1216

    What surprises me is that he wrote a report on Regulation in 2007 warning of slack regulation.

    Special Report 72: Financial Regulator The Comptroller and Auditor General, John Buckley, has published a report on the Financial Regulator's response to the Financial Market Crisis. The report outlines the measures taken or proposed by the Financial Regulator in order to respond to the shortcomings in financial regulation that came to light as the recent financial crisis unfolded. It also outlines the findings of recent EU and international reports that examined the operation of financial regulation.
    Published on 22 March 2010
    Last edited by C. Flower; 25-06-2010 at 06:36 PM.

  13. #28
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Report by the Governor of the Central Bank (May 2010) into Regulation of the Banks.
    http://www.bankinginquiry.gov.ie/The...02003-2008.pdf

    There's a very good picture here of a situation in which neither the Regulator nor the banks had a grip on the possibility of insolvency as a result of the falling value of property collateral.

    This came into play, too:

    In this regard a 2005 change in the International Financial Reporting Standards (IFRS) reduced the degree to which
    expected but not yet incurred loan losses could be provisioned. It had the effect of
    understating expected losses and potentially reducing the transparency of accounts as an
    indicator of future regulatory problems. For example, the gap between provisions and
    expected losses would tend to grow at the beginning of an economic slowdown. P. 72

    Page 116

    A Liquidity Group chaired by the Deputy Director General of the CB was established in
    early 2008 to obtain and disseminate information on liquidity developments from the
    main credit institutions and to identify any potential problems at an early stage. The
    group met at least weekly and shared data on the sources and maturity structure of
    funding, the bidding behaviour in Eurosystem operations which provided some idea of
    the liquidity needs of institutions participating in ECB refinancing operations, the use of
    collateral, fulfilment of the minimum reserve requirements of the ECB, interbank
    transactions and the likely observance of prudential liquidity ratios.

    This may have had the effect of disabling the brakes as the banks approached a wall at high speed.





    8.16 The publication of a very adverse rating agency report on INBS
    148 on 5 September 2008
    heralded the final stage of the run-up to the guarantee. More frequent and higher level
    meetings between the agencies represented in the DSG (with the NTMA), took place
    imbued with a growing sense of urgency.149 The Department of Finance took a clear
    leading role at this stage (with the CBFSAI playing a less central role than might have
    been expected), commissioning consultants and advancing preparations for legislation to
    nationalise a bank and/or a building society and to provide an extensive guarantee of
    banking liabilities. The diminishing access of banks to liquidity was now an urgent
    focus of attention. While the INBS story had heightened concern, it was generally
    understood that it was Anglo Irish Bank that was most vulnerable on a week-to-week
    basis, depending in particular on how much of its maturing deposits would be rolledover.
    Consultants were engaged to scrutinise the condition of INBS and Anglo.
    8.17 As the discussions regarding procedures for crisis containment started to unfold, early
    on a clear consensus view emerged that no Irish bank should be allowed to fail, in the
    sense of having to close its doors and not repaying depositors and other lenders. This
    strong view departed from the textbook view that only systemically important
    institutions should be candidates for such protective treatment. (See below for a further
    discussion of systemic importance.) But it was shared without reservation by all the
    facing imminent underlying solvency risks.


    146 This had the consequence that no
    attempt was made to urge the banks to raise or even conserve capital.147


    8.31 The second meeting involving the banks occurred after the guarantee decision had been
    taken; the banks had been asked earlier whether they could provide an immediate shortterm
    liquidity facility to Anglo Irish Bank, and (after eliciting what was technically
    feasible with their staffs) they indicated that each of the two banks could speedily make
    a total of €5 billion available for a matter of days, provided it was covered by a
    Government guarantee. It may be noted that neither of the banks gave any thought to
    involving Anglo representatives in considering their approach.
    8.32 It was also agreed that the CBFSAI would make an amount
    of up to €3 billion available

    via an asset swap vis-a-vis Anglo Irish Bank, €1 billion of it the following morning.

    Last edited by C. Flower; 25-06-2010 at 07:08 PM.

  14. #29
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    The Story has an e-mail from DoF which they have obtained under FOI. It involves Anglo Tier 2 capital it seems that even after nationalising Anglo and the Bank Guarantee nobody seemed to know what exactly we had guaranteed:-

    John Paul

    We have received a query regarding the tier 2 capital securities on Anglo Irish Bank’s balance sheet. I’ve had
    a quick look at the preliminary results as at 30th September 2008 but can’t locate a break down.

    I would be grateful if you could outline what makes up the Tier 2 capital and whether it is covered by the Bank Guarantee Scheme.

    Many Thanks

    Marie
    http://thestory.ie/2010/06/24/anglo-emails/

    Once again thanks to Gavin Sheridan and all over on The Story

  15. #30
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    Default Re: Banking collapse and Back to Back Loans Timeline from 2007 to 2009

    Quote Originally Posted by ang View Post
    The Story has an e-mail from DoF which they have obtained under FOI. It involves Anglo Tier 2 capital it seems that even after nationalising Anglo and the Bank Guarantee nobody seemed to know what exactly we had guaranteed:-



    http://thestory.ie/2010/06/24/anglo-emails/

    Once again thanks to Gavin Sheridan and all over on The Story
    From just reading some of the Central Bank Report, it seems that Merrill Lynch advised against a blanket guarantee and that the rational for it was very weak - to do with perception, in part. Ignorance both of banking and of the condition of the Irish banks perhaps rather than a conspiracy of any kind ?

    Hard to tell.

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