It is called the spell check of truth. It occurs when computer software meets a word it does not recognise and throws up an alternative. Sometimes it is rude. On older PCs, Eircom is mistaken for rectum. When Anglo is encountered, the presumption is the writer meant Angola.
It also offers “recapitulation” for “recapitalisation”. Close. The €24 billion Financial Measures Programme announced by the Central Bank last week, the latest drip feed into the banks, does feel like yet another capitulation.
The failure to bail in senior bondholders represents another victory for the dark side and its co-conspirators, the European central bank (ECB).
This week, the ECB is expected to reward this nation of supplicants with an increase in the benchmark interest rate of a quarter of 1%.
Amid all the indignation last week, there was comfort in the words of Michael Noonan, our finance minister. Asked why Ireland had not secured an agreement on burden-sharing, he replied because the ECB said “no”.
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His predecessor, Brian Lenihan, said he had also raised the issue in Frankfurt last year. The reason he failed? The central bankers in Frankfurt said “no”.
There is a curious relationship between the Irish taxpayer and the ECB. We see ourselves carrying a burden for it and its bondholder friends. The ECB sees it rather differently. The Irish taxpayer is not, as yet, shouldering the cost of a massive debt burden for the bailout of our banks and the protection of their bondholders.
Most of the cash that has been funnelled into the banks to date, close to €30 billion, has come from the National Pensions Reserve Fund (NPRF) or from cash surpluses at the National Treasury Management Agency. It has not been borrowed.
The net increase in debt as a result of the most recent recapitulation is €2 billion. And remember, the NPRF money was never going to go into hospitals or schools or museums.
Alongside the NPRF, the biggest funder of the banks is the ECB. The ugly sisters, Anglo and Irish Nationwide building society, are being recapitalised to the tune of €34 billion by way of promissory notes, which are payable over a period of 10 years. The banks use these promissory notes to get cash from the ECB. We are on the hook for them, absolutely, but they would be of no value without the ECB recognising them as collateral.
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The same applies to €30 billion of National Asset Management Agency 10-year bonds.
And yet the cry last week was why did Frankfurt not afford Ireland a medium-term funding facility. Did we mean on top of the €64 billion it has already advanced? Of course, the ECB funding is being used primarily to repay bondholders but, as the ECB sees it that is the price we pay for being part of the eurozone.
As Noonan rightly said last week, the big mistake was the blanket guarantee of September 2008. Will we follow Lenihan and Noonan, and accept reality rather than righteously wallow in yet another capitulation? Probably not.
Bonfire of assets
If one wants to take a pot shot at the government and its various promises over the past three weeks, take aim at its insistence there would no fire sale of bank assets.
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The government insisted the crucial deleveraging plan, under which the banks must shed more than €70 billion of loans, would not be done into a stressed market, thereby crystallising losses.
However, the authorities did decide the banks would have to provide for losses on disposal, and based on current market prices. From an accounting point of view, the effect was the same. Hence the banks need €13 billion of fresh capital.
Deleveraging has been toughest on Irish Life & Permanent, imposing a capital need of €4 billion. This will force the group to sell Irish Life, its insurance arm. Irish Life will be floated on the stock market later this year. It has an embedded value of €1.6 billion to €2 billion. Yet to ensure a successful flotation, the shares will be priced to go. Sounds like a fire sale to me.
Once Irish Life is sold, in June or September, there will be tough choices on the future of Permanent TSB. The bank, with its lending activities to be severely curtailed, must try to avoid becoming the residential mortgage equivalent of Anglo Irish Bank. It cannot simply refuse to lend and suck deposits out of the market.
Changing direction
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You have to love Michael O’Leary’s penchant for the U-turn. When pressed on whether Ryanair would introduce a fuel levy, the chief executive replied it was anathema to the company. The low-cost airline’s fees and charges were optional. One month on, Ryanair introduces a compulsory €2 levy to cover extra costs imposed by regulation. O’Leary has a point, as he usually does, on why should airlines have to compensate customers when delays and cancellations are somebody else’s fault.
But it is uncharacteristic to pass that cost straight onto the customer. He has made a distinction between acceptable costs (fuel) and unacceptable costs (compensation). That sounds like a funk.
Big baskets of euros
Mike Aynsley’s salary at Anglo Irish Bank, taking home €974,000 including the cost of eight air fares to Australia, certainly raises questions.
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Not least is how much his chief executive equivalent at AIB, Mike Hodgkinson earns. The cost of AIB’s bailout last week breached €20 billion, which means AIB is coming very close to Anglo in terms of cost to the taxpayer.
Indeed, the fine print of last week’s release from the Central Bank indicates that the stress tests used by Anglo Irish Bank in assessing its losses were substantially more severe than those adopted by BlackRock Solutions at AIB and the other banks. Did Anglo overegg or has Blackrock undercooked? Either way, it seems, the bigger the basket case, the higher the salary.