Tucked away in the EC’s press release on aid for Irish banks, we find this little gem:
Anglo Irish Bank will furthermore receive a guarantee covering certain off-balance sheet liabilities (derivatives, clearing transactions and transactional arrangements) that will ensure that Anglo Irish Bank can continue its daily activities as a going concern.
There’s nothing here that tells us quite how big these newly-disclosed liabilities might be. AIB Anglo’s EUR70Bn on-balance sheet liabilities might provide some sort of calibration point, though. Half as much again, for the off-balance sheet stuff, if you were feeling gloomy? One hopes it will be much less than that, but it’s possible, and perhaps the EU will quell speculation by releasing the figure.
Secondly, note that the EC hasn’t quite made its mind up whether Allied Irish Bank (not Anglo; the other one) will turn out to have been worth helping:
With regard to Allied Irish Bank, the final decision will depend on the Commission being satisfied that the bank will be commercially viable in the long term without further injections of taxpayers’ money, that there is a significant contribution by the bank’s shareholders and subordinated debt holders to the restructuring costs and that the bank will reduce its activities to offset the distortion of competition caused by the aid.
Lastly, given the continued run of belated confessions from Irish banks, my complacent response, some while back, to commenter Hubert’s mild enquiry about whether we had seen the last of the losses from DEPFA, the specialist German lender that funds global infrastructure development, is beginning to bug me.
*Update* to fix Anglo/AIB knucklechewer, and a hat-tip to @LorcanRK for the bomb detection.
Recalling how Fritz had to be embarrassed into revealing his (her)stress test results by everybody’s favourite profligate laggard, the whole matter bodes badly for DEPFA come the next round of accounting challenges.
Merry Xmas. Trust you’ll be keeping up the good work in the new year.
Thanks! And the very same to you!
Well, it’s the “ensure that Anglo Irish Bank can continue its daily activities as a going concern.” which makes it sound as if the liabilities in question might be rather significant.
Of course we haven’t seen the last of the losses from DEPFA… Its exposure to peripheral sovereigns is something that’s best left unsaid. Coincidentally, the stress test details that should contain the tally were never disclosed for Hypo Re.
This is yet another example of why derivatives should be banned. Even major banks have no idea how to invest in them. Ireland’s middle class and poor will end up having to pay even more to cover losses from bankster corruption.
Do you mean AIB Bank or Ango-Irish? I know it’s confusing, but they are two completely different entities. Check their respective web sites:
No, I know the difference, but I’ve managed to mix them up anyway. Will fix soon.
Glad to see that the Irish banks, now effectively state owned, are still doing investment banking. One big score and then out of that game forever. Yeah, that’s the ticket.
Yes Allied/Anglo is confusing.
Also the acronym AIB is misused above (and quoted below). Conventionally it refers to Allied not Anglo.
“AIB’s EUR70Bn on-balance sheet liabilities might provide some sort of calibration point, though”
Fixed, amidst much punching of self in the head.
Banks create true liabilities in exchange for dubious “assets” which they also create at the same time. No wonder they have problems.
Fractional reserve banking cannot be made safe, we should know by now. Instead it must at all times be a dangerous game for bankers to play.
Anyone know what version of Looting we’re at now? You know: flawed management structures, bogus profits, ‘incentives to go broke at society’s expense’ (a la Akerlof & Romer, 1993)…
I figure we bypassed Looting 4.0 sometime in October, but this looks like more than a bug fix here. So it this just another patch? Or is this yet another upgrade on Looting?
Given various estimates for credit default swaps in the 70 to 100 trillion dollar range, it is probably ingenuous to estimate the bank’s derivative exposure to a fraction of stated liabilities. I have no doubt that fear of off balance sheet exposures explains much of the Fed action from Sep 08 to date. When this bomb begins going off it will be game over!
It looks like the Shock Doctrine is being applied to both the US and the EU at the same time. We certainly do live in interesting times.