April 14, 2010
Employ the hardest liquidator in town to do the negotiations — then move on and learn from this disaster
BACK in 2006, I first wrote about ‘ghost estates’ after driving back to Dublin from Westport. The description seemed to stick because it was simply putting a name on something that we were all aware of, as estate after estate sprouted up all over the country. It seemed logical to argue — even then — that these places would become the ghettos of the future. And so it has come to pass.
Yesterday, the head of NAMA, Brendan McDonagh, admitted that many of these developments would have to be knocked down in the years ahead. Extraordinary.
In fact, over the past couple of days, ghosts, ghouls and zombies have come to dominate the financial background noise. Last night, it was bulldozed ghost estates and the day before the ‘zombie’ bank Anglo nursing the sick company Quinn back to life. Where is it all going to end?
When I first saw George Romero’s 1968 classic ‘Night of the Living Dead’, I was transfixed. One of the lads on our road got it on VCR when we were about 12 or 13 and it gave me nightmares. The idea that dead zombies would eat the living freaked me out completely.
Worse still, that the dead zombies would band together to kill more living people and turn them into zombies seemed to me grotesquely believable. But of course it was just a movie, right? Clearly, the dead couldn’t eat up the living, no matter how sick they were?
When I see the zombie Anglo Irish Bank — clearly a dead company — taking over the sick but living Quinn Group, my boyhood nightmares come flooding back. When I see that it is taking over this company with my money, the nightmare is compounded. Here, we have the spectacle of the dead company nursing the sick company back to health. Bizarre.
The only reason we have this sick spectacle is because the State is choosing to keep Anglo open. This means your taxes will go into this black hole to reassure the creditors of the Quinn Group, which will allow Quinn to stay open and some day, maybe, Quinn will pay the money back to Anglo.
So again, the State has used the Irish people to bail out creditors. These creditors took a reckless gamble, whether they are bondholders in the Quinn Group or the bondholders and other creditors of Anglo. Why are we doing this?
Let us examine how the Irish Government managed to get things so back to front. The simple thing to do with Anglo would be to wait until the government guarantee lapses in October and then appoint a decent examiner who has 100 days to find a buyer.
If there is a good business there, someone will buy it. If it is rotten to the core, simply pay the depositors with what assets are there and see what is left for the other creditors.
No Anglo, no problem.
That is the simple tried and tested method that is used hundreds of times a day all over the capitalist world. There is a straight line from A to B.
All creditors — bar depositors — are investors one way or another and as investors they are big boys and realise that with every investment there comes a risk that unforeseen events might result in you losing your money.
So in the case of Anglo, it has liabilities of some â‚¬80bn, including â‚¬27bn of deposits. Let’s refer to the depositors as ‘trust creditors’ because they trusted the Financial Regulator who oversaw Anglo when they put their cash on deposits.
THESE people and companies have to be paid, no matter what. For the rest, it is a matter of where they come in the queue. The other creditors include the Irish Central Bank with â‚¬11bn and the ECB with â‚¬12bn. Then there are some â‚¬15bn in debt instruments, â‚¬9bn in other bank loans to Anglo and â‚¬2bn of the now infamous subordinated debts.
Simply put, all the non-depositors can get what the liquidator decides they get. They do a deal and lick their wounds and either they get back into the game or they don’t.
That’s the straight, simple way to deal with Anglo and, most importantly, it will cost the taxpayer nothing more at all.
When Brian Cowen says Anglo will cost â‚¬100bn to shut down, you know he is making it up because there are only maximum liabilities in Anglo of â‚¬80bn-odd. Likewise, when the Finance Minister plucks a figure like â‚¬30bn, where does his figure come from? This can all be done for zero cost to the taxpayer.
The spin that the markets would penalise us for operating the normal rules of capitalism is farcical.
Markets want to invest in the real potential of Ireland that is in our people, in our brains, in our education system. They want growth opportunities, not some fanatical debt-management agency, which insists on raising future taxes to pay for historical mistakes.
Now contrast this logical administrator route with the nonsense of the dead company nursing the sick company back to health.
Quinn owes Anglo a fortune, somewhere in the region of â‚¬2.6bn. If the Quinn Group goes into administration, as the new regulator wants, a new buyer wouldn’t touch these debts. They will have to be written off and therefore Anglo loses. So if we keep Anglo open, we, the taxpayers, lose.
In an effort to get the money back, the Anglo board has suggested that the banks inject around â‚¬700m more of our money into Quinn now to keep it afloat and prevent it being sold off in administration. This will bring up the company’s capital to the level required by the regulations.
So can you see what the problem is in all this? It is not Quinn, it is Anglo and the legacy of the mad lending of the Anglo management a few years ago. The reason Quinn is not the problem is because in administration the Quinn Group will merely be sold to someone else and will stay open, once its balance sheet is patched up.
If there are bits that are bankrupt, they will not be bought, the going concerns will be snapped up cheaply — as is always the way in a downturn.
The insurance business is apparently profitable, so this will be sold first. Then, the only internal problem for employees is whether the new buyer changes the culture of the firm.
For the workers, I can understand that Mr Quinn is a significant employer in the border region and the fear for the workers is that any new owner would reduce the presence in that region.
However, when seen from a national perspective, this is an entirely separate issue and one that can’t be solved cheaply by one ‘catch-all’ solution which puts us on the hook for Mr Quinn’s gamble on Anglo stock in 2007.
Shut down Anglo. Employ the hardest liquidator in the town to do the negotiations, move on and learn from this disaster. That’s the solution. That’s what adults do. The other choice is to remain children cowering in ghost estates, terrified by zombies. It’s your country, your call!