reggie middleton on irish banks

Any Irish taxpayer or bank depositor that watches any TV yet fails to view this video is not acting in a prudent manner, in my oh so humble opinion. Any Irish or US bank investor or regulator who ignores this video is not acting in a prudent manner, in my humble opinion.

The video is presented, without further comment...

The posts are presented here which contain all of the documentation referenced in the video:


    1. Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" As This Bank Scrambled For Capital!!!
    2. As If On Cue, BoomBustBlog Shenanigan Research Gets Real In Ireland, Why Aren't These Guys Knocking On My Door?
    3. Are You About To Get Cyprus'd in Ireland? When A Single Word's Worth Billions Of Euros...
    4. Dear Ireland (& AIB), Haven't We All Learned The Problem Is Insolvency, Not Liquidity?
    5. Oh No! Is It Possible? A 3rd Irish Bank With Hidden Charges Not Revealed In Its Annual Reports?
    6. Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You
    7. EU Says Bank Money's Safe After Threats To Take It, Ireland Still Looks Next Up, Contagion Ready To Spread To Bigger Countries

Tomorrow, I will release some additional and very controversial informational on other EU banks. Subscribers, stay tuned (click here to subscribe).

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Over the weekend, EU's Olli Rehn said big depositors could suffer in future bank bailouts under new law:

Olli Rehn
Olli Rehn.jpg
European Commissioner for Economic and Monetary Affairs and the Euro
Incumbent
Assumed office
9 February 2010

(Reuters) - Big bank depositors could take a hit under planned European Union law if a bank fails, the EU's economic affairs chief Olli Rehn said on Saturday, but noted that Cyprus's bailout model was exceptional.

Okay, I get it now. Cyprus was exceptional, it's just that we are preparing for exceptional to be codified into law to make it common place. Of course!

"Cyprus was a special case ... but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down," Rehn, the European Economic and Monetary Affairs Commissioner, said in a TV interview with Finland's national broadcaster YLE.

The only thing "special case" about Cyprus was that it was first!

"But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of 84,890 pounds is sacred, deposits smaller than that are always safe."

Your "so-called liquid deposits" are absolutely not safe! As explored in "Mainstream Media Says Cyprus Salvaged By…"

Well, this is the latest from Bloomberg:

The revised accord spares bank accounts below the insured limit of 100,000 euros.

I was curious to see how they could impose losses on insured accounts in the first place, after all the accounts were insured basically (through implied backstop) by the same entities (EU/EC/ECB) that were attempting to force the loss, no?

Yes, the powers that be were not only clearly considering the confiscation of so-called insured assets, they actually were moving forward to implement such until the backlash was perceived to be strong enough to consider 'alternative measures'! Mr. Rehn's comments are still quite suspect, after all... Exactly what is the definition of "SAFE"? Does this include the ability to access your money? Again, as excerpted from "Mainstream Media Says Cyprus Salvaged By…"

Last week I posed the question "Is The Cypriot Government Crazy Or Do They Really Fear Bankers That Much?" The country even considering imposing loses on bank depositors over creditors seemed absurd at best. Even the faux consolation of compensating holders of pure liquidity (or at least what was formerly believed to be pure liquidity - banks have been closed for a week now and ATM withdrawals have been limited to 100 euro per day due to the capital controls I clearly warned of last year) was a scheme born out of lunacy, and unlikely to compensate anyone for anything.

You see, once capital controls (the same capital controls I clearly warned of last yearare placed upon your money in such a fashion as to prevent you from accessing it, is it still really your money??? I guess one can consider it safe, as long as you don't want any of it!!!

Now, I've been warning for the past two weeks or so that more of the same will likely come the way of the Irishman, reference: 

  1. Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" As This Bank Scrambled For Capital!!!
  2. As If On Cue, BoomBustBlog Shenanigan Research Gets Real In Ireland, Why Aren't These Guys Knocking On My Door?
  3. Are You About To Get Cyprus'd in Ireland? When A Single Word's Worth Billions Of Euros...
  4. Dear Ireland (& AIB), Haven't We All Learned The Problem Is Insolvency, Not Liquidity?
  5. Oh No! Is It Possible? A 3rd Irish Bank With Hidden Charges Not Revealed In Its Annual Reports?
  6. Ireland, You May Very Well Be Bust & I Make No Apologies For What I'm About To Show You

I consider these posts to be a tour de force in investigative journalism and forensic financial analysis. In them, I have named 4 of Ireland's biggest banks as not having properly disclosed charges, borrowings and encumbrances. I actually have significantly more to go - yes, that's right - more banks, and even in more countries. This begs the question, how is it that the Irish people have to hear that their largest banks (several of them, not just one or two) have concealed these issues after extreme austerity and billions upon billions of euros of bailouts 

Hey, I have an even better question. Why is it that the Irish have to hear it and see the proof from a Blogger in NYC versus the (in no particular order):

  1. audit firms that audited the banks;
  2. the banks management;
  3. the sell side analysts that follow these banks;
  4. the politicians who create and oversee legislation regarding these banks;
  5. or the regulatory agencies that oversee these banks!

One would think that the audit firms would really be on the hook, no? I must assume the legal firms in Ireland are in no way as aggressive as they are stateside....

We just had a changing of the guard at the SEC in that states, and this is a perfect opportunity for the new guard to show that they are worth their mettle and represent a significant departure from the less than totally effective bastion of the recent past. You have hundreds of thousands of readers and subscribers watching you guys. Do the right thing!

Anyone who wishes to give the SEC a little nudge can read the links above and submit your thoughts directly. Simply contact the SEC and let them know that Reggie Middleton suggested they look into these articles and the related research. You can actually use this form to convey my message. My next post will reveal a BLOCKBUSTER, linking a bigger more systemic country to  the fray!

      In the meantime, my professional & institutional subscribers can download the relevant info right now - along with several hundred pages of supporting documentation. See 

File Icon EU Bank Capital Confusion, Part 3 - It's BIG! Click here to subscribe or upgrade!

    More on this topic:
  1. Is The Cypriot Government Crazy Or Do They Really Fear Bankers That Much?
  2. Mainstream Media Says Cyprus Salvaged By…
  3. Economic Depression Is The New Success
  4. The Canadian Government Offers "Bail-In"…
  5. EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive - Bank Risk, Reward & Compensation
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On March 31st, I illustrated how the concealment of excessive encumbered items probably contributed greatly to the premise of Anglo Irish bank, not to mention the demise of practically all of that bank's investor's capital as well. On April Fools Day I  illustrated how AIB did the same thing, to the dismay and consternation of all of those who believe that Irish banks are the cleanest institutions in the austerity laden west. Now, it appears that the AIB revelation was quite controversial, with politicians reaching out to me from Germany to Mother Ireland herself. I can understand the feelings of consternation, for unlike Anglo Irish, Allied Irish Banks is still an ongoing concern, taking deposits and making loans as one of the largest institutions in Ireland. 

The problem with both of these companies is that they have instituted blanket charges over the vast majority (if not practically all) of their assets, yet they failed to accurately and clearly state this in their financial reporting. The misrepresentation/omission as I see it, is gross and very, very material - potentially encompassing tens of billions of euros - per institution! I query: How many important (or worse yet, systemically important) banks can one find that have not disclosed such encumbrances fully and accurately to the public before it becomes evident that the public, regulators and quite likely those that conducted the stress tests for said banks, may not have a accurate picture of the Irish banking system's true condition? And if the Irish banking system is more encumbered than previously believed, and if the Irish banking system was bailed out (2x) by the Irish taxpayer, and the Irish taxpayer was bailed out by the EU taxpayer/Troika, then isn't the Irish taxpayer/EU taxpayer potentially unaware of further bank bailout tax bills coming down the pike? Is Ireland as a sovereign nation in much weaker condition than we have been led to believe since it essentially bought these bailed out banks under the (potentially mistaken) guise of having fixed them? Will the Irish get Cyprus'd when those that run the Troika demand more for a kilo of bailed out flesh?

I will explore this question further over my next few posts, but for now I query...

Who's next in line?

About Irish Life and Permanent Plc

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Irish Life and Permanent has charges registered (see documents below) with the Irish Companies Registration Office (CRO).  The bank gave a first floating charge in favour of the Central Bank of Ireland (an arm of the European Central Bank) and the Financial Services Authority of Ireland encompassing “all its right, title, interest and benefit, present and future, in and to each of the securities of such a class or description as may from time to time be designated by the European Central Bank as eligible for sale and/or purchase, as the case may be, by the Bank under its standard form for the time being of Master Repurchase Agreement, which specification may be made by reference to particular classes of repurchase transactions, and which are included in the schedule of Eligible Securities provided to the Bank from time to time.”.  

These charges were registered with the CRO on 15th February 2008, yet there is no mention whatsoever of these charges in the Banks 2008 Annual Accounts (see attached).

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In 2008, Irish Life and Permanent traded ADR’s in the U.S. under the symbol ILPYMThese ADR’s were traded OTC, giving the SEC jurisdiction over this company.

The bank gave a first floating charge in favour of the Central Bank of Ireland (an arm of the European Central Bank) and the Financial Services Authority of Ireland U.S. investors would have had to rely on the contents of Anglo Irish Bank’s 2008 Annual Accounts which, in my opinion and according to my research, concealed the existence of the CRO registered charges above. I have made a copy of the 2008 Annual Accounts for this company available for any and all who wish to discover for themselves whether these charges were properly disclosed. After all, you never know... I may have overlooked them.

These charge documents have also presumably not been included in the recent bank ‘stress testing’ conducted by the European Banking Authority. 

If you have believe that the information below actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convey my messageFor paid subcribers, I've posted another potentially "Cyprus'd" EU bank with shortable US/LSE traded shares/options for subscribers, reference EU Bank Capital Confusion, Part 2 - Malarkey (you may subscribe here). There will be another bank added within 36 hours.

Here's that interest rate calculator from EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive - Bank Risk, Reward & Compensation . It shows how much interest you should be getting in return for the banking risk that you are taking.

 

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As was to be expected, the defense of Allied Irish Banks has begun. Let's delve deeper into this bank capital/liquidity thing, shall we? I caution thee, though. Often, the deeper you look, the more you wil find. In response to BoomBustBlogger Andy C20's comment on my article "Are You About To Get Cyprus'd in Ireland? When A Single Word's Worth Billions Of Euros...", as written below:

Reggie,
Perhaps I am missing something. 
I fail to see the charge discrepancy. Firstly we do not have the definition of Eligible Securities as governed by the Floating Charge so it is fair to say these Eligible Securities could be classified as certain segregated securities i.e. they are “certain” segregated securities because they relate only to Eligible Securities and do not include Non-Eligible Securities. Furthermore, while assets may be classed as Eligible Securities it does not mean they have actually been put into use as security.
I really do not understand your reasoning here. Why are you providing links to charge documents relating to AIB's participation in a payment system and then discussing the ins and outs of its repo schemes? They would be two completely separate items.
Perhaps you have other documents to hand but there is nothing posted above from which any conclusion could be made.

Here's how I see things. The following definition of "Eligible Securities" is taken directly from Allied Irish Banks, p.l.c. charge document:

"Eligible Securities" means, at any time, securities of such a class or description as may from time to time be designated by the European Central Bank as eligible for sale and/or purchase, as the case may be, by the Bank under its standard form for the time being of Master Repurchase Agreement, which specification may be made by reference to particular classes of repurchase transactions, and which are included in the Eligible Securities Schedule at such time.
As you can see, "Eligible Securities", in their charge document are not defined in such a way so as to mean "certain segregated securities". The difference between certain segregated securities and all eligible securities is quite clear. It does not mean the same thing. The charge document registered in the Companies Registration Office is the official document. The disclosure in the Allied Irish Banks, p.l.c. annual accounts is not a true representation of the charge document. It is misleading. In relation to Target2: it is only a payment system. The legal instruments that Allied Irish Banks, p.l.c. used in this charge document have been used previously without any mention of Target2. Using Target2 in this document is a red herring (and also misleading), and that's why I have mentioned it in my article.
In the charge document Allied Irish Banks, p.l.c. gave the floating charge to the Central Bank of Ireland and Financial Services Authority (which is really the ECB) over "All rights, title, interest and benefit, present and future in and to each of the Eligible Securities." The floating charge over the Eligible Securities (Repo Agreements) gave Allied Irish Banks, p.l.c. access to aggregated liquidity. Obviously Allied Irish Banks, p.l.c. had no Eligible Securities remaining at this time. This was the only option to access cash. It appears the bank was insolvent in February 2008. This would explain why the Government had to give a blanket Guarantee over Allied Irish Banks in September 2008. Allied Irish Banks had no assets available to access cash. They were completely insolvent. It was not a liquidity problem as being stated by Allied Irish Banks, p.l.c. It was an insolvency problem
I have been stating this for FIVE YEARS!!! Reference this post from Monday, 15 September 2008, One last time: liquidity is not the problem, it is the symptom:
I really think that I will scream if I hear another pundit or regulator comment on how the injection of liquidity will help this or that bank or lending institition. Haven't we all learned by now that the problem is insolvency, not liquidity? The Fed has created an alphabet soup of lending programs, discount windows and mechanisms to provide literally unlimited liquidity to the banks, even the option to offer stock as collateral! That's right, the US government has become the world's largest broker dealer, offering margin lending for stock accounts, mortgage financing and M&A deal finacing and advisory.
Again, as I see it, a depositor recapitalizatio of Irish banks seems very, very likely unless the Troika is willing to carry the entire bailout bill again. Reference "Are You About To Get Cyprus'd in Ireland? When A Single Word's Worth Billions Of Euros..."
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I will present additional pages of this document because, basically, the more you read the fishier things actually smell. To wit, in my post "Are You About To Get Cyprus'd in Ireland? When A Single Word's Worth Billions Of Euros..." I included a backgrounder on AIB which included: 

Credit Event occurred

The ISDA Determinations Committee, consisting of 15 USA and European banks, decided that a restructuring credit event occurred with respect to Allied Irish Banks on June 9, 2011

 Hmmm.. A credit event occurred... Notice the red highlights in the charge documents below, particularly the portions read as "Crystallization of Floating Charges" and "Event of Default". BoomBustBloggers are more than smart enough to take it from there....

In addition, there's the portion on "Negative Pledges". If there are negative pledge clauses included and the charge covers "each" eligible security... Then doesn't this somethow get in the way of the securitization business, particularly Irish MBS whose underlying assets must be pledged to a trust which effectively transers ownership? Doens't it also get in the way of hypothecation and rehypothecation? After all, how many times can you encumber a security that has a negative pledge clause attached to it. Again, I'm not an international securities attorney, I'm just saying...

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Here come's the next bank surprise. This bank, which is still trading in the US/Ireland and is still accepting deposits and making loans, appears to have some pretty fishy underpinnings. For paid subcribers, I've posted another potentially "Cyprus'd" EU bank with shortable US/LSE traded shares/options for subscribers, reference EU Bank Capital Confusion, Part 2 - Malarkey (you may subscribe here). As was the case in my last post, if you have believe that the information below actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convery my message. Let's start by excerpting the history of the country in question from yesterday's post, "Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" As This Bank Scrambled For Capital!!!".

Introduction and Background

In 2007 Ireland had significant cross border exposure to UK and US banks through derivatives and property products. As I warned in 2007, the real estate bubble in the the US/UK popped in 2008, sending pathogenic contagion straight through the Irish banking system. The entire banking system started collapsing. On February 15, 2008, Ireland took extraordinary measures (which we will explore in depth a little later on) to mitigate said collapse, measures that many a layperson would deem misleading, if not fraudulent. RBS (Royal Bank of Scotland, one of the largest financial institutions in the countries of Ireland and the UK) was effectively nationalized by the UK and a bad bank was formed to purchase bad debt/products from the Zombie Irish banks in exchange for government bonds, backed by a country that just simply couldn't afford it.

Following my warning in February of 2008, Lehman filed bankruptcy in September sending an additional set of contagion shock through Ireland and its banking system, causing Ireland to issues bonds and further indebt itself to save its Zombie banks – again! This time through blanket bank guarantees backed by the full faith of the government.

In September of 2010, a large swath of said government guarantees for the banks were about to expire. Reference this excerpt from the book “Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy”:

In September 2010, some of Ireland's government guarantees for bank debts were about to expire, which put U.S. Treasury officials on edge. If the guarantee wasn't renewed, the banks would likely default on their bonds, triggering the next event in line: a slew of credit default swap (CDS) contracts on Irish banks' debt. U.S. Treasury officials had reason to worry - the names backing those contracts were the largest U .S. banks, and they could end up paying billions in case of default. Any more weight on U.S. banks could be a tipping point to collapse. Treasury officials made inquiries to their counterparts at the Irish finance ministry asking about the course of action the country was planning to take and indicated their concern about possible default and its CDS repercussions. A year after having issued blanket guarantees on the banks' liabilities the Irish government once again didn't dare let the bank fail. Instead it ended up asking for financial assistance from the European Union (EU) and the International Monetary Fund (IIMF): the country had been pushed to the brink of collapse.

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And now, on to the entity at hand...

Allied Irish Banks (AIB)

As you can see, AIB (Allied Irish Banks) is currently operational, taking deposits and making loans. It trades ADRs on the NSYE, having been delisted from the LSE and the Irish Stock Exchange after the Irish government nationaized it.

As per Wkikepedia: 

 AIB offers a full range of personal and corporate banking services. AIB Capital Markets is the division of the company that offers international banking and treasury operations. The bank also offers a range of general insurance products such as home, travel, and health insurance. It offers life assurance and pensions through its wholly owned subsidiary, Ark Life Assurance.

 In December 2010 the Irish government took a majority stake in the bank. AIB shares are listed as an American Depositary Receipt (ADR) on the New York Stock Exchange, under the symbol AIB. AIB's shares were formerly traded on the Irish Stock Exchange and the London Stock Exchange, but its shares were delisted from these exchanges following its effective nationalisation. The remaining publicly traded shares of AIB are now listed on the Enterprise Securities Market of the Irish Stock Exchange.

 Internationally, AIB operates mainly in the United Kingdom (as Allied Irish Bank (GB) and First Trust Bank in Northern Ireland), and Poland (as Bank Zachodni WBK SA(BZ-WBK)). In November 2010, it sold its 22.5% stake in M&T Bank in the United States. At the beginning of 2008 AIB entered the Latvian, Estonian and Lithuanian markets by acquiring AmCredit mortgage finance business from the Baltic – American Enterprise Fund. 

It's obvious this was an error in judgement, as a matter of fact it was extremely ill timed - reference The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

... In 2009, Allied Irish Banks [] accepted a 3.5 billion euro bailout from the government of the Republic of Ireland as a part of the Bank Recapitalisation scheme. By March 2011 the total sum of required bailout was expected to climb up to 13.3 billion euro.

Nationalisation

On 30 September 2010, the Irish Government announced plans to use its National Pensions Reserve to inject €3.7 billion of capital into Allied Irish Banks, becoming the majority shareholder and effectivelynationalizing the bank.[50]

AIB needed to raise additional capital due to increasing losses on bad loans incurred from the real estate bubble, and Irish Finance Minister Brian Lenihan stated that the bank was unable to attract sufficient interest from private investors.[50][51] As part of the deal, Chairman Dan O'Connor agreed to quit the bank while managing director, Colm Doherty, announced he would leave before the end of the year after 13 months in the job.[52]

In December 2010, the European Commission approved the plans, and the Government passed emergency legislation to allow the deal to take place without requiring the approval of existing shareholders.[53] The High Court subsequently approved the deal on Dec 24 2010, allowing the Irish government to take a 49.9% stake in the bank, rising to 92.8% following disposal of the Polish subsidiary to Banco Santander.[53][54]

AIB became the fourth of Ireland's "Big Six" financial institutions to be nationalized, following Anglo Irish BankIrish Nationwide, and EBS Building Society. AIB was delisted from the main market of the Irish Stock Exchange on 25 January 2011[3] and the NYSE on 26 August 2011

Credit Event occurred

The ISDA Determinations Committee, consisting of 15 USA and European banks, decided that a restructuring credit event occurred with respect to Allied Irish Banks on June 9, 2011

 Hmmm.. A credit event occurred... 

 AIB has inccurred significant debt from which the underlying collateral has significantly diminished. This caused the need for even more capital and more borrowing. It also apparently caused it to change the wording in its annual statements regarding repos, potentially allowing it to conceal financial aid in the form of even more debt .from another party. After all, when you borrow something it's a loan right, as in additional debt??? Below, you see a loophole for near unimited borrowing, and not a peep will show up in the financial reporting!

Of course, theres more...AIB Charge Discrepency

Definitions: Charge - The document evidencing mortgage security required by Crown Law (law derived from English law). A Frixed Charge refers to a defined set of assets and is usually registered. A Floating Charge refers to other assets which change from time to time (ie. cashinventory, etc.), which become a Fixed Charge after a default.

The charge document below, which was registered with Ireland’s Company Registration Office (CRO), states that the charge is in respect of the Company’s participation in Target 2-Ireland. It is also in respect of ‘all present and future liabilities whatsoever’ of Allied Irish Bank Plc. (to the Central Bank and Financial Services Authority of Ireland or to the European Central Bank). The charge is over ‘Eligible Securities’.

Target2 is a European Union payment system. I believe it is misleading to indicate in the annual accounts that Target 2 has a bearing on the security that has been given.

In the short particulars section of the charge; the property charged to the Central Bank and Financial Services Authority is over ‘all rights, title, interest and benefit, present and future, of AIB Plc. in and to each of the Eligible Securities from time to time, where ‘ Eligible Securities’ means, at any time securities of such a class or description as may from time to time  be designated  by the ECB as ‘Eligible for  Sale and /or Purchase, as the case may be.’ (Refer to actual CRO charge document below)

AIB Charge Discrepency1 copy

In the Irish version of the Bank’s annual Accounts (2008) and the SEC 20F (page 223 - 2) it states that the charge was placed in favour of the Central Bank and Financial Services Authority of Ireland over all of AIB’S ‘right, title, interest and benefit present and future in and to certain segregated securities.’

Using the description ‘certain segregated securities’ is completely different to the description all ‘eligible securities.

It appears that AIB is stating that they have given ‘certain segregated securities’ as security to the ECB whereas the ECB actually decides which securities will be designated as ‘eligible’. The charge is in favor of the Central Bank and is over ‘all present and future liabilities whatsoever’ of AIB. This charge is a floating charge over repo agreements, aka Eligible Securities - securities that the graphic above demonstrates can go on ad nauseum and way beyond the entities prudent ability to repay, yet not appear on the balance sheet or in its regulatory reporting!!!. These securities have been purchased by the ECB through the repo agreements.

Thus, it appears as if this floating charge granted to the ECB is over assets that the ECB already owned. The floating charge was given to the ECB by AIB for emergency funding (emergency liquidity). Do you see a circular argument here? A potential Ponzi even???!!!! I warned my paying subscribers three years ago, Beware of the Potential Irish Ponzi Scheme!

Very important note: BoomBustBlogger JPM noted below in the comment sections the following...

Reggie,
First up, big fan of your work. One of the few people genuinely worth listening to these days. You have consistently had the quality dope on these dopes over these past few years. 
However, as an Irishman, I would draw your attention to one slight anomaly in the above post. It relates to the image containing the extracted explanation of AIB's Gross Settlement Systems from its annual report alongisde a page from a CRO charge filing. As far as I can see, the extracted page from the CRO charge filing actually relates to a charge filed by that other "AIB", Anglo Irish Bank, not Allied Irish. If you look at the name of the lawyer on the filing, it comes from the (former) lawyers for Anglo, Eugene F Collins, not Allied Irish Bank's lawyers. 
Correct me if I am wrong though. 
Notwithstanding that minor aberation, I wholehearetedly agree with your general thesis; Irish banks are a complete shambles, and the increasing German intransigence toward sharing some of the burden (for whcih many German banks were also responsibile) bodes ill for creditors of all colours, classes and stripes. 
Of course I hope it doesn't come to that for many friends of mine, but I fear you may (yet again) be on to something.
To follow on from my post above; it has occurred to me that perhaps the same lawyers were filing the same duplictious charges (as compared with the charges disclosed in the annual reports) on behalf of a number of their insolvent clients (relying on the nuanced cut and paste skills one learns in law school!!). 
If that is so, my above post stands corrected. 
While it's somewhat moot (given that the real issue is how likely it is that AIB will require further capital - very, given enough time and further, ahem, "credit crunches" (solvency blow-ups??)) , but perhaps, if you have a moment, you could clarify whehther that CRO filinig extract is in fact from a charge filed on behalf of allied Irish, not Anglo Irish? 
Thanks, and keep up the great work!
Yours,
An Irishman Watching On In Horror From Australia.

He happens to be absolutely right. I mistakenly put the charge from Ango Irish in with the annual accounts of Allied Irish. We already covered Anglo Irish Bank in Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" As This Bank Scrambled For Capital!!!

It is sharp readers and subscribers such as this that makes BoomBustBlog what it is today. He actually caught the error by recognizing the lawyer's name as representing the other bank. Unfortunately, he is also correct in that this means very little difference in the grand scheme of things for even if this charge didn't exist, AIB is still over encumbered and swimming in underwater borrowings - in my all so humble opinion. There's also the fact that AIB actually did enter into and all encompassing charge to save its ass, just like Anglo Irish did. Yep, I made a boo-boo, but it means nothing for AIB, let's correct here and make sure we get the laywers right this time around....

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Now, back to our regularly scheduled programmings...

These charge documents apparently have not been included in the recent ‘stress testing’ conducted by the European Banking Authority. By AIB's own admittance, they are not recognizing the borrowing of securities unless the are intended for resale to a third party. This was not the case in the previous year!!! If this is true, these assets can very well appear on the balance sheets of both the ECB and AIB.

The assets should not appear on AIB’s balance sheet as a negative pledge clause, which the ECB was granted, prohibits the bank from doing this, see details in charge document.

Now, let's suppose you buy all of that malarky above regarding charges, disclosure, borrowing not showing up on the balance sheet, etc. Knowing what Ireland had to go through to bail out its banks the first two times, and then needing to go to the ECB/IMF the third time, and knowing what Germany did to Cyprus and it's bank depositors/bondholders last week... I just want to ask you bank customers one question. Do 'ya feel lucky??? If I'm on to something with the research above (and to be honest, it looks awfully convincing) and Ireland's already bailed its banks twice, and had to go to the ECB after those bailouts because it was broke, then what happens when this bank needs more capital.

The way I see it, if Cyprus is the new template, than depositor funded recaps (read, they take your money to bail out the bank) are inevitable!

If you have believe that the information below actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convery my message.

Here's that interest rate calculator from EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive - Bank Risk, Reward & Compensation . It shows how much interest you should be getting in return for the banking risk that you are taking.

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Anglo Irish Bank/IBRC bondholders will actually get some of their money back!

April Fools!!!

As if on cue, a day after my expose on Anglo Irish Bank and its shenanigans (see Global Banking Crisis - How & Why YOU Will Get "Cyprus'd" As This Bank Scrambled For Capital!!!), The Irish Business Post announces senior bondholders will get wiped out. That's right, a 100% loss! Zilch! Zero! Nada! Now, that's investing. That's getting "Cyprus'd", plus some!!! From businesspost.ie: IBRC senior bondholders to be burned

 

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If you thought this was interesting, you ain't seen nothing yet. This was just the preamble, I have a whole list of banks, each with a story more ludicrous than the last, each still taking deposits, and yes.... for the US centric Americans, with operations in the US and securities trading on our exchanges. Paying subscribers (at this point, I don't see why most of you aren't paying, you'll let these banks take your money for .7% interest, but you won't pay a few dollars for a hardcore educational analysis???) can access the first of these banks right now - File Icon EU Bank Capital Confusion, Potential Failure. You may click here to subscribe...

businesspost.ie

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It is my opinion that banks worldwide are simply not safe anymore, and we are on the precipice of a banking crisis that will make the Lehman fiasco look like a test run. For one, interest rates will definitely have to rise. Yes, I know Bernanke is running ZIRP, the ECB is QE to infinity and beyond, yada, yada... But these entities are not the end all and be all for market rates. They can manipulate rates, but they can't ultimately control them for the long term. After 6 years, it's been long term...  With banks failing and taking depositor's and bondholder's funds with them, there's simply not enough people stupid enough to accept .7% returns in exchange for the very likely possibility of losing a large chunk of (the majority of, or possibly all of) their principal to go around!!! This central bank Ponzi scheme of printing more money to pay for the debt that you couldn't afford to pay back because you didn't have the money relies on the "Greater Fool Theory". Common sense dictates that this theory is predicated on an ample supply of "Greater Fools". What you will read below should shake the foundations of your belief in the EU banking system, and hopefully will start a dearth in "Greater Fools"! Even more alarming, it actually gets worse from here. Oh yeah, if you have believe that the information below actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convery my message.

First Off Let's Make Bank Collapse Real...

To begin with, let's make this Cyprus thing real, by showing a live example of what happens when to a real small business that had the gall to bank with Laikie Bank, from the Bitcoin forum I excerpt a post that puts things into perspective, re: bank account confiscation:



Most of the circulating assets on our business Current Account are blocked. 
Over 700k of expropriated money will be used to repay country's debt. Probably we will get back about 20% of this amount in 6-7 years.
I'm not Russian oligarch, but just European medium size IT business. Thousands of other companies around Cyprus have the same situation.
The business is definitely ruined, all Cypriot workers to be fired.
We are moving to small Caribbean country where authorities have more respect to people's assets. Also we are thinking about using Bitcoin to pay wages and for payments between our partners.
Special thanks to:
- Jeroen Dijsselbloem
- Angela Merkel
- Manuel Barroso
- the rest of officials of "European Comission"

Laiki Bank has offered details...DecreeEN Page 1DecreeEN Page 2DecreeEN Page 3

Next, Let's Realize That Cyprus Is Not A "Special Case", It Is Like The Template For Future Actions

Just the fear of another wave of bank collapse has government officials and regulators in fear. Why are they afraid? I made the cause of such fear clear to all at the ING Valuation Conference in Amsterdam.

With the knowledge contained in the video above, it's not hard to see the Infection spreads to North America as The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out Banks! Hold on, before you start worrying about your Canadian bank, you should be aware that the EU banks are still much, much, much worse off. Let's forget Cyprus for a minute and look deeper into the EU, into a larger country with more globally interconnected banks.

On Thursday, 29 April 2010 I warned my subscribers to Beware of the Potential Irish Ponzi Scheme! Shortly thereafter, the BoomBustBlog Irish Research Became Reality. That same month, I warned again with the post, "Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ!" Five months later, I went back at Ireland again with "If the World Knew What BoomBustBlogger's Know, Would Ireland Default Today?" This post was the clincher, to wit:

The Farce!

The government has set up an asset management agency – NAMA, which will buy toxic assets from banks at a discount and will in turn issue government-guaranteed securities. NAMA was expected to buy about $81 billion of toxic assets at a price of $43 billion and issue government-guaranteed securities in return. Since these securities have collateral backing and are likely to be repaid through the pay back of underlying loans, these securities are considered off-balance-sheet and are not part of general government debt by Eurostat. According to Davy research, while the projected gross government debt excluding the impact of promissory notes and NAMA bonds is 84.8% in 2012, including the impact of promissory notes and NAMA bonds (in other words, including the truth), the gross government debt can rise to 117.4% of GDP. This either competes with or bests Greece, 2010's poster child of flagrant spending.

This means that the teacher has created a very harsh austerity plan for its "learner"/student/tax paying populace that has materially lowered the standard of living - all based upon numbers that were bogus to begin with. In other words, it ain't gonna work!

Well, today we have proof and that proof will likely leave some EU bank despositors "Cyprus'd", and I don't mean just those in Cyprus either.

Introduction and Background

In 2007 Ireland had significant cross border exposure to UK and US banks through derivatives and property products. As I warned in 2007, the real estate bubble in the the US/UK popped in 2008, sending pathogenic contagion straight through the Irish banking system. The entire banking system started collapsing. On February 15, 2008, Ireland took extraordinary measures (which we will explore in depth a little later on) to mitigate said collapse, measures that many a layperson would deem misleading, if not fraudulent. RBS (Royal Bank of Scotland, one of the largest financial institutions in the countries of Ireland and the UK) was effectively nationalized by the UK and a bad bank was formed to purchase bad debt/products from the Zombie Irish banks in exchange for government bonds, backed by a country that just simply couldn't afford it.

Following my warning in February of 2008, Lehman filed bankruptcy in September sending an additional set of contagion shock through Ireland and its banking system, causing Ireland to issues bonds and further indebt itself to save its Zombie banks – again! This time through blanket bank guarantees backed by the full faith of the government.

In September of 2010, a large swath of said government guarantees for the banks were about to expire. Reference this excerpt from the book “Zombie Banks: How Broken Banks and Debtor Nations Are Crippling the Global Economy”:

In September 2010, some of Ireland's government guarantees for bank debts were about to expire, which put U.S. Treasury officials on edge. If the guarantee wasn't renewed, the banks would likely default on their bonds, triggering the next event in line: a slew of credit default swap (CDS) contracts on Irish banks' debt. U.S. Treasury officials had reason to worry - the names backing those contracts were the largest U .S. banks, and they could end up paying billions in case of default. Any more weight on U.S. banks could be a tipping point to collapse. Treasury officials made inquiries to their counterparts at the Irish finance ministry asking about the course of action the country was planning to take and indicated their concern about possible default and its CDS repercussions. A year after having issued blanket guarantees on the banks' liabilities the Irish government once again didn't dare let the bank fail. Instead it ended up asking for financial assistance from the European Union (EU) and the International Monetary Fund (IIMF): the country had been pushed to the brink of collapse.

image002

The next few posts will document details the financial shenanigans played by several EU banks (Ireland included), among others, to the tune of over €40 billion. This money was essentially double counted, or to put more simply, at least one version of it simply doesn't exist on someone’s balance sheet.

I have compiled a list of at least 6 banks which I feel are at risk of being Cyprus'd, with more being added weekly. The first bank report, whose subject is still steadily accepting deposits at measly interest rates, is available for download right now for all paying BoomBustBlog subscribers (click here to subscribe), reference File Icon EU Bank Capital Confusion, Potential Failure. Those of you who actually follow this banking stuff may very well be shocked at how bold the actions described therein actually are!

For now, let’s focus on Ireland and the Irish banks.

Anglo Irish Bank

Anglo Irish Bank which subsequently became Irish Bank Resolution Corporation (IBRC), was recently liquidated by the Irish Government. Included below are three documents executed by this bank. The first two are charge documents that the bank entered into on the 15th of February, 2008. These charges are in favor of the Central Bank and Financial Services Authority of Ireland (the ECB). They are floating charges over Secured Obligations (repo agreements) and the banks payment module account.

Anglo Irish Bank Charge Doc no2 Page 1Anglo Irish Bank Charge Doc no2 Page 2Anglo Irish Bank charge doc Page 1Anglo Irish Bank charge doc Page 2

 

So, What's So Special About These Documents???

The reasons given for the floating charges are the banks participation in Target 2, which is a interbank, cross-border EU real-time payment system. A former Group Chief Auditor of one of Ireland’s largest banks who was part of the team who conducted the stress testing for the European Banking Authority was allegedly quite shocked to see the various charge documents herein. He informed BoomBustBlog consultants that these charge documents were not included in the stress testing. For those who don’t get the gravity of this statement – the previous encumbering of the Irish bank’s assets were ignored or not known by those who conducted the stress testing for the banks. What makes things even worse was despite the fact the bank’s assets were double counted, allowing them to pass the stress tests, they promptly started failing post stress test… And I do mean promptly, as in within months.

The chief auditor was also allegedly able to inform that the reasons given for the purpose of the charges was a red herring. He allegedly advised that Target 2 is only a payment system and the description stated was a complete misrepresentation of the true reasons.

The real reasons for the charges were because the bank was completely bust. The bank had already previously entered into repo transactions (secured obligations) with the Irish Central Bank (ECB) and had run out of money. The Irish Central Bank gave further funding using these charge documents. The share price of Anglo in February 2008 was still quite high but started to collapse over the coming months. These charge documents are not disclosed in the Annual Accounts (the EU version of an annual report) for the 31st of March, 2008.

Questions also arise as to the validity of the asset transfer, the legality of Anglo Irish Bank and/or the ECB entering into repo agreements, and the activity of Anglo Irish Bank in regards to its trading activity… If a charge was given over ALL of Anglo Irish's assets, then exactly how did it legally engage in the MBS, derivative and trading activity? Underlying assets must be pledged to a trust in order to create many derivative structures, including MBS, but if there's a negative pledge clause in the charge and the charge covers nearly everything, then those assets don't truly belong to said trust, do they? You can imagine how far one can go with this line of thinking, no?

If you were an investor, shareholder, bondholder or regulator the information above was critical information - EXTREMELY CRITICAL INFORMATION! Anglo ADR's were also traded through brokers in the USA. I am sure that ADR holders would have liked to have been aware of this information, as well as the SEC.

I see a number of avenues which could be worth pursuing, including terms of recompense for junior bondholders who got hosed, equity shareholders who lost capital, counterparties, etc. This is, to my lay ears, tantamount to blatant fraud. Of course, I’m not an international banking lawyer, so what do I know??? Yet, I have only touched on some of the issues. There’s a lot more to come.

In relation to Anglo Irish Bank (IBRC), the 2008 charge document states that the charge covers ‘all present and future liabilities whatsoever of the company, to the Central Bank of Ireland (ECB).’ But there is no disclosure of this in the Anglo 2008 accounts (annual report). This appears to illustrate concealment of the true facts. If these charge documents have not been overridden, then a massive amount of assets in the bank have been over-encumbered. Even if the charges have been overridden in some form or fashion, the mere omission of their existence is a misrepresentation of the banks financial condition, particularly in the stress testing of the banks and regulatory financial reporting (ex. SEC).

If you believe that the information above actually identifies a gross misrepresentation of fact, omission or outright fraud, simply contact the SEC and let them know that Reggie Middleton suggested they look into it. You can actually use this form to convey my message. 

As a reminder for those who wish to ignore my banking calls as a frivolous episode of Chicken Little, BoomBustBlog is the place that was the first to reveal:

  1. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear? 
  2. The warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. 
  3. The collapse of the regional banks (32 of them, actually) in May 2008: As I see it, these 32 banks and thrifts are in deep doo-doo! as well as the fall of Countrywide and Washington Mutual
  4. The collapse of the monoline insurers, Ambac and MBIA in late 2007 & 2008: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Welcome to the World of Dr. FrankenFinance! and Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion
  5. The ENTIRE Pan-European Sovereign Debt Crisis (potentially soon to be the Global Sovereign Debt Crisis) starting in January of 2009 and explicit detail as of January 2010: The Pan-European Sovereign Debt Crisis
  6. Ireland austerity and the disguised sink hole of debt and non-performing assets that is the Irish banking system: I Suggest Those That Dislike Hearing “I Told You So” Divest from Western and Southern European Debt, It’ll Get Worse Before It Get’s Better!
The problems that plagued Cyprus banks plague banks in much larger nations within, and around the EU. From Overbanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe you see institutions that are literally too big to be handled safely...

The Banks Are Bigger Than Many of the Sovereigns

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Definitions:

 Charge

The document evidencing mortgage security required by Crown Law (law derived from English law). A Fixed Charge refers to a defined set of assets and is usually registered. A Floating Charge refers to other assets which change from time to time (ie. cashinventory, etc.), which become a Fixed Charge after a default.

Repurchase Agreement

repurchase agreement, also known as a repoRP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as aborrower, using their security as collateral for a secured cash loan at a fixed rate of interest.

A repo is equivalent to a spot sale combined with a forward contract. The spot sale results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan, while the settlement date of the forward contract is the maturity date of the loan.

Target 2

TARGET 2 is an interbank payment system for the real-time processing of cross-border transfers throughout the European Union. TARGET2 replaced TARGET (Trans-European Automated Real-time Gross Settlement Express Transfer System) in November 2007.

Next up is a bank that is still steadily accepting deposits at a steady clip, paying ungodly low interest rates, and setting itself up to potentially get "Cyprus'd". Paying subscribers can download the report now, before capital controls are set in - see File Icon EU Bank Capital Confusion, Potential Failure. Everybody else can subscribe or wait until either I make it public or the respective government does the Cyprus Thang! Yes it pays to be a BoomBustBlog member (click here to subscribe).

I will start posting a list of definitive bank names that I have apparently caught in some amazingly duplicitous and misleading capital schemes, at least as it appears to me and my staff. I know I wouldn't have MY money in them, particularly after reading the info above.

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Cyprus-central-bankFollowing up my latest rant on the Cypriot debacle, Economic Depression Is The New Success, I want to make perfectly clear that the EU banking system in Europe is irrevocably broken. The ECB/EU has demonstrated this through Cyprus, definitively. Let me break it down...

All investors price their investments, whether consciously and prudently or frivolously, by demanding "X" units of return for "Y" units of risk. This risk/reward ration is clearly delineated in a sound banking system, where the investments with highest (perceived) likelihood of return are priced accordingly, with the most expensive risk. The dimensions of risk run the gamut from credit risk, liquidy risk, market risk, legal risk, duration risk, etc. At the top of this risk ladder or hierarchy are products such as equities, complex derivatives, etc.

In the middle tier are often fixed income instruments such as junior and senior bonds. At the bottom of this risk hierarchy are products that have relatively little (perceived) risks and high liquidity, hence offer very little return in exchange. These products includes demand deposit accounts (checking and savings accounts), certificates of deposits, etc.

So, at the top of the risk ladder you have products that may have nearly no liquidity and high credit and market risks, but can offer high returns. At the bottom of this ladder are uber-liquid (at least perceived to be so) products that feature very little "relative" risks, hence are often priced to offer very little return as well. For instance, in the US, you can receive a 300% return from a front month, OTM put option with several days, but receive only 1% return from your checking account over a period of a year, or 4% in Cyprus banks. 

So... What happens when the account that you are receiving payment from being the lowest run on the risk ladder yields the risk that exists at the top of the ladder? Or, in other words, what happens if you get robbed and misrepresented as to the true nature of the product that you purchased? This is what happened in Cyprus, where they paid their depositors savings account returns but made them assume front month put option risks!

The deposit accounts that you were getting just a few hundred basis points for have developed:

  1. Liquidity risks: The capital controls that weren't supposed to happen (see No Capital Controls In The EMU? Liar Liar Pants On Fire), happened! See Cyprus Banks Set To Reopen, To Serve As Glorified ATMs With A €300 Cash Withdrawal Limit
  2. Credit risks: Your so-called safe investments will suffer up to a 40% haircut! Mainstream Media Says Cyprus Salvaged By EU Deal, I Say Cyprus Is Sacrificed By Said Deal - Thrown Into Depression
  3. and Market risks: Demand depositers have forcibly purchased highly speculative synthetic call options with their haircuts that are unlikely to compensate anyone for anything!

The little app below calculates what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity???

It's not just Cyprus either. The problems that plagued Cyprus banks plague banks in much larger nations within, and around the EU. From Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe you see institutions that are literally too big to be handled safely...

The Banks Are Bigger Than Many of the Sovereigns

image015.png

Of course, there's never only one roach, despite the back and forth coming from EU leaders... 

So, let there be no misunderstanding - if it can happen to Cyprus banks, it can likely happen to your EU bank as well. Go back up and adjust the app/calculator haircut to just 5% (you may have to scroll to the right) and see if your getting compensated for the risk that you are taking in your speculative bank!

Ready! Set! Bank Run!!!

Cyprus contagion raw

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Tuesday, 26 March 2013 07:55

Economic Depression Is The New Success

Central Bank of Cyprus contagion rawThe Irish Times, through AP reports on the latest failure of Cyprus banks to reopen:

The announcement to keep the banks shut last night by the Central Bank of Cyprus came hours after it said all banks except the country's two largest lenders, Laiki and Bank of Cyprus, would open today.

Banks have been closed since March 16th to avert a run on deposits as the country's politicians struggled to come up with a plan that would raise enough funds to qualify for an international bailout.

Reference The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! It won't work.

An initial plan that would seize up to 10 per cent of people's bank accounts had spooked depositors and was soundly rejected by MPs.

All except the country's two largest lenders had been due to open today after the country clinched an 11th-hour deal with euro zone and the IMF to provide Cyprus with a bailout.

Without that deal, the country's banks would have collapsed, dragging down the economy and potentially pushing it out of the euro zone.

But last night the Central Bank of Cyprus said that "for the smooth functioning of the entire banking system, the finance minister has decided, after a recommendation by the governor of the Central Bank, that all banks remain shut up to and including Wednesday".

ATMs have been functioning, but many run quickly out of cash, and a daily withdrawal limit of €100 was imposed on the two largest lenders, Bank of Cyprus and Laiki.

These are the capital controls I clearly warned of last year that are not supposed to be legal.

Under the deal reached in the early hours of yesterday morning in Brussels, Cyprus agreed to slash its oversized banking sector and inflict hefty losses on large depositors in troubled banks to secure the €10 billion bailout.

The new plan allows for the bulk of the funds to be raised by forcing losses on accounts of more than €100,000 in Laiki and Bank of Cyprus, with the remainder coming from tax increases and privatisations.

People and businesses with more than €100,000 in their accounts at Laiki face significant losses. The bank will be dissolved immediately into a bad bank containing its uninsured deposits and toxic assets, with the guaranteed deposits being transferred to the nation's biggest lender, Bank of Cyprus.

Deposits at Bank of Cyprus above €100,000 will be frozen until it becomes clear whether or to what extent they will also be forced to take losses. Those funds will eventually be converted into bank shares.

It is not yet clear how severe the losses would be to Laiki's large bank deposit holders, but the euro finance ministers noted the restructure expected to yield €4.2 billion overall. Analysts have estimated investors might lose up to 40 per cent of their money.

Speaking about the marathon negotiations in Brussels that resulted in the deal, Cyprus' president Nicos Anastasiades said "the hours were difficult, at some moments dramatic. Cyprus found itself a breath away from economic collapse".

The agreement, he said, “is painful, but under the circumstances the best we could have ensured. The danger of Cyprus' bankruptcy is definitively overcome and the tragic consequences for the economy and society are averted”.

Bullocks, Bullshit, and all that other good stuff! As I stated in Mainstream Media Says Cyprus Salvaged By EU Deal, I Say Cyprus Is Sacrificed By Said Deal - Thrown Into Depression, locking up a country's liquidity for an unspecified amount of time, then removing up to 40% of a nations small/medium/large business liquidity (permanently, they're catching haircuts) as well as that of your wealthy depositors, is tantamount to economic genocide! How in the hell do you calculate "The danger of Cyprus' bankruptcy is definitively overcome and the tragic consequences for the economy and society are averted”? 

If anything, "The danger of Cyprus' bankruptcy... and the tragic consequences for the economy and society" are just getting started! I find it amazing that the Troika has convinced so many small nations that boiling slowly in a pot of austerity flavored depression is preferable to a quick and clean exit and rebirth. Is belonging to the EU really worth undergoing an extended depression? Iceland gave the finger to the Troika and they're doing better than nearly everybody in the EU! Think about it.

From the BBC: Iceland's 'tenacity' lifts economy out of crisis

Whisper it - Iceland's economy is on its way back. The frozen island on the edge of the Arctic, which had 10 straight quarters of shrinking GDP, is suddenly on a steady run of seven quarters of growth averaging at 2.5% per annum - something that few European countries can boast. Unemployment has fallen to just below 5% and confidence is returning...

Ready! Set! Bank Run!!!

Cyprus contagion raw

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Last week I posed the question "Is The Cypriot Government Crazy Or Do They Really Fear Bankers That Much?" The country even considering imposing loses on bank depositors over creditors seemed absurd at best. Even the faux consolation of compensating holders of pure liquidity (or at least what was formerly believed to be pure liquidity - banks have been closed for a week now and ATM withdrawals have been limited to 100 euro per day due to the capital controls I clearly warned of last year) was a scheme born out of lunacy, and unlikely to compensate anyone for anything. Well, this is the latest from Bloomberg:

The revised accord spares bank accounts below the insured limit of 100,000 euros.

I was curious to see how they could impose losses on insured accounts in the first place, after all the accounts were insured basically (through implied backstop) by the same entities (EU/EC/ECB) that were attempting to force the loss, no?

It imposes losses that two EU officials said would be no more than 40 percent on uninsured depositors at Bank of Cyprus Plc, the largest bank, which will take over the viable assets of Cyprus Popular Bank Pcl (CPB), the second biggest.

Losses of 40% are outrageous, particularly considering this is the most liquid and presumably the most sacrosanct tier of the capital structure. How can one assume that this will not have extremely negative repercussions?

Cyprus Popular Bank, 84 percent owned by the government, will be wound down. Those who will be largely wiped out include uninsured depositors and bondholders, including senior creditors. Senior bondholders will also contribute to the recapitalization of Bank of Cyprus.

Here we see the bondholders, both junior and senior taking losses. This is interesting, like in Ireland, all of the market risk takers are assuming losses, many of these losses are absolute. Of even greater interest is what happens when the depositors are added into the fray. Now, junior and senior bondholders, as well as depositors are on guard. The ONLY likely scenario to occur when these banks re-open is capital flight, capital controls or not!

Banks in Cyprus, which have been shut for the past week, will remain closed until further notice. Lawmakers in Cyprus voted last week to impose capital controls to prevent a run on deposits when they reopen. “This solution we reached tonight doesn’t have the downsides that the solution of last week did,” said Dutch Finance Minister Jeroen Dijsselbloem, chairman of the euro ministers’ panel.

Yeah, they can try to prevent the run on deposits, and even with some limited success, but now that you have wiped out (or nearly wiped out) junior and senior creditors as well as depositors, you have a lot more holes to plug in that liquidity dam, don't you? Again, from The Anatomy of a European Bank Run!

image012

Using this European bank as a proxy for Bear Stearns in January of 2008, another bank collapse situation that I warned of months in advance (see Is this the Breaking of the Bear?). The tall stalk represents the liabilities behind the bank's illiquid level 2 and level 3 assets (including the ill fated mortgage products). Equity is destroyed as the assets leveraged through the use of these liabilities are nearly halved in value, leaving mostly liabilities. The maroon stalk represents the extreme risk posed by capital flight through a depositor run, which Cypriot officials feel they have controlled through capital controls, still there is the excessive reliance on very short term liabilities to fund very long term and illiquid assets that have depreciated in price. Wait, there's more!

The green represents the unseen canary in the coal mine, and the reason why Bear Stearns and Lehman ultimately collapsed. As excerpted from "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style":

The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors.  In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!

 

image006

I'm sure many of you may be asking yourselves, "Well, how likely is this counterparty run to happen today? Well, with the bondholders getting fully wiped out and the primary rung on the capital structure remaining simply because it is forcibly locked in against its will - at least whats remained if it since uninsured depositors face losses of up to 40%, if it were your money opposing Cypriot banks as counterparty, wouldn't it be pretty much guaranteed. This was clearly demarcated in my piece last week,Liar, Liar Banking System On Fire! Watch As I Spit Fact That Burns Down The Sham Formerly Know As The EU Banking System.

And back to that Bloomberg article...

On the creditors’ side, parliaments in GermanyFinland and the Netherlands may hold votes to approve loans to Cyprus from the European Stability Mechanism, the 500 billion-euro rescue fund.

Klaus Regling, managing director of the rescue fund, said approval by creditor governments in mid-April will pave the way for the first payouts to Cyprus in early May.

This is interesting. The first payments are due out in early May, and the capital will flee from these banks early TUESDAY morning, or as soon as the bank holiday is over and the banks reopen. Damn, that was a good plan if I ever heard one!!!

Lagarde said she will recommend that the IMF provide loans, without giving a figure. “There might have been a bit of friction here and there,” she said.

And on top of it, the IMF hasn't even guaranteed a loan amount. The Cyprus banks gutted the confidence of its banking system and robbed its wealthiest depositors for an IOU of an unspecified amount and time frame. Damn, that was a good plan if I ever heard one!!!

The next step lies with the ECB, which needs to keep funds flowing to solvent Cypriot banks to enable them to open. While Draghi and Executive Board member Joerg Asmussen left Brussels without commenting to reporters, a statement by the ministers said the bank will channel liquidity to the Bank of Cyprus “in line with applicable rules.”

... The effort to go after insured deposits, while abandoned, may have harmful repercussions, said Moody’s in a note early today. “Policy makers’ recent decisions raise the risk of deposit outflows, capital flight, increased bank and sovereign funding costs and broader financial-market dislocation throughout the euro area in the future,” Moody’s said.

No shit, Sherlock! And it is uncanny insight such as this that has spawned documentaries such as this....

In closing, I will also like to add that the 100k euro limit will likely hit the small businesses and middle class ex-pat community considerably harder than it hits the Russian oligarchs 0who are wealthy enough to have some geographic diversification. The small businesses are the ones who employ the vast amount of the population (them, and the now extra broke government, that is). Wiping out 40% of a small to medium business's liquid assets over 100k is tantamount to corporate genocide. Add to that the extreme taxation to come from attempting to pay back the Troika and the guaranteed spike in unemployment stemming from all of those broken companies, the breakdown economic activity from those missing businesses and the near guaranteed counterparty run whenever those banks open up again (if ever), and you have a austerity-imposed depression on your hands. This is a depression that's currently occurring in Greece and was forecast 3 years ago, see The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! That's actually good news compared to what's likely to happen to those other countries' bank depositors who feel that their liquid assets, at one time thought to be actually liquid and sacrosanct, are at risk like those of the Cyrprians. 

Ready! Set! Bank Run!!!

Cyprus contagion raw

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Published in BoomBustBlog