While trying to get my mind around the problems of the Irish government debt levels I came across this 2007 survey from Oliver Wyman: http://www.oliverwyman.com/ow/pdf_files/SPI_CS_0107.pdf
The relevant quote on Anglo Irish Bank is on p23:
Anglo Irish Bank owes much of its success to a concentrated focus on business lending, treasury and wealth management in the Irish, UK and US markets. Business lending, its largest and most profitable segment, has grown by 38% annually over the last 10 years. A centralized loan approval process has helped the bank maintain high asset quality and minimize the risks of portfolio concentration. In addition, the bank has exploited synergies among its narrow business mix to achieve a low cost-income ratio of 27%, providing a strong foundation for organic growth.
Anglo Irish went bust in 2008 mainly because of its centralized loan approval process that led to very low asset quality and excessively high portfolio concentration.
It's another warning to us all; unless we're actually sitting in the decision making centres of the financial institution on a day to day basis there is no way we can accurately make the sort of statements made by Oliver Wyman. Even if you think you're in the decision making centre we know there can be catastrophic stresses building up that aren't reported.
It seems the purist (simplest?) thing to do would be for the Irish government to put the all the troubled banks into bankruptcy, and then argue long and loud that:
- it's not the government that defaulted - the government might have guaranteed the debts, but it was lied to during the negotiations, so all guarantees are off;
- all lenders (apart from retail depositors) need to be reminded what credit risk really means - which part of the word "risk" don't they understand?
- Senior secured lenders can be given the banks' assets (good luck to them) - unsecured and junior lenders get wiped out;
- It's then up to the German and French governments, if necessary, to bail out their banks that lent to Irish banks.
Comments welcome.
