It’s a little removed from the normal content of the site, but I was thinking yesterday evening on the implications of the deal allegedly entered into between the so-called “Golden Circle” and Anglo Irish Bank. Given the newspaper coverage, here’s how things are supposed to look at the moment for each of the chosen 10:
- Borrow €30m from Anglo Irish Bank
- Buy Anglo Irish Bank shares off the stock exchange – probably at a preferential price (i.e. cheaper)
- Anglo Irish Bank goes tits up with the the implications that the shares are worth nothing after Government nationalisation
- Because of the loan conditions, Anglo Irish Bank can’t go after the €75m collateral that the “Golden Circle” had previously offered – so they get to keep their houses
- It’s now expected that that the €300m in loans will also be written off by Anglo – and now they’ve no debts and get to keep their houses
All very nice and cosy – these 10 unnamed people came to the rescue when asked (by whom we don’t know as of yet – Anglo Irish Bank, or the Financial Regulator, or the Government?). But I think it could get better for the “Golden Circle”:
- There is a commission working at the moment on assigning an valuation to the shares of Anglo Irish Bank at the time of nationalisation.
- If that commission comes back and says that Anglo Irish Bank was worth, lets say, 25c per share, at the time of nationalisation, then each of the 10 lucky punters will get a good proportion of their money back (proportion depends on the preferential share price mentioned above)
- So now, the “Golden Circle” have received cash from the government for the shares that they had originally borrowed money from Anglo to buy in the first place – but because the loans are written off, they don’t have to repay the money, so that money is essentially pure profit.
- But, it’s profit that they won’t be paying tax on probably. Because they’ll technically have made a loss on the purchase price of the shares compared to the money they’re getting back from the Government, they’ll have a capital loss that they can use to offset against any other profits made elsewhere in their dealings.
- So, at the end of it all, it’ll really be free money for the “Golden Circle”.
Nice work if you can get it. But this is just my personal speculation on what could happen. There’s a big IF in there – that the independent commission will actually assign a value to the Anglo Irish Bank shares at the time of nationalisation.
A similar situation arose in the UK with the nationalisation of Northern Rock and the decision by the government there was not to pay anything to the shareholders – despite a High Court case. They decided that Northern Rock was worthless at the time of nationalisation – and all shareholders lost out completely.
Here’s where I think we’ll see actually how “chosen” the “Golden Circle” actually will be – at the end of the day, it will be decided (quite wrongly in my opinion) that Anglo was actually worth something on the day of nationalisation.
That will allow my speculation actually come true, and the “Golden Circle” will clean up at the expense of the taxpayer in more ways than one.