Lorcan Roche-Kelly’s blog Corner Turned today examined that odd eve-of-election transfer of depositis from Anglo to AIB. It’s made our brains hurt:
“Yesterday AIB acquired €12.2bn (nominal) of NAMA bonds from Anglo. The consideration for this was (i) AIB took Anglo’s deposit book of €8.6bn (ii) paid €200m for Anglo IOM and (iii) paid Anglo €3.5bn in cash.
Now, the obvious question is: Where the hell did AIB get €3.5bn in cash for this deal?
Well, it seems, (from reliable sources) that the deal worked like this:
- The Irish Gov launch an auction for the Anglo.
- Only people to turn up are AIB, who have no money.
- Anglo’s asset against the deposits is this NAMAbond which AIB want for repo [A repo is a form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day].
- Because AIB do not have the money to pay for the extra cost of the NAMAbond, they borrow the cash. From Anglo.
- Of course, Anglo don’t have the money to lend either, so they borrow it from the Irish Central Bank ELA.
- AIB now have the bond (which they purchased at exactly the price it repos at through the ECB) and repo that bond at the next opportunity (either tonight’s MLF [Marginal Lending Facility] or next Tuesday’s MRO [Interest rate on the main refinancing operations) and use the cash to pay back Anglo who then pay back the CBI.