The encyclopedia · Trading & Investing · Financial decision · 2008–2011
Anglo Irish Bank's property bet cost Ireland €34.7B
Anglo Irish Bank lent 100% loan-to-value to property developers. When the bubble burst, one bank alone cost Ireland €34.7B.
Anglo Irish Bank · 2008-12-21
What happened
Anglo Irish Bank was a commercial lender that had grown into one of Ireland's largest banks by concentrating almost entirely on property development loans. In 2007, Oliver Wyman named it the 'best-performing bank in the world.' The bank frequently lent at 100% loan-to-value — meaning it had no cushion when property prices fell.
When the Irish property bubble burst in 2008, the bank collapsed. It reported the largest corporate loss in Irish history: €12.7 billion for the 15 months to December 2009, followed by a €17.7 billion loss in 2010. The bank was nationalized in January 2009. The total bailout cost for Anglo Irish Bank and the merged Irish Nationwide Building Society was €34.7 billion, of which €30.6 billion was covered by government promissory notes.
The collapse triggered multiple scandals. Chairman Seán FitzPatrick was found to have hidden €87 million in personal loans by temporarily transferring them to another bank before year-end. The bank had €2.8 billion in exposure to the Quinn family alone. FitzPatrick was arrested for fraud in 2010. The bank was wound down under the Irish Bank Resolution Corporation (IBRC) by 2013.
Why it happened
- Anglo Irish Bank was a one-trick lender: property development loans at 100% LTV. When property prices fell, every loan was underwater and no cushion existed.
- The bank was named 'best-performing bank in the world' in 2007 — a year before it collapsed. The same aggressive lending that generated the returns created the losses.
- The Irish government guaranteed the bank's liabilities, turning a private bank's property bet into a €34.7B public burden that contributed to a national debt crisis.
The lesson
A bank that wins 'best in the world' by lending 100% of the value of a speculative asset is not the best at anything — it is the furthest out on the risk curve. The award is the warning.
Sources
- Wikipedia — Anglo Irish Bank
- TheJournal.ie — Anglo Irish Bank nationalised by Government
- The Irish Times — Anglo Irish Bank posts record loss
spotted an error? The club wants to know.
More like this
Dutch crypto exchange Knaken went bankrupt with €7M of customer funds missing
Tsingshan's short squeeze broke the LME — $19.7B in margin calls, 9,000 trades cancelled
Credit Suisse survived 167 years — and was sold in a weekend to UBS for $3.3B
Somewhere, someone solved the problem this company failed at. 2nd Opinion →
Comments · 0
Sign in to join the comments.