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Philip Atticus
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Management consultant and strategic analyst, based in Athens and London. I manage Navigator Consulting Group, a consultancy specialising in due diligence, business planning and investment management. I work primarily in the former Soviet Union, Central & Eastern Europe and the Middle... More
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  • A Tale Of Two Banks: Reflections On The Landesbanki And Allied Irish Bank Decisions

    Recent decisions on the Icelandic and Irish banking work-outs and the impact of Eurozone decisions call into question fundamental issues of moral hazard, shareholder risk and common sense. This is seen in recent decisions concerning Landeskanki of Iceland and Allied Irish Bank of Ireland.

    On January 28th, the Financial Times reported (Iceland triumphs in Icesave court battle) that the court of the European Free Trade Association (EFTA) ruled that the Icelandic government's decision not to reimburse Dutch and British Landesbanki Icesave depositors using national resources, but with the liquidated resources of Landesbanki, was upheld.

    In part, this was due to the fact that the liquidation process has paid back over 90% of the minimum deposit guarantee:

    In any case British and Dutch governments are still likely to get most, if not all, of their money back. Landsbanki's estate has already paid back IKr585bn ($4.6bn) of the IKr1,166bn claims from Icesave, equivalent to more than 90 per cent of the minimum deposit guarantee that the two governments were obliged to pay. … It intends to repay the full amount but will only pay interest for about six months, because of an Icelandic supreme court ruling, rather than the full length of time that the two governments demanded.

    It is instructive to contrast this with the recent European Central Bank decision on the cost of bailing out Anglo-Irish Bank to the Irish government as reported by Reuters on the same day (Insight: Irish banks at mercy of international paymasters).

    The government had made a very modest proposal of converting a promissory note issued at the height of the crisis for underwriting Anglo-Irish with the issue of long-term government bonds. This restructuring would improve the loan term, reducing the EUR 3.1 billion the government is currently spending per year on the note. Ireland's 2012 GDP is estimated by Eurostat at EUR 162.3 billion, so this promissory note amounts to 1.9% of 2012 GDP.

    As reported by Reuters, the ECB rejected Ireland's preferred solution for restructuring the cost of propping up Anglo Irish because it amounted to "monetary financing" of the government.

    This is extremely ironic, given that the ECB's EUR 1 trillion Long Term Financing Operation (LTRO) to private banks was extended with the precise objective of monetary easing.

    As reporting previously (Navigator, Eurointelligence, FT Alphaville), a significant part of LTRO was precisely invested by private banks on sovereign debt. This implies that the low-cost LTRO funds (1%) was re-invested in higher-yield sovereign bonds, resulting in indirect "monetary easing" as well as a significant carry trade interest for the banks.

    This contrasting approach, which is currently being implemented in Cyprus, calls into question a number of issues:

    · When and under what conditions should a government, and by extension the citizens of a country, be made responsible for the mistakes of a private bank?

    · What special interests have been served (primarily by European banks over-exposed to bad loans in other countries) in the current Eurozone bailout and LTRO approach?

    · Who has paid more in the European banking crisis: bank shareholders and bank management? Or citizens and taxpayers?

    · At what point does European monetary policy and European competition policy contradict common sense in financial restructuring? (And how many years ago was this point passed by?)

    These recent decision illustrate more than the technical issues such as bank deposit insurance or bank regulation in the Eurozone or European Union. They illustrate a very real problem of regulatory capture and embedded moral hazard, as well as the total immunity of bank managers and government officials responsible for regulating banking as well as sovereign debt.

    It should come as no surprise if popular anger and dissatisfaction at the "democratic deficit" of Brussels and Frankfurt continue to rise, and increasing numbers of European citizens and voters become fundamentally disillusioned with the idea of sharing national sovereignty any further.

    © Philip Ammerman, 2013

    Philip Ammerman is Managing Partner of Navigator Consulting Group and ECN Business Intelligence.

    Jan 29 4:10 AM | Link | Comment!
  • What's A Nobel Peace Prize Really Worth?

    Today the Nobel Prize Committee announced that the European Union had won the Nobel Prize for Peace. This announcement was greeted with a mix of fervour and scepticism.

    I'm relatively neutral to whether it's deserved or not, but I was intrigued by a comment made by Manos Tzafalias, a journalist, as to how welcome the financial benefit would be in light of the European debt crisis. So I crunched some numbers.

    The Eurozone's total debt stock as of QI 2012 was EUR 8.328 trillion according to Eurostat. If we assume an average annual interest rate of 2.75%, this generates annual interest of EUR 229.036 billion per year, or EUR 871,520 per minute

    The Nobel Peace Prize is worth SEK 8 million in 2012, or about EUR 922,213 at today's exchange rate.

    In other words, this represents 1.06 minutes of the Eurozone's annual interest cost in 2012. Perhaps next year's award can be the Nobel Prize for Literature.

    Eurozone Debt Stock (EUR)


    Average Interest (Assumption)


    Annual Interest (EUR)


    Interest Per Day (EUR)


    Interest per Hour (EUR)


    Interest per Minute (EUR)



    Nobel Peace Prize Value (SEK)


    Nobel Peace Prize Value (EUR)



    Minutes of Eurozone Debt


    Interest covered by the Nobel Prize


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 12 2:39 PM | Link | Comment!
  • The Greek Green Energy Bubble – Electricity Price Increase of 12.2% in 2012

    The first confirmation of the coming pricing problems in Greek energy sector became visible  yesterday with the publication of the first official proposal on energy price increases by the Hellenic Ministry of Environment and Energy (YPEKA) and the Public Power Corporation(NASDAQ:PPC). 

    These amount to an annual increase of 9.2% for the PPC’s own domestic generation cost plus 3% for the renewable energy cost.

    While this is far below the initial suggestion of the Energy Regulatory Authority’s (NYSEMKT:RAE) 16% increase, as well as PPC’s 20% increase, the proposed increases have caused renewed public outrage.

    The President of the Greek Chamber of Commerce and Industry, Mr. Dimitris Asimakopoulos, stated on SKAI TV that energy costs today are higher than social insurance costs in most enterprises.

    It must also be remembered that the total cost PPC bill is magnified several times by additional taxes on either the base electricity price, or by the number of square meters of the property being supplied with energy. These include:  

    ·       A municipal tax

    ·       A special tax on property

    ·       A tax for the state television and radio broadcaster, ERT

    ·       Value-Added Tax (VAT)

    These indirect taxes routinely increase the electricity bill by at least 2x the price of electricity.

    As such, the PPC bill is an example of failed government policy, in that it has transformed what should be a relatively simple billing exercise from an “independent power producer” into a focal point for public outrage and resistance. It is also an example of a massive public policy failure to properly plan for flexible feed-in tariffs for renewable energy, together with the lack of any real limitations on licensing of renewable energy installations.  

    This also points to the fact that Greece is now in the throes of an inflationary depression. GDP will fall by approximately 5-6% in 2011; inflation is currently running at 2.5% monthly, and higher on an annualised basis, primarily due to new indirect taxes. Together with official unemployment of about 18%, it is painfully clear that the choices in public policy mandated by the Troika and the government have failed, at least in the short term, and will lead to further severe economic damage in 2012.

    Related Posts:

    The Coming Crash of the Renewable Energy Bubble in Greece

    December 10, 2011


    © Philip Ammerman, 2011

    Navigator Consulting Group


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jul 06 9:48 AM | Link | Comment!
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