Swallow the loss

Q&A: Q Can you give me your opinion on the likelihood of Anglo Irish Bank ever being refloated? I was reckless enough to buy Anglo for 33 cent a share shortly before it was so suddenly nationalised. Is my money lost for good now and the shares worthless?

Is there any recourse for shareholders who bought after the Government’s 75 per cent takeover?

Mr AM, Dublin

ATo be perfectly honest, I have no idea whether there is any realistic chance of Anglo being refloated. Clearly, the Government, which has nationalised the bank, would ultimately hope to offload it. However, in the light of the newsflow from that particular institution, it would be a brave person that would try to persuade investors to shell out money again for shares by way of a new listing.

In any case, that will be of no consequence to existing shareholders like yourself. As I am sure you understand, investing in a bank that was already in sufficient trouble to merit the State taking 75 per cent control was a high risk move. That is, in large part, why the shares were priced as low as they were.

When even worse news emerged – along with the threat of a ratings downgrade which could trigger a run on deposits – it was always likely the State would assume full control.

What it has said is that an assessor will review the situation and decide what recompense, if any, shareholders at the time of the nationalisation should receive. That holds open the prospect of recovering some of your investment, but I wouldn’t bank on it. Beyond that, there is always the possibility of legal action by shareholders against the bank. Again, there are at least two parties looking at organising such a course at the moment but, as with any recourse to the courts, this is also an option laden with risk. There is no guarantee of winning the case and lawyers will want their money for pursuing it, regardless of the outcome. You might be as well off to swallow your losses and turn your attention to future opportunities.

Guarantee confusion

Q I am confused by last Friday’s column. You mentioned six institutions which are covered by the Irish Government’s guarantee (worth €100,000). You then went on to state that other financial institutions, including Ulster Bank, are covered by the British government’s guarantee – which is, I believe, only worth €30,000.

However, I am almost certain that I read that Ulster Bank was one of the six financial institutions covered by the Irish Government guarantee. Consequently, I lodged all my savings (€80,000) in Ulster Bank.

As I am an old age pensioner, I cannot afford to risk my savings. Can you please clarify the situation?

Ms MK, Mayo

AThe plethora of announcements from the Government over the security of bank deposits in recent months means that it is very easy for all of us to become confused over what exactly is covered by whom.

The Government bank guarantee announced at the end of September is an absolute guarantee over all savings held by depositors in certain institutions. Initially, the guarantee covered six institutions - AIB, Bank of Ireland, Anglo Irish Bank, Irish Life Permanent, EBS Building Society and Irish Nationwide Building Society.

Subsequently, Postbank, the joint venture between An Post and Belgian bank Fortis, was included in the scheme.

The other banks operating here – principally Ulster Bank, First Active, National Irish Bank, Halifax Bank of Scotland (Ireland) and IIB Bank – chose not to avail of the state guarantee, having initially lobbied to be included. They decided instead to rely on schemes offered in the home jurisdictions of their parent companies – Royal Bank of Scotland in the case of Ulster and First Active; Danske Bank (National Irish Bank); HBOS (Halifax Bank of Scotland-Ireland); and KBC (IIB Bank).

However, those banks are covered separately by the Deposit Protection Scheme. Just over a week before the full State guarantee was announced, this protection scheme was updated by the Minister for Finance to cover deposits at all financial institutions regulated by the Irish financial regulator up to a maximum of €100,000.

The only institutions operating here that would not be covered by either scheme are: National Irish Bank, which comes under the Danish guarantee scheme, protecting all savings for a two-year period from last October; Northern Rock, where all deposits are guaranteed by its owner, the British state; Rabobank, coming under the Dutch regulator, which now fully protects the first €100,000 of individual savings; and Investec and Leeds Building Society, which come under the British Financial Services Authority guidelines, protecting the first £50,000 (€54,400) of depositors’ savings.

So what does this mean for you? Put simply, it means that anything up to the first €100,000 you have invested with Ulster Bank is covered.

You are currently fully covered, therefore, in respect of your savings of €80,000. However, over that limit, you would not be covered, as Ulster Bank has opted not to be included within the State guarantee scheme.

Credit union query

Q Further to your recent article, my alarm bells started ringing again. This is the third time I have read what financial journalists have written in the papers about the Government guarantee to depositors in financial institutions. Each time banks and building societies are quoted, but never credit unions. As I am a pensioner, like many others, I need the monies I have saved over the years, deposited in the credit union.

Is there something I should know?

VB, e-mail

ACredit unions did not traditionally come under the deposit protection scheme run for Irish financial institutions.

However, amid all the chaos of last September, the Government decided to extend the remit of the deposit protection scheme to cover money held in credit unions.

As a result, the first €100,000 of money held by you in a credit union is fully protected. Any amount over that would be vulnerable. Clearly, the €100,000 limit should cover the vast majority of individuals’ credit union savings.