Maarten van Eden: property loans are 'like sticky paper'

"Apart from reckless lending, concentration, and governance and no infrastructure and no nothing," Anglo's chief financial officer Maarten van Eden said last week, he has been intrigued by the fact that the bank always funded itself very short.

"There was plenty of availability in the markets for term funding [but it] was always more expensive than short-term funding and they never went there in any great amount… My thinking about it is that one of the justifications for that might have been that they believed that their assets were short-term assets. And of course they were. But the only way they were getting rid of loans was when a building was built and somebody else bought it."

That allowed the developer to redeem his loan. "But of course it was like sticky paper," van Eden said, because the purchaser needed a loan as well, whether it was with Anglo or another bank. "You could pretend to yourself these things were rolling but systemically they're permanent assets. So they were looking at these as short, but they're anything but, because buildings are built to last and therefore the financing of those is also long. They had a total mismatch on their balance sheet. The moment that property stopped going up 20% per annum, the music stopped and the funding dried up. So now you're sitting on perpetual assets with a short-maturity funding profile," he said.