Financial Crisis

[Macy]

But the constant media references to "bailing out the developers" is infuriatingly inaccurate. The Government money is being pumped in to bail out the depositors (who at this stage are overwhelmingly individuals and SMEs, the interbank money is long gone). If Anglo was allowed to fail, it's the depositors that would lose. You'd actually increase the chance of the developers getting off unscathed.

I don't know, because for it to be racking up losses at such a rate, someone isn't paying. If the loans are written off, do we know that they'll go after the developers, given their clear links to FF. FFS, Peter Bacon, the Government "outside" specialist advice, works for a property developer into Anglo for millions.

[OneRedArmy]

I don't know, because for it to be racking up losses at such a rate, someone isn't paying. If the loans are written off, do we know that they'll go after the developers, given their clear links to FF. FFS, Peter Bacon, the Government "outside" specialist advice, works for a property developer into Anglo for millions.

1) The loans aren't being written off, provisions are being raised, which doesn't take away the ability and legal duty to recover
2) in any case it's somewhat academic as the collateral than can be seized from developers is only a fraction of the value of the loans.

Let's be clear Pete, NOT putting in place bad debt provisions is not an option. Accounting is about prudence, and at this stage it's highly
unlikely the full value of these loans will be recovered. That's not to say the banks will stop trying.

[Macy]

It might have been missed with the elections, but the bank that was nationalised because of it's "systemic" importance, has not lent any money since September. It's clear it should've been allowed fold. I ask again, just who are the Government protecting, as it clearly isn't the taxpayer.

http://www.independent.ie/business/i...f-1761064.html

[pete]

I don't know what they should do but it seems 4 billion is only the start. All this talk of "only" another few billion required seems very optimistic.

The Anglo brand is toxic so it is only a case of closing it now or later. I doubt many of the retail branches would even be attractive to other banks.

[OneRedArmy]

It might have been missed with the elections, but the bank that was nationalised because of it's "systemic" importance, has not lent any money since September. It's clear it should've been allowed fold. I ask again, just who are the Government protecting, as it clearly isn't the taxpayer.

http://www.independent.ie/business/i...f-1761064.html

Are you saying it should've folded outside the scope of the guarantee or inside the guarantee?

In the first scenario depositors lose out and the knock on effect would've created a huge run and killed all the other Irish banks within a couple of days. This is actually what happened last Sept.

I'm not sure as a country we can afford scenario 2 in one big hit. Death by a thousand cuts allows the Government to spread the hit over a much longer time period.

You might be right that bailing their mates out is a driver, but it's not the primary one IMO.

As today's S&P downgrade indicates the relative size of the banking industry is a huge millstone round the country's neck at the minute.

[Macy]

Inside or out, they should've let it fold. It appears it had little deposits to pay out even if it was folded within the guarantee. It is of so little systemic importance it wouldn't have mattered a jot to the rest of the world or the markets - I mean we're taking the hits being downgraded now regardless due to Anglo. The money wasted in Anglo could've been used to nationalise/capitalise the banks that actually are of systemic importance.

[pete]

I saw Richard Bruton was pushing the FG 'good bank' policy on TV yesyerday.

- Increasing lending with creation of new bank?
- Retail banks have until the end of the state guarantee to sort out their own problems.
- If banks cannot get themselves organised & safe they are Nationalised whenh state guarantee ends.
- Good Bank & Bad bank are create at that stage.

Seems a better plan than the governments are motivates the banks to sort themselves out. Nationalisation is almost delayed as a last resort & saves the tax payer money. Bond holders whose loans expire after the state guarantee get nothing.

Nationalising now doesn't seem to solve anything as seen with Anglo Irish as still pumping billions into them & they not even lending money. By delaying nationalisation the banks & long term debt holders are motivated to agree a deal.

I see international estimates of banking bailout now up to 20-25 billion.

[OneRedArmy]

If you stick it to the senior debt holders Ireland will be bankrupt within 12 months and will regress to a third world economy as there will be no buyers for our debt.

Hyperbole....maybe. Unfair....probably. Plausible....absolutely.

Nationalization has no material benefits at this stage, other than political posturing.

In relation to Anglo, the only noticeble impact of nationalization is that lots of employees are sitting around scratching who would otherwise be redundant and the annual results were leaked, two obvious civil service traits.

[pete]

If you stick it to the senior debt holders Ireland will be bankrupt within 12 months and will regress to a third world economy as there will be no buyers for our debt.

But surely if the long term debt is not due until past the state guarantee it is already virtually worthless? If someone lent Anglo Irish 1 billion due on say June 2011 how much cent on the Euro would they accept for it now?

I agree about Nationalising Anglo. For a bank the state now controls it s behaviour hasn't changed at all. The talk about turning them into a small business lender is laughable.

[Macy]

It's clear Anglo should've been let fold, and not nationalised or guaranteed, so is it really an example of why not to nationalise the banks that are of systemic importance?

The remaining publicly quoted banks, which are at least clearing banks, are going to have significant state ownership anyway. We might as well get it over and done with now, and have the staff to deal with the loan book in place. Nationalisation would have the immediate material benefit of getting the banking system giving credit again, instead of them hoarding as they are now to try and maximise their capital to limit state involvement.

Two other recent developments...
1) NAMA is now going to bail out developers in banks not even covered by the guarantee http://www.irishtimes.com/newspaper/...248688451.html

2) It appears contrary to the bull crap he's said over the last few months, that Lenihan and the Government still favour light touch regulation, as does the UK. Lenihan didn't even bother his hole turning up at a meeting of EU Finance Ministers to discuss banking regulation. http://www.independent.ie/business/i...n-1770910.html

[OneRedArmy]

I disagree with your assumptions completely.

1) Let Anglo fail.

Fine. You're right thqt they have no future lending. But you still need to pay the depositors and bondholders. If you don't, the country (not just the banks) has no credibility in debt markets and can't raise money to fund the national debt. Result: Lender of last resort kicks in (ECB or IMF).

2. Nationalization will aid lending to small businesses. Complete fallacy. Hasn't happened in Anglo (and they are nationalised). The dirty little Government secret is that the new minimum capital adequacy levels don't allow banks to engage in high risk SME lending until the balance sheets are re-built. Whilst ISME wail about it SME lending is high risk and always has been. Ergo you hold more capital against it.

3. NAMA is somehow bailing people out. NAMA is only a structure. The amount that is written off doesn't relate to the structure. It is in the Government and Banks interest to recover as much as they can whilst providing prudently.

[Macy]

1) Let Anglo fail.

Fine. You're right thqt they have no future lending. But you still need to pay the depositors and bondholders. If you don't, the country (not just the banks) has no credibility in debt markets and can't raise money to fund the national debt. Result: Lender of last resort kicks in (ECB or IMF).

That ship has sailed, so in that respect you're right. However, I don't agree that the same consquence would've been there at the time of the guarantee. We'll never know whether that would be the consequence (and it still might even now it is such a basket case), but I'd trust Bruton and respected economists over Lenihan any day.

2. Nationalization will aid lending to small businesses. Complete fallacy. Hasn't happened in Anglo (and they are nationalised). The dirty little Government secret is that the new minimum capital adequacy levels don't allow banks to engage in high risk SME lending until the balance sheets are re-built. Whilst ISME wail about it SME lending is high risk and always has been. Ergo you hold more capital against it.

I'll repeat that I don't think that Anglo is a good example to use, as it clearly wasn't of systemic importance to the financial system. It seemed to be mainly a speculator's bank than a business one, but it's such a basket case I don't think you can assume a nationalised AIB or BoI would be the same. Most of their time must be spent dealing with the mess. The Governments policies are designed to prop up the banks as private institutions, they could be relaxed if they were nationalised.

3. NAMA is somehow bailing people out. NAMA is only a structure. The amount that is written off doesn't relate to the structure. It is in the Government and Banks interest to recover as much as they can whilst providing prudently.

We don't know what NAMA will pay, how hard it'll go after the money, whether it will have the staff to manage it properly. You might think it's in the Government and Banks interest, but I remain to be convinced. Who is advising Lenihan, and what conflict of interests might he have?

[pete]

I haven't seen anything which suggests AIB & BoI have to be nationalised. Surely the state taking 100% control of the banks should only be used as a last resort?

Nationalisation has not improved Anglo & if they are not loaning any money & presumably not receiving as much payments as they should have what do all the people who work there do every day?

[monutdfc]

Excellent analysis of the Irish banks here:
http://www.esr.ie/Vol40_2/Vol-40-2-Honohan.pdf

[pete]

EU Commission approves 4 billion for Anglo Irish

The Government has secured permission from the European Commission to carry out the €4 billion emergency recapitalisation of the nationalised Anglo Irish Bank.

“The proposed measure is required as a matter of urgency to preserve the financial stability of the bank which is of systemic importance to the Irish financial markets," the 27-nation European Union's executive arm said in a statement.

"The aid is approved as a temporary rescue measure and Ireland has committed to submit a restructuring plan for the bank," the Commission said.

The Commission, which regulates state aid in the EU, said the measure was an adequate means to remedy a serious disturbance in the Irish economy while avoiding undue distortions of competition.

It added that the proposed recapitalisation was appropriate to remedy Anglo's solvency problems and maintain confidence in the Irish financial markets.

The proposed capital injection will help preserve an adequate level of core tier 1 capital even after further impairment, the Commission said.

There is a rescue plan in the pipeline for Anglo Irish?

[OneRedArmy]

This thread has gone a bit quiet so I thought I'd try and address two particular facets of the banking situation that the meedja and all knowing academics (rolly eyes) have either missed or decided not to probe.

1. The banks can't be nationalised.
The Government's public sector borrowing requirement has gone through the roof as a result of the fall in tax revenue and the investments in the banks. The NTMA raise finance through issuing sovereign bonds which are bought by pension funds and other banks around the world. However, as the risk of Ireland (the country) not repaying these bonds has gone up, along with the amount we need to raise, this has meant that the are proving harder to sell. Those newshounds amongst you will reply that thats is contrary to what the NTMA have been telling the media, that they have raised all the money needed for this year and are confident they'll get a fair chunk of next years away before the end of the year. Panic over. But who is buying our bonds if the rest of the world is fearful? Why the Irish banks of course, under implicit pressure from the Government. Holdings of Irish soverigns by the Irish banks has coincidentally gone through the roof in the last 6-9 months.
But this isn't necessarily a bad thing for the Irish banks, as there is another wheeze they can use to their advantage. The European Central Bank (ECB) has been providing liquidity support to all banks within the Euro area as interbank funding became increasingly inaccessible. So the Irish banks can take their Irish Government bonds (the purchase of which was indirectly funded by a preference share injection by.........the Irish Government), and pledge them to the ECB (repo) and receive cash in return from the ECB. If that sounds like one big Ponzi scheme to you, you would find a lot of people agree with you. If the banks were nationalised these kind of "arms length" transactions would become much more difficult and the charade would likely have to end.

2. The banks can't lend.
Of course the banks can't say this given the weight of public opinion, and the Government definitely can't endorse it, but it is a fact. The amount of reserves banks were required to hold by regulators to provide a buffer against their loans (capital ratio) has, with the benefit of hindsight, been proved to be much to low. Regulators and investors have required banks to improve this ratio. There are two main ways you can improve this ratio. Increase your reserves and/or reduce your loans. The former is almost impossible as wholesale funding (interbank lending) has all but disappeared. So if borrowings were left at the same level, capital ratios would actually worsen. Government has provided some investment (€3.5bn to BoI and AIB for example) but despite it seeming like a big number, its not nearly enough to allow maintaining loans at the current level. So the only option is to reduce loans.

[dahamsta]

Someone called Ireland "The NAMA Republic" the other day, it cracked me up.

(Sorry for the facetious post.)

adam

[John83]

(Sorry for the facetious post.)

adam

A professor once corrected me regarding that word. "Facetious means inappropriately jocular," he informed me, meaning that he was entirely justified in what he'd previously said (which I've forgotten), as it was appropriate. The same appears to apply here.

A professor of English, you say? No, an engineer. They're more pedantic.

(Now I have to apologise for the off topic post. Damn.)

[dahamsta]

Rather sadly, I actually looked it up before I posted. I knew it was wrong, but couldn't remember what they correct word was so said I'd chance it, cos, you know, I'm on Foot.ie.

It's not the first time that's happened and it probably won't be the last...

[tetsujin1979]

Friend of mine sent me this link - http://www.youtube.com/watch?v=5WBYQn1Fwgo - to explain what is actually going on (I'm not much with the financials, me)
Bit simplistic, but gets the message across