Nationalisation Watch / Govt. rethinking 3.5 billion bailout for the banks?

Whether or not some or all Irish banks are nationalised is a purely academic exercise at the moment. If some or all can't meet their minimum payrolls, they will need funds to stay afloat. Whether the government raids some cash stash or borrows the money to give to the banks isn't note worthy anymore. Private investors have fled Irish shores and the mega-rich Irish patriotic investor isn't interested in plowing their cash into banks whose long-term loan revenue is suspect at best. McWilliams and all the pundits have had their say but events are unfolding as they will whatever grandiose plans the pundits cook up. The banks have made too many bad loans on the basis that land and property values were correct at the time the money was lent. The bank's valuations, future expectations and lending judgement has been found to be faulty.

The real question now is what are the new profit opportunities for banks in the future? Are they just going to sit out the property down turn and await its revival and hope for another bout of property inflation? Is some some new horizon industry about to flourish on Irish shores in which they can plow investment money? Or is the real problem that any bank without the ability to lend exhoribants sums of money in an inflationary environment can't foresee enough profits to lure investment money in the near-term?

As for the bail-out, I've read where people suggest that all was in a state of chasis and that the brave government came riding to the rescue with the blanket gaurantee. Pish. There was no way that employess in any given bank were packing up the computers etc. First of all, this isn't how an insolvency situation unfolds. It's a bit like saying the GM workers are dismantling their respective workstations on the assembly line in order to take them home. Anyway, all Irish banks have outside creditors and therefore wouldn't allowed to personally absond with a company's assets.

There is a term bandied around Washington D.C. that is something like the M.A.D. theory with a twist. When there is an emegency (say your banking system is imploding and you need to impose Socialistic solutions) the boys and girls with their hands on the levers of power actually try and make things worse in oder to come to a critical point. This results in several positives feautures for the power manipulators. They get as many different people involved as possible. This often leads to conflicting information being disseminated. This then clouds the debate about what needs to be done. Then the unpalatable solution is taken by the power brokers as a de facto step and absolutely necessary given the chaos that has ensued. If the solutions works they take credit for making the unpalatable decisions. If the solution fails, they have plenty of other bodies to blame and the ability of anyone to unravel all the smoke and mirrors that were created by escalating the crisis makes it harder to apportion responsibility.

Of course, if your minister for finance had been doing his or her job and making sure the financial regulator was keeping a close eye on the lending acitivities of your financial institutions, the entire crisis would never have occured. But, then again, I'm sure the regulators appreciated the 10 year holiday and were well paid as civil servants to ignore the entire situation as it developed.

I looked to buy Anglo shares last weekend but Lidl's was out of stock, and they were too cheap for the local €-shop to bother with anymore.

Interesting. Papal Knight is right in saying that one of the banks would have gone under within hours. It wouldn't have taken the others long to follow, from what I heard. Use yer noggins, folks, if one had gone down, no-one would have lent to the others in the current climate, so they'd all have been dead in the water. How the insolvency process would have been managed is detail. The bank guarantee scheme is the equivalent of the little boy with the finger in the dyke...stopped an immediate flood, but the dyke needed comprehensive reconstruction afterwards.

We have learnt from Lehman that letting the #$*&% go down is not the solution, much as we may object to bailing them out, we have no choice. It is that simple.

Interestingly, I note that the UK is only 2 places behind us in the soaring cost of debt league....since they are not in the Euro, I suspect they may suffer more (are the Austrians in the Euro??). People there don't complain or protest enough, unlike the Irish, and believe me, they have as much if not more to protest about. So usually, by the time something hits the news, it's a whole lot worse than it should have been. I'm a little worried by the whole plunging pound thing...I suspect they may be in the Euro pdq the way things are looking. Soo....it would be amusing if Dave Cameron were to ascend to the hot seat in no 10, with euros as the currency and all 27 having ratified Lisbon... he'd be hot as hell under the collar but there'd be f all he could do....

I think most people have been freaking out that Lenihan has been too slow in acting, and that the finger in the dyke only happened because he was so unprepared i.e. caught napping. The fact that he says he only noticed a problem in July (and then went on holiday) says a lot.

The tragedy for Ireland is that most of the damage to the banks was done in an apparently irrational binge of lending 2005-2007, when the property market was flattening out, that doubled the loan books. Could it have been the case that the bank lenders saw an end coming to the big commissions and went for one last grab? Their lending pushed land prices up over double 2006-2007. These loans were made without business plans for the land. I was in a room with someone last spring, when the thing was well over, and the bank was on the phone to him pushing a loan for an up and coming auction of a fairly dodgy piece of land.

Where was the Regulator?

The credit crunch would have been enough to deal with without this completely separate and home grown own goal.

cactus flower wrote:

Could it have been the case that the bank lenders saw an end coming to the big commissions and went for one last grab?

Of course it was. The bankers were cashing in, the banks themselves knew what was coming and sold their headquarter buildings, the estate agents sold themselves off to estate agents from other companies. I did a post a while back, not sure if I could find it now, where I highlighted all the major moves being made by the banks and the estate agents in terms of getting out of the market over a few months. Staggering really.

Quote :

Where was the Regulator?

In far too cosy a situation with the banks.

Here it is... was on this thread actually

johnfás wrote:

In May 2006 - The owners of Gunne Estate Agents sold to private investors
In June 2006 - The owners of Hamilton Osborne King sold to Savills, a major UK estate agent.
In June 2006 - The owners of Colliers Jackson-Stops sold a controlling stake to Colliers CRE, a major UK estate agent.

In June 2005 - AIB Bank sold their headquarters in Ballsbridge for 160 million.
In June 2006 - Bank of Ireland sold their headquarters for 200 million.

----

Do as I do, not as I say.

In my view, the banks should be investigated for fraudulent lending and commissions 2006 onwards should be frozen/recouped.

cactus flower wrote:

In my view, the banks should be investigated for fraudulent lending and commissions 2006 onwards should be frozen/recouped.

The bank execs should get 20 years.
Next the politicos. 10 years for negligence.

Sure the world's biggest banks have now been caught out in what has been described as the biggest pyramid scheme in history. What do you expect when such idiots are running them.

The reporting this morning from Morning Ireland
http://www.rte.ie/news/morningireland/

David Murphy, Business Correspondent, speaks to Finance Minister Brian Lenihan and explains how the bank rescue plan will work


Senator Dan Boyle, Green Party finance spokesperson, says it is up to the banks to come up with a response by January


Brian Lucey, finance professor at Trinity College Dublin, says the statement is only one of intent, and no details are clear


Richard Bruton, Fine Gael finance spokesman, says the announcement is simply buying time, and is not a strategy


Economist David McWilliams and Ray Kinsella, professor at UCD Graduate Business School, say the plan may be too little too late


David Murphy explains what happens next following the Government's bank announcement


David Davin-Power, Political Correspondent, reports on the political implications of the plight of the banks

So why has no banking director been fired yet ? With or without golden handshake. Why have the shareholders not asked for their proverbial heads ?

I don't get it.

The regulator should have been fecked out months ago too. Maybe years ago..

Cactus, you are right, regulator asleep at the wheel etc. The only thing with which I would differ is that this was NOT JUST home grown. I bought and sold a house in the UK in the years 2003-2007 and the same orgy of speculation, building on toxic sites, massively overblown loans, both to developers and lent out in mortgages etc was going on there. People on these Irish discussion sites seem to have the following attitude; everything that happens HERE is a disaster, people abroad are better organised. I don't know continental Europe well enough to comment, but this is just NOT TRUE of the UK. Any perceived differences between us and the island next door are down to two things; their slump started a year later, and unlike ourselves, the ordinary Brit in the street has not grown up with our national inferiority complex and appears to assume that if the UK is bad, abroad is worse.

From what I can see of the US, the only reason they aren't even further down sh!t creek than ourselves is that they are TOO BIG TO FAIL. Noone with siginificant dollar reserves will let them go down, at least not this time

And part of the reason our regulator might have been asleep at the wheel is that they were getting advice from financials in the rest of the Anglozone who are now buried to the bullocks in the same brown stuff.

This is not to excuse our lot, we could have been different, and we weren't. If the banks draw down the 10bn, I wanna see some heads roll, without golden parachutes

This recession just favours larger countries, that's all. But I'd watch the pound.... we have some advantages here, the euro, no car manufacturers and no wars.

We urgently need a blessings-counting thread.

Your points are fair expat girl. I've asked myself the question of why this happened at the same time in a number of different countries ( although not all, and not all to anything like the same extent ) at the same time.

Hot money and low interest rates are two obvious factors - banks had to push out volume of loans if they wanted to keep profits up. Hot money certainly poured into Ireland if share prices are anything to go by - why, does anyone know?

Having said that, there are other countries that did not overextend/binge on property to anything like the amount we ( and the British) have.
We are the most, or close to the most personally indebted in Europe.

Some of the property has real value, even if considerably reduced from the purchase price, so long as it doesn't have to be sold in firesale conditions.
It is in any event doing better than the bank shares.

Well, the 10Billion seems to have been very little use to the share price overall today. About 10% up. The increase was higher when Obama said he was going to build some bridges ..

Presumably because building bridges is a much greater stimulus to the overall economy. When you build bridges you have to buy the land, which gives works to the legal profession, you have to finance them which helps bankers and accountants, you have to design them which helps the engineering and architectural professions, you have to build them which provides employment to many who in turn earn money, pay tax, spend on consumables which provides employment in retail for other's who in turn themselves pay tax.

expat girl wrote:

Cactus, you are right, regulator asleep at the wheel etc. The only thing with which I would differ is that this was NOT JUST home grown. I bought and sold a house in the UK in the years 2003-2007 and the same orgy of speculation, building on toxic sites, massively overblown loans, both to developers and lent out in mortgages etc was going on there. People on these Irish discussion sites seem to have the following attitude; everything that happens HERE is a disaster, people abroad are better organised. I don't know continental Europe well enough to comment, but this is just NOT TRUE of the UK. Any perceived differences between us and the island next door are down to two things; their slump started a year later, and unlike ourselves, the ordinary Brit in the street has not grown up with our national inferiority complex and appears to assume that if the UK is bad, abroad is worse.

From what I can see of the US, the only reason they aren't even further down sh!t creek than ourselves is that they are TOO BIG TO FAIL. Noone with siginificant dollar reserves will let them go down, at least not this time

And part of the reason our regulator might have been asleep at the wheel is that they were getting advice from financials in the rest of the Anglozone who are now buried to the bullocks in the same brown stuff.

This is not to excuse our lot, we could have been different, and we weren't. If the banks draw down the 10bn, I wanna see some heads roll, without golden parachutes

This recession just favours larger countries, that's all. But I'd watch the pound.... we have some advantages here, the euro, no car manufacturers and no wars.

Well I can comment as I have(had) property in Spain and Holland. The dutch as usual, in terms of capitalism (they invented it afterall) were already well ahead of the game in the 1990s and I got a 100% mortgage back in 98. Actually I could have got more if I wanted. Still the market did not bubble-out as bad as in other countries as the government there actually slowly removed some of the tax incentives to owning property a few years back and so prices didnt boom as it could have.
The Spanish are probably worse than the UK. There are probably a half million appartments in Madrid which are unoccupied. in 2006-7 they built more house in Spain(pop 45m) than in France(pop 65m), Germany(pop 85m) and the UK(pop 60m) combined!

Their banking sector seems to have been better regulated however and it was not that common to go above 90% for mortgages - maybe around 2004 for a bit.

From the Pin discussion on it

Dreaded Estate wrote:

The latest market caps of the banks are

AIB €1,750bn
Anglo €286m
BOI €884m
ILP €408m

Total market cap of €3.3bn prior to recapitalization and €13.3bn after. Looks like the government will have a 75% stake in Irish banking sector.

Government Recap of Banks

As someone else said, the way the prices are going we'll soon have 100% of those banks.

"Bank failures are caused by depositors who don't deposit enough money to cover the losses due to mismanagement."

This quote is taken from George Cooper's: The Origin of Financial Crises. (Just began reading.) The quote is taken from none other than former Vice President of the United States and famous speller (potato with an "e" anyone) Dan Quayle. It highlights certain fundamental truths about how the new elite view banking, bsuiness and the role of government. Dan is obviously putting the blame for the US Savings and Loan debacle of the 1980-90's squarely on the shoulders of consumers. They didn't do their part by putting their hard earned cash into insolvent and badly run banks. Government, because they know that free markets are self regulating and efficient, doesn't need to interfere. You don't blame top and well paid management because its bad form to blame your peers. You, afterall, went to the same type of schools; share the same fundamental beliefs about deregulation; have interconneting investment and business interests and must stick together against a fickle and ignorant population.

A particular Irish bank has been highlighted as being insolvent on the eve of the government blanket gaurantee. Which one was it? If you can't name it, I don't believe it. One fundamental truth for me has been rammed home during this current financial crisis. If an event can't be verified, it should not be believed. This event, like so many others, is relegated as unproven and moved into the risk managment column of unkowns and unknowables as a private investor or indeed depositor. I feel more comfortable with depositing my money in banks which refused the govt gaurantee. My money is still protected up to certain amount and these banks didn't want govt covenants to interfere with their profitability. I surmise the same isn't true for the banks who opted for the blanket gaurantees. The only two ramification of the govt blanket gaurantee that I can identify with certainty are that short-term shifts in deposits have stabalised and that borrowing costs for the Irish nation have increased. Profitability forecasts for Irish banks are impossible to ascertain as they are not forthcoming with their true loan losses and other non-performing loans.

The crisis, as it was, seems to have passed. The fundamentals remain. They aren't good or even vaguely encouraging for Irish banking in particular and world banking in general in the short term. The only one tangible long term outcome seems to be that the surviving banks will be bigger and the distinction between riskier investment banking activities and the less risky traditional style lending activities has been removed for good. All monies deposited by wage earners could now possibly be subjected to ever riskier loan and investing activities as the world moves from billions being invested into the realm of trillions.

Irish banking regulators, and indeed many risk managers and regualtors across the globe, may have had a 10 year sabbatical but the next 10 years may well make up for the time off. Good luck to the regulators as they try to keep on top of the very same bankers who gave us this latest debacle. And of course our glorious elected reps will absolve themselves of all responsibility. It was de icelanders, de yanks, de world economy, de fecking devil. When's the next pay rise?

"If an event can't be verified, it can't be believed" really says it all. The extent of bank liabilities and the worth of assets can't be known - and people are afraid to press the issue to find out.

In the absence of knowledge, employers can only do what we are doing and assume things will be worse tomorrow than they are today, and prepare extreme contraction in the hopes of survival at some modest level.

I don't feel that a crisis has passed, like most people I hear from I feel a wave has built up that will come down in the New Year.

As for the Government's measures, I think they are without substance - all smoke and mirrors, and are not verified.
The Budget was clearly a back of the envelope job with very little time put into it.
The Banks Guarantee as I think you or PK said, was a backs to the wall overnight exercise undertaken without preparation - all of the detailed work, such as it was, was undertaken after the announcement. As far as I know, no practical action at all in terms of Bank support or rationalisation has followed from the Guarantee.

Then yesterday we had a weekend announment that there was going to be recapitalisation of the banks to the tune of 10 billion euro, even though two weeks ago Government said that no more than 2 billion could be found from the Pension Fund. Today its become apparent that there is no recapitalisation scheme and no 10 billion euro in place - it was purely some kind of expression of intent. A US banker was paraded by Brian Cowen like a rabbit out of a hat, so the speculation is that Government still expects "rescue" by what others call "vulture capitalists" who will take the matter out of their hands and do an asset stripping operation of some kind.

This evening a Press Release went out saying that Government was launching a 5 year plan to save the economy. It became very clear within an hour that there was no plan, and that something would be prepared some time after Christmas.

I would sympathise deeply with anyone in a position of responsibility in Government in the days we're in, and I know they can't do miracles. But these guys are plainly not at the races. We are in an economic crisis without precedent, and Government is trying to create an impression of action and strategy whilst doing nothing.

The Sunday Independent, not a paper I would generally rely on too much, reported on its front page that Government members were on a drunken binge in the Dail bar on Wednesday night. This is worrying.

We need people who will at least turn up to work sober and who are prepared to do the grind of work that's needed to steer both the wider economy and the different Departments through a lot of pain, and we need people who have the best strategy they can to protect people from the poverty that threatens while building on the strengths we have for the future. They have to be able to pull in some top quality advice and listen and absorb the best ideas of how to weather this storm.

Maybe they will wake up tomorrow morning and the paralysis will have passed, and they will start moving. I hope so.

To be honest, I am probably less worried about our Government than most. In many cases, too much action, too quickly can be worse than none at all, and many have criticised the "speedy gonzales" budget.
Frankly, the boom was caused by three things; 1) an explosion in high end jobs brought about by the IT and Internet revolution (we benefitted more than most and still do). 2) cheap energy... oil was 10 bucks a barrel in 1999 and only rose frighteningly since 2005 and 3) low interest rates, cheap money and ballooning personal, and often Government debt (although not in this country, but just take a look at the UK/US debt during the boom)

The bust has been caused by soaring energy prices, causing inflation, causing rising interest rates, stressing the indebted and causing business failure in highly energy dependent sectors, and Minsky's theory (now proven as far as I can see), that the longer the boom, the worse the bust, as people take more and more risks with investments/loans as the boom continues, "new paradigm" etc!

The financial chickens will take 5 years to come home to roost... but the only rule book we have is the 1930's depression and that DID NOT take place under 24/7 meedja scrutiny. I am personally happy with them taking a bit of time to consider the optimum fate of the banking sector, it is important that they come up with the right solution and if that takes time, so be it.

Gordon Brown's high speed recap does not seem to have been very successful in sorting out business lending in the UK, and painful as it may be, I am not sure that the solution to a problem caused at least partially by cheap debt is going to be solved by throwing MORE cheap money at borrowers. We need to spend the next few years trying to pay some of it back! Peer Steinbruek will be proven right about the currently lauded British solutions, fear not.

Perhaps the Government should go and have a good few Christmas drinks, go home, rest, and come back in the New Year with some better ideas.

As it is, there appears to be a good trickle of R&D jobs coming IN to the country. 10 years later, this may mean patents for the Next Big Thing... I hope they have the vision to keep funding this through difficult times.

You're right on the R&D anyhow - there is a trickle of it and it will take time to build up a culture of high-end entrepreneurialsim. Somehow I can see medical technology a growth area...

Like Caroline Simons last night on Q&A, I'm not an economist, I only listen to George Lee, read McWilliams and so on so I don't know too well but I just can't see how recapitalising the banks is going to help. Maybe I'm refusing to see how it can help.

Or maybe they should just call it 'Nationalisation' like what it is if the Govt. have a 75% stake in the banks after they put in the 10 billion. The banks are playing politics as much as the politicians I'd say - I imagine what is needed is to strip it down to its rudiments of credit control, creation and delivery and get the best who can do that at the best price. Whoever they may be and however they're found - maybe these Dick Spring boards are the lads who'll do that. Bare minimum. Turn them into Credit Unions with a bit more advanced technology.

After that there seems to be a lot of fuss about it - can't they freeze the mortgage interest due from bad debtors - can't something like that be done for a year or two ? I believe it's happening in the states...

expat girl wrote:

To be honest, I am probably less worried about our Government than most. In many cases, too much action, too quickly can be worse than none at all, and many have criticised the "speedy gonzales" budget.
Frankly, the boom was caused by three things; 1) an explosion in high end jobs brought about by the IT and Internet revolution (we benefitted more than most and still do). 2) cheap energy... oil was 10 bucks a barrel in 1999 and only rose frighteningly since 2005 and 3) low interest rates, cheap money and ballooning personal, and often Government debt (although not in this country, but just take a look at the UK/US debt during the boom)

The bust has been caused by soaring energy prices, causing inflation, causing rising interest rates, stressing the indebted and causing business failure in highly energy dependent sectors, and Minsky's theory (now proven as far as I can see), that the longer the boom, the worse the bust, as people take more and more risks with investments/loans as the boom continues, "new paradigm" etc!

The financial chickens will take 5 years to come home to roost... but the only rule book we have is the 1930's depression and that DID NOT take place under 24/7 meedja scrutiny. I am personally happy with them taking a bit of time to consider the optimum fate of the banking sector, it is important that they come up with the right solution and if that takes time, so be it.

Gordon Brown's high speed recap does not seem to have been very successful in sorting out business lending in the UK, and painful as it may be, I am not sure that the solution to a problem caused at least partially by cheap debt is going to be solved by throwing MORE cheap money at borrowers. We need to spend the next few years trying to pay some of it back! Peer Steinbruek will be proven right about the currently lauded British solutions, fear not.

Perhaps the Government should go and have a good few Christmas drinks, go home, rest, and come back in the New Year with some better ideas.

As it is, there appears to be a good trickle of R&D jobs coming IN to the country. 10 years later, this may mean patents for the Next Big Thing... I hope they have the vision to keep funding this through difficult times.

I am to somewhat reassured by your interesting post = firstly, I think your list of reasons for the boom is a good one, - it is essentially an unavoidable event from long drawn out expansion. It is undeniable though that other countries with better regulation have been less hard hit. I think it would be unconcionable to let people who benefited from this walk away whilst the majority are beaten about by the consequences. There has to be accountability.

I agree that putting money into the banks, without effectively nationalising them, would be good money after bad. If the figures of 100 billion bad debt bandied about are correct, the money would vaporise. I think that Ireland needs to have at least one Irish bank with a long term commitment to the Irish economy and if that had to be a new State or community bank, so be it.

The Government had a good long rest already - they were resting up to November. They may need a couple of days break, but I think they should sober up and go for some long walks to clear their heads.

Was Minsky any relation to Marx?

Naah, I think he worked in U Michigan or U Minnesota or something, published a book before his death in the mid 90's (Hyram Minsky, I think his full name was). Book predictably ignored during the boom, now a must read. He was (until recently) a little known academic economist. Sad that the Nobels can't be administered posthumously!

expat

your profile of the boom looks like the standard tale now. I hadn't been thinking of the low price of oil but I suppose that was almost a part of the cheap credit ?

Another thing is this: could it be that too much happened too fast ? If everyone in the West tries to get a house - which is a 30-year investment and a new car - a 5 or 7 year item and a job for life - all at the same time then that will have an impact on production on the other side ...? Development ceases once everyone gets their house, car manufacture ceases or changes radically once a certain level of market share through competition and technological advancement is achieved (and you're left with of a surplus of good second hand objects then too) and the prices of consumer goods have been plummeting too - particularly electronics. How much turnover can support production ?? I've been fearing it's sort of ceasing now and what's left in a major sense is in energy innovation - perhaps biology and health.

The banks perhaps have gambled too much and are facing paying bad debts of a major scale and perhaps cannot afford it because there's only a smaller trickle of money coming in from reduced consumerism and reduced spending. If they all reduced interest rates between them for a year or two it migth be some kind of a solution but it seems that this industry too - banking has ceased up.

anudder interesting article on Finfacts

http://www.finfacts.ie/irishfinancenews/article_1015534.shtml

looks like our banks are managing something well, anyway!

3 repos per 100,000 here compared with 200 in the UK

I do often wonder if our banks deserve ALL the flak they are getting; they weren't spectacularly exposed to subprime or the likes of Madoff and they seem to be handling distressed reposession far better. Having spent 5+ years at the mercy of the UK banking sector.....I'm delighted to be home. It's the little things, like being able to walk into the branch and get a draft printed right away, rather than filling in a 3 page form and waiting 10 days for the "Landon office" to do it, because of some obscure piece of anti-terror legislation (they make more money that way, more like). Or being charged 5% value to get a euro cheque lodged to a Sterling account. Grrr!!

Anyway, am hoping for part nationalisation rather than vulture capitalists, as I suspect the comparatively good customer service here would suffer (Canadian banks were nice too, actually, but with all that oil money, they probably aren't endangered species yet!)

I am also beginning to question the wisdom of sacking some of the head honchos, too. I wonder, would 10 bonus free years be punishment enough?? The expertise these guys are getting at the moment will be invaluable in years to come.

Have to say I disagree with you on the good customer service in the banks here. Perhaps you have not been back long enough to have had the interaction to properly gauge the customer care. I have had some absolutely terrible experiences with the customer care in the banks here as have other members of my family. Take for example the fact that in one of the largest banks you can no longer ring a branch directly. If you ring the number for the branch in the telephone directly you just get put through to a centralised call centre. Drive me up the wall when I wanted to get in touch with my bank manager. I was so annoyed I withdrew all my money from an account in that particular bank, a sum of over €10k. They didn't even bat an eyelid when I threatened to do so. I would imagine the mess they are in now means there is a different situation.