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

That's a bleak picture outlined by McWilliams there - incompetence and stupidity are some of the better characteristics that could be attributed to the players in this deal. McWilliams said it from the start of this meltdown in September that the next phase after the guarantee would have been to flush the bankers out of the banks as this would lend some credibility to the system we're in. Instead we're seen to be aiding and abetting gamblers at their game ...

Is this the Morning Ireland show with Eamon Ryan on it? From Monday 22nd December, 08 ?? - or a week earlier on 15th ??
http://dynamic.rte.ie/quickaxs/209-rte-morningireland-Monday.smil

This the show from the following day, Tuesday 23rd Dec. 08. Cathal MacCoille asks Alex Potter of Collins-Stewart Investments in London, why the Irish administration hasn't gone down the Swedish route.
http://dynamic.rte.ie/quickaxs/209-rte-morningireland-Tuesday.smil

Back in July the Indo was saying bad debt amounted to over 40 billion. This was on the basis of a 12% drop in property values.

I wouldn't have an idea how much they would expect to make a year under the expected economic circumstances.

Quote :

Posted by Edward Harrison on 13 July 2008 Published in UncategorizedAccording to the Irish Independent, the recent fall in Irish bank shares is due to a loss of faith in their bad debt provisions. On Tuesday, Bank of Ireland fell 14%, the largest amount in 20 years.

After last week’s dive in their share prices, the Irish banks are under pressure as never before. It is now abundantly clear that investors no longer believe the bad debt numbers being published by the Irish banks. Until they do, bank share prices will keep on falling.

Tuesday was a defining moment for the Irish banks. With their share prices already down by between 63 per cent and 76 per cent since their peaks in the first half of 2007, banks shares tumbled by a further 5 per cent on Tuesday morning.

Events in the UK, especially the implosion of Bradford & Bingley, have been weighing on Irish shares as similar previously hidden losses are expected there soon as well. Moreover, Irish banks are also heavily exposed to the UK, where there has been a steep drop in house pries.

Overseas investors are looking at the Irish and UK property markets, to which all of the Irish banks are heavily exposed, and not liking what they see. Irish house prices are down by almost 12 per cent since March 2007, while commercial property values are down by an estimated 20 per cent. Across the water, house prices are falling at their fastest rate since 1992.

The numbers are startling. At the end of 1997, total Irish private sector credit stood at just €56bn. By the end of 2007, just 10 years later, it had risen almost seven-fold to €375bn. However, it was not just the scale of the Irish credit explosion with average annual credit growth running at over 21 per cent a year for a decade, which spooked overseas investors, but the changing composition of Irish bank lending.

A decade ago mortgage and other property-related lending, such as loans to builders and real estate developers, made up 38 per cent of all bank lending or about €21bn. By the end of 1997, the volume of such property-related lending had increased more than eleven-fold to €236bn and made up over 61 per cent of all bank lending.

In other words, property-related lending increased from just over a third of all Irish bank lending to almost two-thirds in a decade. Over the same period, average Irish house prices rose by 208 per cent.

Overseas investors take one look at those numbers and head for the hills. It is their perfectly legitimate fears — that such a huge increase in property-related lending and property prices will be followed by a price collapse, resulting in massive bad debts, and not the activities of the largely mythical short-sellers, which have caused the collapse in Irish bank share prices.

So just how massively exposed are all four quoted Irish banks to the property market?

Least exposed is AIB which has 59 per cent of its loan book tied up in bricks and mortar. Next up is Bank of Ireland where property-related lending makes up 71 per cent of all the loans on its books. IL&P’s banking subsidiary Permanent TSB is even more exposed with over 90 per cent of its loans being property-related.

Unfortunately the other Irish quoted bank, Anglo Irish, doesn’t produce a meaningful sectoral breakdown of its lending.

However, we have it from the horse’s mouth. Actually from finance director Willie McAteer, in Anglo’s recent interim results conference, that: “All lending [is] secured, cross collateralised with personal recourse”. Translated from bankerspeak that certainly means that most — if not all — Anglo’s €69bn loan book is directly or indirectly property-related.

Add it all up, and the four major Irish banks have a total exposure of about €280bn to property-related lending. Most of it to the falling Irish and British property markets. With that sort of an exposure, the only question is not if bad debts will increase but by how much. One possible answer is provided by the fall in the combined value of the Irish banks.

At their peak AIB, Bank of Ireland, IL&P and Anglo were worth a combined €58bn. By the end of this week this had fallen to just €17bn. That’s a total reduction in value of almost €41bn.

A combined bad debt charge of €41bn would be catastrophic for the four main banks. In practice, things probably aren’t quite that bad. Just as the Irish banks were overvalued in the first half of 2007 they are now probably oversold. However, bad debts of even half that amount would still condemn the Irish banks, and with them the Irish economy, to years of grinding retrenchment.

After last week’s events, there is no longer anywhere left for the Irish banks to hide. The most recent bad debt figures published by the banks, which show annual bad debt charges of between 0.09 per cent and 0.26 per cent of their loan books belong to another era and are no longer credible.

The Irish banks are going to have come clean on the real level of their bad debts. We are now entering a much more difficult period during which bank lending will at best stall and probably contract while property prices will continue to fall. This will mean much higher levels of bad debts. Unless and until the Irish banks respond to this new reality, their share prices will continue to fall.

-Irish Independent, 13 Jul 2008

Just read this article that says that Anglo Irish has actually increased its loans to developers since the Bank Guarantee.

http://www.irishtimes.com/newspaper/finance/2008/1204/1228337398499.html

This 28th November Press Release from the Department of Finance shows that Government seems to be relying on a report by the Central Bank and the Regulator of the position of the banks September 2008.
http://www.finance.gov.ie/viewdoc.asp?DocID=5553

This was the report that said:

Quote :

The capital position of each of the institutions reviewed is in excess of regulatory requirements as at 30 September 2008. The report also concludes that even in certain stress scenarios the capital levels in the financial institutions will remain within regulatory requirements in the period to 2011.

The Minister noted that the Government’s guarantee Scheme has been successful in safeguarding the stability of the Irish banking sector and in restoring its liquidity position. The Minister has been engaging with the financial institutions in respect of their obligations under the Scheme. However, the Minister is aware that international capital market expectations in relation to capital levels in the banking sector have altered

.

The detailed findings of the report are not available due to "commercial sensitivity".

This is the DoF Statement by Lenihan in which he expressed "disappointment with the circumstances surrounding" Fitzpatrick's resignation and states he was consulted on the appointment of Donal O'Connor

http://www.finance.gov.ie/viewdoc.asp?DocID=5607&CatID=1&StartDate=1+January+2008&m=n

The details of the recapitalisation scheme are here:

http://www.finance.gov.ie/viewdoc.asp?DocID=5609&CatID=1&StartDate=1+January+2008&m=n

There has to be an EGM and Anglo Irish shareholders must vote for the scheme if it is to go ahead. It appears that legislation to change the Pensions Reserve Fund terms must be needed as well.

Fair play to you for keeping up with this story cactus, you've added a right whack of detail up there.

Over on the Pin they are discussing Irish Banks and Golden Circles and Gavinsblog opens with a scathing article from an ex Irish Central Banker who sits on the board of the IMF. Gavin hopes he'll be on the board when they take over sometime next year.

Quote :

By giving massive guarantees and capital injections to the banks, the Government has severely constrained its own ability to borrow. Hence, taxpayers and consumers and workers will have to pay the price over the next few years - for mistakes which they had absolutely nothing to do with.

But, once again, the establishment which caused the mistakes has come out of the meltdown virtually unscathed. If the banks, including Anglo Irish Bank, need additional capital, it will be forthcoming - at a time when health services are being slashed, taxes and levies raised, and workers will have to accept substantial pay cuts and job losses.

It is interesting to note that the only Minister who has proposed any sanctions against the banks is a member of the Green Party, which has probably not yet been fully absorbed into the establishment.

Although the recent Government plan is all about change and renewal, some things never change. The banks are still very much part of the establishment and will remain so.

http://www.irishtimes.com/newspaper/opinion/2008/1227/1229728559363.html

Some new blood needs to go in, some head-hunting needs to be done.

Auditor #9 wrote:

Fair play to you for keeping up with this story cactus, you've added a right whack of detail up there.

Over on the Pin they are discussing Irish Banks and Golden Circles and Gavinsblog opens with a scathing article from an ex Irish Central Banker who sits on the board of the IMF. Gavin hopes he'll be on the board when they take over sometime next year.

Quote :

By giving massive guarantees and capital injections to the banks, the Government has severely constrained its own ability to borrow. Hence, taxpayers and consumers and workers will have to pay the price over the next few years - for mistakes which they had absolutely nothing to do with.

But, once again, the establishment which caused the mistakes has come out of the meltdown virtually unscathed. If the banks, including Anglo Irish Bank, need additional capital, it will be forthcoming - at a time when health services are being slashed, taxes and levies raised, and workers will have to accept substantial pay cuts and job losses.

It is interesting to note that the only Minister who has proposed any sanctions against the banks is a member of the Green Party, which has probably not yet been fully absorbed into the establishment.

Although the recent Government plan is all about change and renewal, some things never change. The banks are still very much part of the establishment and will remain so.

http://www.irishtimes.com/newspaper/opinion/2008/1227/1229728559363.html

Some new blood needs to go in, some head-hunting needs to be done.

That is a great article by Michael Casey - the golden circles and cosy cartels didn't disappear in the boom but by throwing credit around everyone was lead to believe that they, too, could live the 'golden circle' life. Now the Taoiseach tells us that a lot of us are going to be unemployed and our living standards will drop. He didn't say if the golden circle lose their homes and be on the bread line? If Brian Cowen is voted out in the next General Election he is set to remain on a fat state pension for life, even if not a single person were to cast a vote for him.

Michael Casey on the Irish banks:

Quote :

Banks are part of the establishment in Ireland, and have been for many years. In the 1960s and 1970s virtually every family in the country hoped to get one or more of their children "into the bank".

In most towns and cities, bank managers were respected and looked up to. Many of them were Peace Commissioners. In those impressive bank buildings - almost like churches - business was conducted in reverential tones. It never occurred to anyone to check their bank statement. It was inconceivable that a bank would make a mistake, let alone pull a fast one.

These attitudes persist to this day, despite many banking scandals. It comes as no surprise that the recently revealed behaviour of Seán FitzPatrick of Anglo Irish Bank is not, according to him at any rate, against the law. Even the law bends over backwards to protect companies, especially banks.

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

During the tribunals of inquiry there were occasional revelations about politicians who had personal debts written off by banks. It is not an infrequent occurrence. There was even a case where RTÉ refused to pursue a politician for full recovery of legal costs.

Politicians and senior public officials (including former central bankers and regulators) are regularly invited on to the boards of banks. It is also the case that the children and other relatives of politicians and senior officials are employed by the banks via an inside track. If foreign banks took over, would these perks continue?

Corporate hospitality and political donations are perhaps not as flagrant as heretofore, but it would be naive to assume they do not still have a significant impact. As a former politician once observed: "It's hard to be mad with an opponent when he stands you a large brandy in the Dáil bar."

cactus flower wrote:

That is a great article by Michael Casey.

Michael Casey on the Irish banks:

Quote :

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.


This is just another article from a mouthpiece with an agenda to push.

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

tonys wrote:

cactus flower wrote:

That is a great article by Michael Casey.

Michael Casey on the Irish banks:

Quote :

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.


This is just another article from a mouthpiece with an agenda to push.

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

I think it's largely a case that the banks are unpopular in the same way moneylenders always have been. It's irrelevant to most people whether the Irish banks really sacrifice Christian children or not.

tonys wrote:

cactus flower wrote:

That is a great article by Michael Casey.

Michael Casey on the Irish banks:

Quote :

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.

This is just another article from a mouthpiece with an agenda to push.

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

What has the US got to do with recapitalisation of the Irish banks? The Irish banks' problem is in the main bad property debts from over-lending. It is an entirely home-made problem. India, in the same situation with an overheated property market, pulled back the banks and stopped all lending for raw land until the oversupply sorted itself out and also restricted the level of mortgages. There are plenty of other countries who aren't having to recapitalise. Here, fuel was thrown on the fire with tax incentives for development. The Banks sold their own property in 2006 and knew well that the property market had plateaued, but threw out lending by the truckload for commercial and residential land and buildings at volumes that led to doubling of land prices in a year. They were not regulated and anyone who said to Government there was a problem was a loo-lah.

The underlying problem was that manufacturing competitivity had started to drop from 2001 and Government did nothing effective about that - in fact, they made it worse with overdependence on construction and public spending for employment and tax. They were responsible for massive amounts of waste, over-rapid increase in public spending and failure to provide services at competitive prices. The whole economy was treated as a milch cow to buy votes.

We were warned by the IMF for years that we were running a big risk and chose to ignore it.

Brian Lenihan presumably hopes that if he keeps saying the problem is not an Irish made one, but to do with the Credit Crunch, we will be stupid enough to lap it up.

The article is not party political but points out that we are (nearly) all worse off as a result of that culture.

Your line seems to be that for some unexplained reason, Government and our national political culture should be viewed as immune to criticism. You haven't given any reason why that should be the case, but it would certainly benefit the incumbent party if it was accepted. An unaccountable government and an unregulated financial system - now that is a recipe for success.

ibis wrote:

tonys wrote:

cactus flower wrote:

That is a great article by Michael Casey.

Michael Casey on the Irish banks:

Quote :

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.


This is just another article from a mouthpiece with an agenda to push.

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

I think it's largely a case that the banks are unpopular in the same way moneylenders always have been. It's irrelevant to most people whether the Irish banks really sacrifice Christian children or not.

You think they did really well, is it Ibis?

tonys wrote:

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.

No you're absolutely correct we didn't begin the western world trend of financial deregulation we just jumped on the deregulation bandwagon of the Americans who it seems started in earnest around 2000 when Greenspan flouted the ancient and conservative (for a reason) Glass Steagall Act of 1933. They said 'jump' and we jumped - what does that make us? I'd say at best, reckless and irresponsible.

Quote :

This is just another article from a mouthpiece with an agenda to push.

Agenda ? Would you mind sharing your thoughts with us ?

Quote :

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

It also generally agrees with the thoughts of plenty other qualified professionals ... and plenty of people on these forums are quick to term your own facility with debating 'great', which is true, so it's a mystery as to why you have to respond to an interesting subject from a point way too far down the triangle below for your very respected abilities

cactus flower wrote:

ibis wrote:

tonys wrote:

cactus flower wrote:

That is a great article by Michael Casey.

Michael Casey on the Irish banks:

Quote :

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.


This is just another article from a mouthpiece with an agenda to push.

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

I think it's largely a case that the banks are unpopular in the same way moneylenders always have been. It's irrelevant to most people whether the Irish banks really sacrifice Christian children or not.

You think they did really well, is it Ibis?

They have very little on their books in the way of sub-prime mortgages. That doesn't mean they did "really well" (by whose lights?), but in the absence of a world-wide credit crunch, there's no evidence that the Irish banks would have had any difficulties at all. There would have been some mortgage defaults, and some forced sales, but probably not even enough to put the Irish banks out of profit for a quarter. The judgement on Irish banks was always positive - "Irish financial institutions have only very limited exposure to impaired subprime or related assets and stress-testing exercises indicate that Irish banks are solidly profitable, well capitalised and have high-quality assets."

What caused the difficulties for Irish banks really does appear to be the exogenous credit crunch caused by everybody else's exposure to sub-prime mortgages etc. The Irish banks were - as they always have been - relatively conservative in their lending practices.

All banks, however profitable and solidly backed, require inter-bank lending to cover day to day operations. The seizing-up of that market was what produced the difficulties for the Irish banks - the equivalent of a perfectly good engine seizing up for lack of oil, rather than any fault in the engine.

ibis wrote:

cactus flower wrote:

ibis wrote:

tonys wrote:

cactus flower wrote:

That is a great article by Michael Casey.

Michael Casey on the Irish banks:

Quote :

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.


This is just another article from a mouthpiece with an agenda to push.

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

I think it's largely a case that the banks are unpopular in the same way moneylenders always have been. It's irrelevant to most people whether the Irish banks really sacrifice Christian children or not.

You think they did really well, is it Ibis?

They have very little on their books in the way of sub-prime mortgages.[/b] That doesn't mean they did "really well" (by whose lights?), but in the absence of a world-wide credit crunch, there's no evidence that the Irish banks would have had any difficulties at all. There would have been some mortgage defaults, and some forced sales, but probably not even enough to put the Irish banks out of profit for a quarter. The judgement on Irish banks was always positive - "Irish financial institutions have only very limited exposure to impaired subprime or related assets and stress-testing exercises indicate that Irish banks are solidly profitable, well capitalised and have high-quality assets."

What caused the difficulties for Irish banks really does appear to be the exogenous credit crunch caused by everybody else's exposure to sub-prime mortgages etc. The Irish banks were - as they always have been - relatively conservative in their lending practices.

All banks, however profitable and solidly backed, require inter-bank lending to cover day to day operations. The seizing-up of that market was what produced the difficulties for the Irish banks - the equivalent of a perfectly good engine seizing up for lack of oil, rather than any fault in the engine.

This is so extraordinarily ill-informed and inaccurate that it is hard to know where to start replying. Are you quoting the Regulator's report as your only source?

cactus flower wrote:

Back in July the Indo was saying bad debt amounted to over 40 billion. This was on the basis of a 12% drop in property values.

I wouldn't have an idea how much they would expect to make a year under the expected economic circumstances.

Quote :

Posted by Edward Harrison on 13 July 2008 Published in UncategorizedAccording to the Irish Independent, the recent fall in Irish bank shares is due to a loss of faith in their bad debt provisions. On Tuesday, Bank of Ireland fell 14%, the largest amount in 20 years.

After last week’s dive in their share prices, the Irish banks are under pressure as never before. It is now abundantly clear that investors no longer believe the bad debt numbers being published by the Irish banks. Until they do, bank share prices will keep on falling.

Tuesday was a defining moment for the Irish banks. With their share prices already down by between 63 per cent and 76 per cent since their peaks in the first half of 2007, banks shares tumbled by a further 5 per cent on Tuesday morning.

Events in the UK, especially the implosion of Bradford & Bingley, have been weighing on Irish shares as similar previously hidden losses are expected there soon as well. Moreover, Irish banks are also heavily exposed to the UK, where there has been a steep drop in house pries.

Overseas investors are looking at the Irish and UK property markets, to which all of the Irish banks are heavily exposed, and not liking what they see. Irish house prices are down by almost 12 per cent since March 2007, while commercial property values are down by an estimated 20 per cent. Across the water, house prices are falling at their fastest rate since 1992.

The numbers are startling. At the end of 1997, total Irish private sector credit stood at just €56bn. By the end of 2007, just 10 years later, it had risen almost seven-fold to €375bn. However, it was not just the scale of the Irish credit explosion with average annual credit growth running at over 21 per cent a year for a decade, which spooked overseas investors, but the changing composition of Irish bank lending.

A decade ago mortgage and other property-related lending, such as loans to builders and real estate developers, made up 38 per cent of all bank lending or about €21bn. By the end of 1997, the volume of such property-related lending had increased more than eleven-fold to €236bn and made up over 61 per cent of all bank lending.

In other words, property-related lending increased from just over a third of all Irish bank lending to almost two-thirds in a decade. Over the same period, average Irish house prices rose by 208 per cent.

Overseas investors take one look at those numbers and head for the hills. It is their perfectly legitimate fears — that such a huge increase in property-related lending and property prices will be followed by a price collapse, resulting in massive bad debts, and not the activities of the largely mythical short-sellers, which have caused the collapse in Irish bank share prices.

So just how massively exposed are all four quoted Irish banks to the property market?

Least exposed is AIB which has 59 per cent of its loan book tied up in bricks and mortar. Next up is Bank of Ireland where property-related lending makes up 71 per cent of all the loans on its books. IL&P’s banking subsidiary Permanent TSB is even more exposed with over 90 per cent of its loans being property-related.

Unfortunately the other Irish quoted bank, Anglo Irish, doesn’t produce a meaningful sectoral breakdown of its lending.

However, we have it from the horse’s mouth. Actually from finance director Willie McAteer, in Anglo’s recent interim results conference, that: “All lending [is] secured, cross collateralised with personal recourse”. Translated from bankerspeak that certainly means that most — if not all — Anglo’s €69bn loan book is directly or indirectly property-related.

Add it all up, and the four major Irish banks have a total exposure of about €280bn to property-related lending. Most of it to the falling Irish and British property markets. With that sort of an exposure, the only question is not if bad debts will increase but by how much. One possible answer is provided by the fall in the combined value of the Irish banks.

At their peak AIB, Bank of Ireland, IL&P and Anglo were worth a combined €58bn. By the end of this week this had fallen to just €17bn. That’s a total reduction in value of almost €41bn.

A combined bad debt charge of €41bn would be catastrophic for the four main banks. In practice, things probably aren’t quite that bad. Just as the Irish banks were overvalued in the first half of 2007 they are now probably oversold. However, bad debts of even half that amount would still condemn the Irish banks, and with them the Irish economy, to years of grinding retrenchment.

After last week’s events, there is no longer anywhere left for the Irish banks to hide. The most recent bad debt figures published by the banks, which show annual bad debt charges of between 0.09 per cent and 0.26 per cent of their loan books belong to another era and are no longer credible.

The Irish banks are going to have come clean on the real level of their bad debts. We are now entering a much more difficult period during which bank lending will at best stall and probably contract while property prices will continue to fall. This will mean much higher levels of bad debts. Unless and until the Irish banks respond to this new reality, their share prices will continue to fall.

-Irish Independent, 13 Jul 2008

Perhaps you would respond to that, Ibis. There is plenty of evidence to suggest the position is much worse than suggested in this article, but it would be some kind of start in recognising the position.

cactus flower wrote:

ibis wrote:

cactus flower wrote:

ibis wrote:

tonys wrote:

cactus flower wrote:

That is a great article by Michael Casey.

Michael Casey on the Irish banks:

Quote :

This brings us full circle to the question of legislators, ie politicians who are also part of the establishment - the second estate. The laws are not designed to punish one's own kind. They are designed primarily to protect the establishment. It is virtually impossible to prove fraud in this country. That is not an accident. In the US there is a crime called "civil racketeering", which is used to punish many white-collar fraudsters. There is no such crime on our statute books.

No individual in Ireland could afford to take a bank to court, and class actions, which are common in the US, are not permitted here. The consumer doesn't count for very much in this country. No political party has ever sponsored any form of consumerism.

Will someone please correct me if I’m wrong here, but as I understand it, it wasn’t the Irish banks or politicians who have brought the world’s financial system to breaking point, it was the financial institutions of the good old USA, you know, the same USA that is the home of “class actions, the crime of "civil racketeering” & other glories, along with the American politicians who allowed them to do it.


This is just another article from a mouthpiece with an agenda to push.

A “great article”?, by which I take it you mean it agrees with your own thoughts.
Great or even good needs something much more than that I think.

I think it's largely a case that the banks are unpopular in the same way moneylenders always have been. It's irrelevant to most people whether the Irish banks really sacrifice Christian children or not.

You think they did really well, is it Ibis?

They have very little on their books in the way of sub-prime mortgages.[/b] That doesn't mean they did "really well" (by whose lights?), but in the absence of a world-wide credit crunch, there's no evidence that the Irish banks would have had any difficulties at all. There would have been some mortgage defaults, and some forced sales, but probably not even enough to put the Irish banks out of profit for a quarter. The judgement on Irish banks was always positive - "Irish financial institutions have only very limited exposure to impaired subprime or related assets and stress-testing exercises indicate that Irish banks are solidly profitable, well capitalised and have high-quality assets."

What caused the difficulties for Irish banks really does appear to be the exogenous credit crunch caused by everybody else's exposure to sub-prime mortgages etc. The Irish banks were - as they always have been - relatively conservative in their lending practices.

All banks, however profitable and solidly backed, require inter-bank lending to cover day to day operations. The seizing-up of that market was what produced the difficulties for the Irish banks - the equivalent of a perfectly good engine seizing up for lack of oil, rather than any fault in the engine.

This is so extraordinarily ill-informed and inaccurate that it is hard to know where to start replying. Are you quoting the Regulator's report as your only source?

No, I'm quoting a wide variety of foreign financial news sources. Do you have any evidence that the Irish banks were exposed to sub-prime loans to any large degree, or were in financial trouble before the credit crunch?

It is yourself that keeps dragging in the term sup-prime, which is irrelevant.

Would you like to provide any links to any of your sources?

Your post crossed with my previous one that gives a summary of the banks position as of July - nothing whatsoever to do with the US credit crunch.

ibis wrote:

All banks, however profitable and solidly backed, require inter-bank lending to cover day to day operations. The seizing-up of that market was what produced the difficulties for the Irish banks - the equivalent of a perfectly good engine seizing up for lack of oil, rather than any fault in the engine.

Funny analogies - liquidity and solvency - engine has no oil = liquidity; serious issues in the engine = insolvency. One can lead to the other in a real engine as it can in business too. No oil and you weld your engine parts together with the heat. Problem is, you're forgetting the fuel - the commercial development sector in this country may have become too saturated for the amount of business that is out there. Really, how many plasma tvs can a person have ? Business is often based on literally dumping stuff - destroying stuff. The more we continually destroy and produce the more business will continue as 'normal'. You yourself, however, are part of those forces that oppose this ....

Are you very much sure that it was interbank lending that brought the system down here ? Far as I know, LIBOR rates have been easing since the panic in September, our national likelihood to default has been rising however ...

cactus flower wrote:

It is yourself that keeps dragging in the term sup-prime, which is irrelevant.

Would you like to provide any links to any of your sources?

A Google search will provide any amount of such analysis to back up my statement.

cactus flower wrote:

Your post crossed with my previous one that gives a summary of the banks position as of July - nothing whatsoever to do with the US credit crunch.

It's very largely to do with the credit crunch. If there had been no sub-prime crisis, all that the Irish banks' exposure to the Irish property market would have done is given them a few rough quarters in terms of share price. The article you posted doesn't show that the Irish banks have bad debt on their books - it shows that people think they might, and distrust the banks assurances that they don't. Largely that thinking, and that distrust, is the result of a huge property-related bad debt crisis everywhere else.

It doesn't matter what level Irish house prices fall to - what matters is whether Irish people default on their mortgages. As long as default levels remain tolerable, the grotesque difference between the mortgages people are paying and the value of their houses isn't the banks' problem - they continue to profit from those mortgages exactly as if house prices had remained steady.

Auditor #9 wrote:

ibis wrote:

All banks, however profitable and solidly backed, require inter-bank lending to cover day to day operations. The seizing-up of that market was what produced the difficulties for the Irish banks - the equivalent of a perfectly good engine seizing up for lack of oil, rather than any fault in the engine.

Funny analogies - liquidity and solvency - engine has no oil = liquidity; serious issues in the engine = insolvency. One can lead to the other in a real engine as it can in business too. No oil and you weld your engine parts together with the heat. Problem is, you're forgetting the fuel - the commercial development sector in this country may have become too saturated for the amount of business that is out there. Really, how many plasma tvs can a person have ? Business is often based on literally dumping stuff - destroying stuff. The more we continually destroy and produce the more business will continue as 'normal'. You yourself, however, are part of those forces that oppose this ....

Are you very much sure that it was interbank lending that brought the system down here ? Far as I know, LIBOR rates have been easing since the panic in September, our national likelihood to default has been rising however ...

Irish mortgage default rates are very low compared to US levels:

Quote :

Analysts estimate the size of the Irish sub-prime market to be around Euro1bn this year, or just over 2% of the total mortgage market of Euro41bn. IL&P believes this could grow fourfold within a few years, though, bringing it closer to the UK market where 10-15% of mortgages are at the subprime end. In the US it's closer to 20%, with sub-prime accounting for up to 35% of new business last year.

Lenders here - as in the US - are attracted to the fat margins and strong growth available through sub-prime loans. Although the credit risks are higher when lending to less-eligible borrowers, higher interest rates compensate. Start achieved a spread of 360bps over Euribor in 2006 compared to the 100bps earned by a typical Irish mortgage book, according a note by Davy. But the typical Irish mortgage book also has an arrears rate below 1%, while Start is saddled with 3.4% of its loans in arrears.

That figure is a fraction of the 14% default rate across the US sub-prime market.

The default rate among all US mortgages is around 4.65%.

That's from the Tribune in 2007. Mortgage default rates have almost certainly risen in Ireland since, but they're unlikely to have quintupled to average US levels. The total number of repossession orders in the High Court for 2008 was 465, compared to 278 for 2007 - a rise of 67% only. Assuming an average house price of €350K, you're talking about a total repossession value of €162m. Assuming those homes lose 40% of their value (largely as the result of the forced sale), then the banks lose €65m - minus whatever mortgage value was already paid off. Across all the Irish banks that is sod-all.

100% mortgages ibis - how many of them are around the place ? We're not sure either of the value of commercial property potentially at risk of default or worse of not selling.

The banks are a bit frozen up because they lent way too much to too few developers http://www.independent.ie/national-news/top-developers-see-asset-values-dive-twothirds-1496605.html and end up having to write them down.

I'm tempted to think of our problems here as 'sub-prime developers mortgages' - too few over-borrowed too much on the basis of future inflated asset values that were ambitious, if indeed those assets had sold.

Auditor #9 wrote:

100% mortgages ibis - how many of them are around the place ? We're not sure either of the value of commercial property potentially at risk of default or worse of not selling.

The banks are a bit frozen up because they lent way too much to too few developers http://www.independent.ie/national-news/top-developers-see-asset-values-dive-twothirds-1496605.html and end up having to write them down.

I'm tempted to think of our problems here as 'sub-prime developers mortgages' - too few over-borrowed too much on the basis of future inflated asset values that were ambitious, if indeed those assets had sold.

It's true that the Irish banks may be over-exposed to a few major developers - but the fact that AIB were willing to simply write down the value of the property assets suggests something that the banks are aware of, and which doesn't overly worry them. Again, the point is that as long as the developers can pay the installments on their loans, that isn't bad debt, no matter what the value of the property becomes. If developers reckon their best bet is to hold onto the properties as a land-bank for any future boom - and Irish development history suggests that's exactly what they would prefer - then the banks don't have a problem.

The reasoning in that article strikes me as very post hoc reasoning. Irish bank shares have fallen, and therefore there must be an endogenous reason. Irish bank shares were always going to fall on foot of the global banking crisis, because they're banks. That's not to say that there aren't problems with the Irish banks, but to try and explain the whole fall in Irish bank shares as being the result of the possibility of bad debt is the kind of rubbish that results from believing that stock markets are rational - something proven utterly untrue time after time after time after time.

Quote :

[quote="ibis"]

cactus flower wrote:

It is yourself that keeps dragging in the term sup-prime, which is irrelevant.

Would you like to provide any links to any of your sources?

A Google search will provide any amount of such analysis to back up my statement.

So provide one of them, please.

Quote :

[quote="cactus flower"]quote]Your post crossed with my previous one that gives a summary of the banks position as of July - nothing whatsoever to do with the US credit crunch.

Quote :

It's very largely to do with the credit crunch. If there had been no sub-prime crisis, all that the Irish banks' exposure to the Irish property market would have done is given them a few rough quarters in terms of share price. The article you posted doesn't show that the Irish banks have bad debt on their books - it shows that people think they might, and distrust the banks assurances that they don't. Largely that thinking, and that distrust, is the result of a huge property-related bad debt crisis everywhere else.

In my opinion, that is at best wishful thinking. I don't think you are basing it on any consideration of the available data.

Quote :

It doesn't matter what level Irish house prices fall to - what matters is whether Irish people default on their mortgages. As long as default levels remain tolerable, the grotesque difference between the mortgages people are paying and the value of their houses isn't the banks' problem - they continue to profit from those mortgages exactly as if house prices had remained steady.

Ibis, you have your eye on the wrong ball. The bank lendings that are dodgy were mainly made from 2006 on at grossly inflated valuations. They are not lendings to Joe and Jill Blogger to buy a three bed semi. They are loans of billions made to buy commercial property and development lands at the top of the market. Paper land prices doubled in a year in Ireland 2006-2007. Ireland was the second biggest buyer of commercial property in Europe over the same period. The lenders received bonuses that related to the amount loaned.

Believe me, I know what I am talking about here. Developers have purchased large amounts of very highly priced lands, on the expectation of a quick and profitable turnover, that have no development value at present and may not be developed for many years if ever. They also have bought heavily in England and the States (land, residential and commercial property). I have pointed out in posts over the last year that the interest is being rolled over i.e. is unpaid and accumulating, while development is at a standstill. The amounts involved are hundreds of billions.

In order pay for rolling these loans over, banks are racking up interest rates for ordinary businesses and personal loans and now they are taking money from the Pensions Fund. Many businesses are going to fail. Employment is going up at a rate of knots and a lot of the housing loans that once were prime will in all probability become sub prime in due course.

Your cosy picture of a well-planned land bank sadly depends on far too many "ifs".



The Irish economy is of course impacted on and is part of the world economy. But the recapitalisation is to deal with something that would have taken place notwithstanding a global slump. A global slump turns a catastrophe into a disaster.

I don't disagree entirely with what you're saying - my point is more along the lines of the last bit of your post - that in the absence of a global slump, the banks would be looking at a major problem, but one that would probably be sustainable.

ibis wrote:

Auditor #9 wrote:

100% mortgages ibis - how many of them are around the place ? We're not sure either of the value of commercial property potentially at risk of default or worse of not selling.

The banks are a bit frozen up because they lent way too much to too few developers http://www.independent.ie/national-news/top-developers-see-asset-values-dive-twothirds-1496605.html and end up having to write them down.

I'm tempted to think of our problems here as 'sub-prime developers mortgages' - too few over-borrowed too much on the basis of future inflated asset values that were ambitious, if indeed those assets had sold.

It's true that the Irish banks may be over-exposed to a few major developers - but the fact that AIB were willing to simply write down the value of the property assets suggests something that the banks are aware of, and which doesn't overly worry them. Again, the point is that as long as the developers can pay the installments on their loans, that isn't bad debt, no matter what the value of the property becomes. If developers reckon their best bet is to hold onto the properties as a land-bank for any future boom - and Irish development history suggests that's exactly what they would prefer - then the banks don't have a problem.

The reasoning in that article strikes me as very post hoc reasoning. Irish bank shares have fallen, and therefore there must be an endogenous reason. Irish bank shares were always going to fall on foot of the global banking crisis, because they're banks. That's not to say that there aren't problems with the Irish banks, but to try and explain the whole fall in Irish bank shares as being the result of the possibility of bad debt is the kind of rubbish that results from believing that stock markets are rational - something proven utterly untrue time after time after time after time.

I'm sure there are plenty of banks which haven't suffered but they tend to be conservative and traditional lenders. The way I perceive it is that certain lenders if not States got caught up in a wave or fashion of lending or class of speculation and we are guilty of that here. Perhaps there was no stopping it, the feverish investing and speculation that has left us with 35000 unoccupied houses - ghost estates dotted around the place as well as a handsome commercial property overhang. Will this ever move ? Who knows ? The extent of it is still unknown but we do know that Anglo themselves had put €500 million aside for bad debts. That's a lot of Seán Fitzpatrick confirmation money.

Quote :

Anglo Irish Bank, which focuses on property-secured lending, today issued its preliminary statement for the year to 30 September 2008 and reported net income before tax of €784m down 37% from 2007. The bank took a €500 million charge for expected bad debts and will not pay a dividend.

http://www.finfacts.ie/irishfinancenews/article_1015432.shtml

ibis wrote:

I don't disagree entirely with what you're saying - my point is more along the lines of the last bit of your post - that in the absence of a global slump, the banks would be looking at a major problem, but one that would probably be sustainable.

We won't fight over it. We have a government (and banking system) up to the ears in graft and with their eyes off the ball, but essentially, I think the bigger picture is a systemic failure of capitalism. India, for all that they did everything right on the banking front, are being dragged in to a potentially devastating manufactured dispute with their neighbour. There is no one who won't be affected one way or another by the economic mayhem that is on the loose.

(btw - any comments on the takeover of the Ansbacher by Anglo Irish ?)

Quote :

Anglo Irish Bank, which focuses on property-secured lending, today issued its preliminary statement for the year to 30 September 2008 and reported net income before tax of €784m down 37% from 2007. The bank took a €500 million charge for expected bad debts and will not pay a dividend.

Thanks for that Auditor #9. As we now know, that was not enough.

cactus flower wrote:

ibis wrote:

I don't disagree entirely with what you're saying - my point is more along the lines of the last bit of your post - that in the absence of a global slump, the banks would be looking at a major problem, but one that would probably be sustainable.

We won't fight over it. We have a government (and banking system) up to the ears in graft and with their eyes off the ball, but essentially, I think the bigger picture is a systemic failure of capitalism. India, for all that they did everything right on the banking front, are being dragged in to a potentially devastating manufactured dispute with their neighbour. There is no one who won't be affected one way or another by the economic mayhem that is on the loose.

Well, I'd say, rather, one of the regular systemic failures of capitalism. It's been blowing up at irregular but reasonably frequent intervals since credit instruments were invented.

cactus flower wrote:

(btw - any comments on the takeover of the Ansbacher by Anglo Irish ?)

None whatsoever, I'm afraid. Do you think it's historically significant?