Irish Economy and Budget Watch / / /Emergency Budget Announced for April 7th

The EU response to the Irish economy

http://www.independent.ie/business/irish/eu-banishes-ireland-to-sin-bin-over-borrowing-1644915.html

Auditor #9 wrote:

`In normal circumstances, EU countries are not allowed to borrow more than 3pc of output (GDP), although these rules have effectively been set aside because of the crisis.

But Brussels is not convinced by the Government's forecasts of a sharp recovery in economic growth from 2011, allowing the country to get back within the rules in 2013.

The forecasts see the economy expanding by an average 3pc a year from 2011 to 2013. "The growth scenario is somewhat optimistic and the consolidation measures presently lack detail," the commission said. It says the debt burden is likely to rise beyond the 66pc of GDP in 2012 targeted by Finance Minister Brian Lenihan. Before the cutback plan was announced, the commission saw the national debt hitting 68pc of GDP next year.

http://www.independent.ie/business/irish/eu-banishes-ireland-to-sin-bin-over-borrowing-1644915.html

It seems that Government just doesn't get it, and thinks this is just a glitch, with business about to resume as usual. That, or the possibility of handing over to the IMF, seems to be the only explanation for their extraordinarily half-a****d and non-strategic approach to the situation. It isn't a glitch, its deep, world-changing and no-one knows where it is going to end.

cactus flower wrote:

...and no-one knows where it is going to end.

So it could be a glitch?

johnfás wrote:

cactus flower wrote:

...and no-one knows where it is going to end.

So it could be a glitch?

There is an exception to every rule.

On a side note rents falling are great for alot of young people. My girlfriend can ill afford to pay for the next and final year of her Masters owing to rapidly changing domestic finances. The fall in rent around the area means that it will now be well over 1,500 euro less each to rent a house between three friends near the University rather than living on campus. That saving combined with the tax relief on the two years tuition fees will cover the bulk of the tuition fees for next year.

Friend of mine got 15% off his rent for the next 12 months today.

Tis the season to haggle.

Yup, it is a saving of nearly 3,000 on the rent between the few people who are living there.

Quote :

AIB says earnings to come in at half the level expected

Allied Irish Banks warned yesterday that its earnings for 2008 will come in at half the level previously expected as the group prepared to write off €1.85bn of bad loans.

"With the negative data coming in on the economy so far this year, there is now no question that the impairment issue has spread from property development," said Emer Lang, an analyst with Davy.

The group's main rival Bank of Ireland already indicated last week that contagion in its development loan book had spread to corporate and high-street customers -- as it warned it could face up to €6bn of loan losses within the next three years.

AIB said yesterday that "asset quality has further deteriorated as economic conditions have worsened", adding that the requirement to put aside provisions for bad debts has "materially increased".

http://www.independent.ie/business/irish/aib-says-earnings-to-come-in-at-half-the-level-expected-1646841.html

How is this stacking up against our guarantee and our recapitalisation balilout projected returns? Joan Burton said in the Dáil that the Guarantee will cost the country half a billion a year - that it's not free at all... How much are we expected to get in return for the 7bn - 8% a year ? Is this fall in AIBs profits factored in - among other potential falls ?

That's their figures for the last financial year. I would imagine the 8% a year on the 7bn is only applicable going forward so it would not therefore be an encumbrance on last year's figures.

johnfás wrote:

That's their figures for the last financial year. I would imagine the 8% a year on the 7bn is only applicable going forward so it would not therefore be an encumbrance on last year's figures.

Thanks for that. But supposably their projections going forward are someway based on their earnings for the past year though ? Won't they be revising themselves downwards a bit after this ?

I suppose they probably will do but they won't let you know that today. It is interesting to note that they are still making profits though, compared to say RBS, albeit a much bigger bank, which lost what, 28 bn?

The 8% is an interest charge, it's not related to bank profits at all one way or the other.

Yes it is... it is an interest charge which surely must be serviced thus it is a cost which the bank must bear going forward and therefore does have a bearing on the profits. That is like saying your ESB Bill doesn't have a bearing on your bank balance. Any expense has a bearing on your future profits.

johnfás wrote:

I suppose they probably will do but they won't let you know that today. It is interesting to note that they are still making profits though, compared to say RBS, albeit a much bigger bank, which lost what, 28 bn?

28bn ---

Yeah it's good so that AIB are making half a billion for sure. They're feckin totally rich by the standards of other companies going down the swanee then. Do you think they'll make half a billion this/ next year ?

Quote :

The 8% is an interest charge, it's not related to bank profits at all one way or the other.

O? It's 8% of what then ?

The 8% interest charge is not related to or dependant on the level of profits made by the banks.

8% of the 7 billion Government loan

I think you are missing the point here, tonys. The issue is not whether or not the repayments to the Government are based on a fractional figure of the banks profits, I don't think anyone has suggested that.

The issue Auditor raised was whether or not the 8% interest on the 7bn loan will effect the financial figures released in early March. It is posited that it will not, at least not significantly, because the financing only came into effect at the very end of the year. It is further posited that it will effect the earnings of the bank to a greater degree going forward because it is a charge which must be serviced by the bank, just like their electricity bill.

Auditor #9 wrote:

Quote :

AIB says earnings to come in at half the level expected

Allied Irish Banks warned yesterday that its earnings for 2008 will come in at half the level previously expected as the group prepared to write off €1.85bn of bad loans.

"With the negative data coming in on the economy so far this year, there is now no question that the impairment issue has spread from property development," said Emer Lang, an analyst with Davy.

The group's main rival Bank of Ireland already indicated last week that contagion in its development loan book had spread to corporate and high-street customers -- as it warned it could face up to €6bn of loan losses within the next three years.

AIB said yesterday that "asset quality has further deteriorated as economic conditions have worsened", adding that the requirement to put aside provisions for bad debts has "materially increased".

http://www.independent.ie/business/irish/aib-says-earnings-to-come-in-at-half-the-level-expected-1646841.html

How is this stacking up against our guarantee and our recapitalisation balilout projected returns? Joan Burton said in the Dáil that the Guarantee will cost the country half a billion a year - that it's not free at all... How much are we expected to get in return for the 7bn - 8% a year ? Is this fall in AIBs profits factored in - among other potential falls ?

The figures I heard were that AIB had about 600 billion in assets - that is loans and whatever is backing them - and 500 billion on the down side- what they have to borrow to provide the loans. They have all borrowed short term and loaned long term. That was at the time of the Guarantee. Since then credit ratings have gone down, and the value of the assets has gone down (commercial and residential property particularly). As more people lose their jobs and property prices decline they will go down further.
There is also the issue that I keep banging about - whether the loans are all backed with assets, or are some of them backed by sweet F.A.

All in all you could take a guess that in reality AIB has 300-400 billion in assets and 500 billion borrowings that need to be raised every few months.

johnfás wrote:

I think you are missing the point here, tonys. The issue is not whether or not the repayments to the Government are based on a fractional figure of the banks profits, I don't think anyone has suggested that.

The issue was whether or not the 8% interest on the 7bn loan will effect the financial figures released in early March. It is posited that it will not, at least not significantly, because the financing only came into effect at the very end of the year. It is further posited that it will effect the earnings of the bank going forward because it is a charge which must be serviced by the bank, just like their electricity bill.

"How much are we expected to get in return for the 7bn - 8% a year ? Is this fall in AIBs profits factored in"

I don't think I missed the point at all, I think that's something you might have a look at yourself.

cactus flower wrote:

The figures I heard were that AIB had about 600 billion in assets - that is loans and whatever is backing them - and 500 billion on the down side- what they have to borrow to provide the loans. They have all borrowed short term and loaned long term. That was at the time of the Guarantee. Since then credit ratings have gone down, and the value of the assets has gone down (commercial and residential property particularly). As more people lose their jobs and property prices decline they will go down further.
There is also the issue that I keep banging about - whether the loans are all backed with assets, or are some of them backed by sweet F.A.

All in all you could take a guess that in reality AIB has 300-400 billion in assets and 500 billion borrowings that need to be raised every few months.

Your figures are wrong there. The total liabilities of the six guaranteed banks are approx 440 billion and that's not all loans by any means, deposits are in there too. Total assets were said to be 500 billion and it's just not possible without very much more detailed information to guess what the write down will be.

I would imagine it is not possible generally to guess what the write down will be because it, seems at any rate, to be very difficult to guess where the economy is or is going. Write downs are of course heavily dependent on such analysis.

johnfás wrote:

I would imagine it is not possible generally to guess what the write down will be because it, seems at any rate, to be very difficult to guess where the economy is or is going. Write downs are of course heavily dependent on such analysis.

I'll let you in on a small secret, Johnfas, the economy is going down, man, waaaaaay down.

Indeed, but there is a big difference between down by 25% and down by 28% when you are talking about a combined loan book of 400 billion. 3% of 400 billion being 12 billion and greater than the entire recapitalisation. Make the differential 6% and you double that again and you begin to see the difficulty in accurately estimating the bad loans until things begin to stabilise.

I would imagine the difficulty in assessing bad loans is not so much that the economy is going down but that the situation is so unstable at the moment.

johnfás wrote:

Indeed, but there is a big difference between down by 25% and down by 28% when you are talking about a combined loan book of 400 billion. 3% of 400 billion being 12 billion and greater than the entire recapitalisation. Make the differential 6% and you double that again and you begin to see the difficulty in accurately estimating the bad loans until things begin to stabilise.

I would imagine the difficulty in assessing bad loans is not so much that the economy is going down but that the situation is so unstable at the moment.

Ben Dunne recently said that a property is only worth what you can get if you sell (or rent) it today.