Financial Crises . . . Where are we at???

croucher

Thought I would try understand where the crises has got us to now, and what are the potential implications / scenario's that are going to play out on the coming weeks. All comments are welcome . . . (just realised it’s quite a long post / rant / waffle, so apologies...)

In my (uneducated) opinion, I think there are three main areas that are all inter-related that when combined indicate the trouble and uncertainty that is gripping the ISEQ and in general the Irish banking sector and Irish Economy.

1) The Banks
The government bailout has done little to help out the banks or the market at the moment; this is evidenced by a continuing fall in share prices, and a severe difficulty in accessing wholesale funding (liquidity). Banks thrive on getting access to funds and using these to invest (lend) to worthy recipients at a higher rate than they received the funds. Without funding the banks cannot continue to grow and develop their business.

Financial Institutions and Investors also thrive on confidence. Confidence in the economy (ability of recipients to repay debts), and confidence in the use of funds by the banks. Even with the government guarantee, confidence has plummeted in Irish banks. Investors, within Ireland, but predominantly outside Ireland, do not know the level of exposure of Irish banks to bad debt. This lack of confidence reduces the share price (through the selling of stock), but more importantly reduces the confidence of other banks in Irish banks, to the level that they will not lend to Irish banks. Even with a government guarantee, why would a foreign institution currently lend to an Irish bank without actually knowing the strength of that banks balance sheet? This further restricts Irish banks in accessing funds to develop their business.
The government should force full disclosure of all the value of all underlying assets in the Irish banks if they are to be a part of the guarantee scheme. This will increase transparency and effectively let investors assess the true position of Irish banks. In turn this will allow other banks and institutions lend to Irish banks knowing what they are getting themselves into. If the situation is so bad that no financial institution will lend to Irish banks then the government will have to inject capital into the banks via an equity stake.

So what’s next? There are rumours of a forced merger of banks. This could prove an unwise intervention in the market, effectively punishing one bank for the mistakes of another bank. Some of the banks are not suited to merge, e.g. ILP and BOI as they would control too much of the life assurance market leading to possible competition issues. I don't believe that there will be enough banking activity in the Irish economy to support 6 national banks and numerous international entities, therefore there will inevitably be a reduction in the number of operators. I think the government should nationalise one of the banks and then sell the deposit book, and securitise the assets and sell these on too. This effectively closes down a bank.

2) The Government Guarantee
The guarantee protects the consumer, but at the eventual expense of the consumer as this will be funded by taxpayer’s money. I worry that this was a rushed job, and fails to address the nub of the problem as described above, the capitalisation of banks. The guarantee does not inject funds into a bank to allow it to stabilise its business. The Irish government hoped that the solution put forward last week would stabilise the Irish banking sector. However, the Irish banking sector is more exposed to global factors that are not influenced by our own guarantee scheme. The scheme had the effect of reducing the risk of a run on the bank but did not calm the markets, or increase anyone’s confidence in the capital positions of Irish banks. The scheme will not help any Irish bank trade its way out of the current position in the current market climate.

If CEO’s and Boards of Directors are forced to avail of the scheme, they are effectively writing their own P45’s. The terms and conditions of the scheme will be very interesting. I can’t believe that CEO’s have not being forced to declare write downs to the value of their assets, but I think that it is more the case of the Irish banks not being the first banks to carry out this exercise. I think that some of the banking director’s egos may prevent them from accessing the fund, and if they do eventually, it may be too late for their institution. Remember, nothing any of the CEO’s or our banks have said over the last number of weeks have prevented the slide in share prices and confidence, or instilled any confidence in the banks. The majority of the board and executive management (e.g. let’s say 75% including the CEO) of any bank that draws down on the guarantee should be forced to step down.
Any bank looking to participate in the scheme should be subject to a full audit, not by the financial regulator or an Irish firm, but by an international firm with no ties to the government, banks or property developers. This audit should, as per international accounting practices, place a fair value on all assets held by the banks.

3) Politics
We should never be as naive to believe that politics do not play a role in any of the decisions made by our government. The government, property developers and the banks are as intertwined as a bowl of Spaghetti. The government have to understand that they cannot stabilise the ISEQ. They have tried this twice, firstly though the banning of short selling financial stocks, and secondly by the provision of the banking guarantee.
It’s time for our government to start thinking longer term. What will happen if one of the banks draws down on the guarantee? What position will the government take in the bank? An equity position with voting rights etc may constrain the development of the bank in the eyes of investors / funding providers in the medium term. Are the government equipped to take up a role in the banks?

More importantly, what do the government and the experts want the financial sector to look like in 3-5 years, this may be a golden opportunity to initiate a revision of the sector and shape it for the future in terms of structure, number of viable players, and regulatory conditions. We are not going to be in global recession for ever (with a bit of luck!!) so it’s imperative that any policy decisions are flexible enough to future proof the operation of the Irish banking sector. The Irish government has to be extremely careful that their reactions to EU, UK or other government announcements do not compromise the long term health of the Irish financial sector.

In summary, and this is not going to be anything new for most people, the Irish economy and banking sectors are at the mercy of the global recession. Decisions made at a local level will have little impact on the current market conditions, however, they will have an impact in the future when the recession ends, and it’s time for growth again. It is not too wild to say that decisions made today with respect to the banking guarantee could prolong an Irish recession when other countries have moved into economic growth. This would be a disaster, as we have seen before the damage caused by local recession (emigration, lack of government funding, unemployment) in times when the global economy was not growing. Imagine being in a recession when everyone else is motoring . . .

OK rant over !!!

ranger4

I noticed with the interview with cowan this eve that he would not be drawn when asked if he would follow the uk and other euro nations by buying shares in the banks this week, I wonder has enough been done by the g7 and others to calm markets and restore some badly needed confidence in markets.

Baird

Financial Institutions and Investors also thrive on confidence. Confidence in the economy (ability of recipients to repay debts), and confidence in the use of funds by the banks. Even with the government guarantee, confidence has plummeted in Irish banks. Investors, within Ireland, but predominantly outside Ireland, do not know the level of exposure of Irish banks to bad debt. This lack of confidence reduces the share price (through the selling of stock), but more importantly reduces the confidence of other banks in Irish banks, to the level that they will not lend to Irish banks. Even with a government guarantee, why would a foreign institution currently lend to an Irish bank without actually knowing the strength of that banks balance sheet? This further restricts Irish banks in accessing funds to develop their business.

Think you are missing a few points here in fairness.
First off this is not an Irish economic problem, every bank worldwide is having
their share prices annilihated except for a few megabanks like HSBC and JPM.
The reason for this is that the global money markets are shut and so bad
debts are becomming a problem.
If these banks were still lending to each other and the money markets were
operating as normal then the Irish banks would more than be able to ride
through this current crisis without any aid.

The government should force full disclosure of all the value of all underlying assets in the Irish banks if they are to be a part of the guarantee scheme. This will increase transparency and effectively let investors assess the true position of Irish banks. In turn this will allow other banks and institutions lend to Irish banks knowing what they are getting themselves into. If the situation is so bad that no financial institution will lend to Irish banks then the government will have to inject capital into the banks via an equity stake.

No it would do the exact opposite, credit has dried up for property investors
and for banks so if any land or assets were valued in this market there would
be a huge discount to reflect this. This doesnt mean that some property is
worth 30% of its original value as the Sunday Indo yesterday tried to say.
It means that no one can get credit to buy the land and so we have a deeply
inefficient market in Irish property at the moment.
If we were to fully disclose asset values in this market while other banks with
far more toxic and risky assets refuse to write down the value of their assets
our banks would be shooting themselves in the foot and their share price
would be wiped out.
Ill say it again, this is not an Irish only problem.

So what’s next? There are rumours of a forced merger of banks. This could prove an unwise intervention in the market, effectively punishing one bank for the mistakes of another bank. Some of the banks are not suited to merge, e.g. ILP and BOI as they would control too much of the life assurance market leading to possible competition issues. I don't believe that there will be enough banking activity in the Irish economy to support 6 national banks and numerous international entities, therefore there will inevitably be a reduction in the number of operators. I think the government should nationalise one of the banks and then sell the deposit book, and securitise the assets and sell these on too. This effectively closes down a bank.

We dont have 6 national banks in fairness.
We have 4, with Anglo being an almost commercial only lender.
4 banks may not be sustainable but then again it might.
Why further reduce choice in the Irish banking game on a maybe?
IMHO its better to let it run and reevaluate this in 6 months.

The guarantee protects the consumer, but at the eventual expense of the consumer as this will be funded by taxpayer’s money. I worry that this was a rushed job, and fails to address the nub of the problem as described above, the capitalisation of banks.

May i ask how this will cost the taxpayer a cent?
Would you prefer a UK type guarantee that will cost the taxpayer billions?
Our intervention was more or less free, the only downside is the govs cds
move out to 60bps.
The alternative was to let one of the banks fail, they try and rescue the
banking system which would involve pumping billions upon billions to prop up
the remaining banks.
Instead we got in early, dont what the UK cant afford to do due to their
debt/gdp ratio and the fact that sterling would collapse and we saved our
banks.
All this for a minimal charge.
To be honest i had no respect for Biffo before this, but it was a genius
stroke and one which the UK, Germany, France, Greece and now the US are
even talking about copying.

The guarantee does not inject funds into a bank to allow it to stabilise its business. The Irish government hoped that the solution put forward last week would stabilise the Irish banking sector. However, the Irish banking sector is more exposed to global factors that are not influenced by our own guarantee scheme. The scheme had the effect of reducing the risk of a run on the bank but did not calm the markets, or increase anyone’s confidence in the capital positions of Irish banks. The scheme will not help any Irish bank trade its way out of the current position in the current market climate.

Without the scheme we would have 2 at most banks in Ireland at the moment.
We are insignificant in the world markets, bad debts exposure to property is
a nice headline to use, but even if this was a fraction of what it is our banks
would still be getting hammered in the markets.
The reason is that the global financial market is in meltdown

If CEO’s and Boards of Directors are forced to avail of the scheme, they are effectively writing their own P45’s. The terms and conditions of the scheme will be very interesting. I can’t believe that CEO’s have not being forced to declare write downs to the value of their assets, but I think that it is more the case of the Irish banks not being the first banks to carry out this exercise. I think that some of the banking director’s egos may prevent them from accessing the fund, and if they do eventually, it may be too late for their institution. Remember, nothing any of the CEO’s or our banks have said over the last number of weeks have prevented the slide in share prices and confidence, or instilled any confidence in the banks. The majority of the board and executive management (e.g. let’s say 75% including the CEO) of any bank that draws down on the guarantee should be forced to step down.
Any bank looking to participate in the scheme should be subject to a full audit, not by the financial regulator or an Irish firm, but by an international firm with no ties to the government, banks or property developers. This audit should, as per international accounting practices, place a fair value on all assets held by the banks.

Sorry to say this but you obviously have no clue how stock markets function.
Would you fire Michael O Leary because oil hit $145 and as a result his companys share price fell from over €6 to under €2?
Its the exact same problem with banks, they need credit markets to function
properly so their business models work, without it they cannot operate themselves efficiently.
Ill say it again, this is not a bad debts issue, this is a wholesale money market issue!

3) Politics
We should never be as naive to believe that politics do not play a role in any of the decisions made by our government. The government, property developers and the banks are as intertwined as a bowl of Spaghetti. The government have to understand that they cannot stabilise the ISEQ. They have tried this twice, firstly though the banning of short selling financial stocks, and secondly by the provision of the banking guarantee.
It’s time for our government to start thinking longer term. What will happen if one of the banks draws down on the guarantee? What position will the government take in the bank? An equity position with voting rights etc may constrain the development of the bank in the eyes of investors / funding providers in the medium term. Are the government equipped to take up a role in the banks?

Judging by the mess the civil service is, i would shudder at the talk of the
gov taking a stake in the banks.
What on earth would the benefit be?
Take for example AIB, if they needed to get more capital they can sell their M&T stake (25% of the US 12th largest bank) they could sell Bank Zachoni ( Polands 3rd largest bank) they could withhold their div etc etc.
They along with the other banks can raise capital without rights issues or
gov intervention yet tools like Eddie Hobbs and David McWilliams keep spouting this same garbage.
If the money markets stay shut AIB will go bust, the thing is 95% of the worlds banks will go bust first !!!!

More importantly, what do the government and the experts want the financial sector to look like in 3-5 years, this may be a golden opportunity to initiate a revision of the sector and shape it for the future in terms of structure, number of viable players, and regulatory conditions. We are not going to be in global recession for ever (with a bit of luck!!) so it’s imperative that any policy decisions are flexible enough to future proof the operation of the Irish banking sector. The Irish government has to be extremely careful that their reactions to EU, UK or other government announcements do not compromise the long term health of the Irish financial sector.

Strong regulation could help stop reckless lending in future.
Totally agree.

In summary, and this is not going to be anything new for most people, the Irish economy and banking sectors are at the mercy of the global recession. Decisions made at a local level will have little impact on the current market conditions, however, they will have an impact in the future when the recession ends, and it’s time for growth again.

Is that not at odds to what you said earlier?

It is not too wild to say that decisions made today with respect to the banking guarantee could prolong an Irish recession when other countries have moved into economic growth. This would be a disaster, as we have seen before the damage caused by local recession (emigration, lack of government funding, unemployment) in times when the global economy was not growing. Imagine being in a recession when everyone else is motoring . .

That actually doesnt make any sense.
How on earth could the gov guarantee prolong Irelands recession?

croucher

Baird, fair play for the response, we can agree to disagree on a few issues, but good to debate...

Baird wrote: »

Think you are missing a few points here in fairness.
First off this is not an Irish economic problem, every bank worldwide is having
their share prices annilihated except for a few megabanks like HSBC and JPM.
The reason for this is that the global money markets are shut and so bad
debts are becomming a problem.
If these banks were still lending to each other and the money markets were
operating as normal then the Irish banks would more than be able to ride
through this current crisis without any aid.

Agree that access to funding is a wider issue than the strength of the Irish economy. However, I don’t believe that Irish banks would be able to access wholesale funding at the required levels and interest rate if wholesale money markets were functioning in the correct manner.

One of the main drivers of the government bail out was to ensure that Irish banks (one in particular) were not downgraded by the credit agencies. If there had of been a downgrade, to cost of wholesale funding would have increased dramatically. The funding crises aside, confidence in the Irish economy and banking operations is not that high. I don’t think Ireland will be the first port of call for any of the larger pan European banks if they decide to acquire any banks.

Baird wrote: »

No it would do the exact opposite, credit has dried up for property investors and for banks so if any land or assets were valued in this market there would
be a huge discount to reflect this. This doesnt mean that some property is
worth 30% of its original value as the Sunday Indo yesterday tried to say.
It means that no one can get credit to buy the land and so we have a deeply
inefficient market in Irish property at the moment.
If we were to fully disclose asset values in this market while other banks with
far more toxic and risky assets refuse to write down the value of their assets
our banks would be shooting themselves in the foot and their share price
would be wiped out.
Ill say it again, this is not an Irish only problem.

I haven’t stated that this is an Irish only problem. Credit in the local (as well as European market) has dried up. One of the contributors to this, at the local level, is that the value of the land and property supported by the bank loans of the past 3-5 years was effectively overvalued. Anyway, whatever happens, under fair value accounting rules, banks will have to disclose the true value of assets in the next reporting period (think this will be feb / mar). As stated, I don’t think the Irish banks want to be the first to carry out this exercise, and this is understandable.

Baird wrote: »

We dont have 6 national banks in fairness.
We have 4, with Anglo being an almost commercial only lender.
4 banks may not be sustainable but then again it might.
Why further reduce choice in the Irish banking game on a maybe?
IMHO its better to let it run and reevaluate this in 6 months.

We have 6 Irish banks vying for business (agree that they do not operate in all markets). Without knowing the true financial position of the Irish banks it is difficult to say how long they can sustain themselves in this current market. IMHO opinion it would be more prudent to restructure the market sooner rather than later to allow a more efficient sector to emerge. Too many financial institutions in a future market may lead us down a slippery slope again in terms of reckless lending and risky product offerings just to obtain market share (effectively price wars).

Baird wrote: »

May i ask how this will cost the taxpayer a cent?
Would you prefer a UK type guarantee that will cost the taxpayer billions?
Our intervention was more or less free, the only downside is the govs cds
move out to 60bps.
The alternative was to let one of the banks fail, they try and rescue the
banking system which would involve pumping billions upon billions to prop up
the remaining banks.
Instead we got in early, dont what the UK cant afford to do due to their
debt/gdp ratio and the fact that sterling would collapse and we saved our
banks.
All this for a minimal charge.
To be honest i had no respect for Biffo before this, but it was a genius
stroke and one which the UK, Germany, France, Greece and now the US are
even talking about copying.

Eventually the government will inject capital into the banks as permitted by the Paris agreement (the method I’m not too sure off, probably a preferential share stake or some sort of bond). This injection will be funded via the ECB money market, or possibly the pension reserve fund. It may not cost billions, but this will definitely not be free to the taxpayer. The opportunity cost of this funding should be considered (e.g. the pension reserve fund may not be the most efficient place for money now, but some of this could be used for profitable capital investment programmes, this is for another day though !!!).

Agree with you on BIFFO, although only time will tell if its genius. Our current intervention was free, but had the effect of saving a bank from collapse, however, our next intervention won’t be.

Baird wrote: »

Without the scheme we would have 2 at most banks in Ireland at the moment.
We are insignificant in the world markets, bad debts exposure to property is
a nice headline to use, but even if this was a fraction of what it is our banks
would still be getting hammered in the markets.
The reason is that the global financial market is in meltdown

Agree that without the scheme we would have been in trouble. I’m more concerned about the schemes design. It may well turn out prudent not to inject capital until things have calmed down, but I do believe that capital injection is not a long way off.

Baird wrote: »

Sorry to say this but you obviously have no clue how stock markets function. Would you fire Michael O Leary because oil hit $145 and as a result his companys share price fell from over €6 to under €2?
Its the exact same problem with banks, they need credit markets to function
properly so their business models work, without it they cannot operate themselves efficiently.
Ill say it again, this is not a bad debts issue, this is a wholesale money market issue!

In current times, does anyone understand how stock markets function !!! Experts told me to buy BOI at €8, it cant go any lower they said !! I think you are missing my point here. The current business models of Irish banks have been ridiculed, and there is no point saying that everyone else's have been as well, its irrelevant at this stage. Reckless lending to undercapitalised property developers, inefficient residential mortgages (e.g. unprofitable tracker mortgages, 110% mortgages). Come on, the greed culture and profit target nature of incentive schemes set by Boards are a major factor. I get your point re wholesale funding, but I don’t seriously believe that the finances of Irish banks will stand up to the intense scrutiny that will prevail when wholesale markets become liquid again.

As for Michael O’Leary, nope, I wouldn’t sack him (although sometimes I would like to ring his neck !!!). Ryanair have a sustainable business model that allows them to continue trading and using their funds (internal and external) in an efficient manner. The banks do not have this same viable trading model. Banking CEO’s (national and international) presided over inefficient and risky banking models, and I think that they will all not survive in their jobs beyond the next annual report. (We will have to see on this, maybe we should have a bet !!!)

Baird wrote: »

Judging by the mess the civil service is, i would shudder at the talk of the
gov taking a stake in the banks.
What on earth would the benefit be?
Take for example AIB, if they needed to get more capital they can sell their M&T stake (25% of the US 12th largest bank) they could sell Bank Zachoni ( Polands 3rd largest bank) they could withhold their div etc etc.
They along with the other banks can raise capital without rights issues or
gov intervention yet tools like Eddie Hobbs and David McWilliams keep spouting this same garbage.
If the money markets stay shut AIB will go bust, the thing is 95% of the worlds banks will go bust first !!!!

To me it doesn’t seem like banks are capable of raising the required funding utilising the sale of existing assets. This will effectively be a fire sale. AIB will more than likely sell M&T, but not their polish operation. Again, looking to the long term, there has to be some diversification in their business to allow risk reduction.

Baird wrote: »

Strong regulation could help stop reckless lending in future.
Totally agree.

Baird wrote: »

Is that not at odds to what you said earlier?

Baird wrote: »

That actually doesnt make any sense.
How on earth could the gov guarantee prolong Irelands recession?

Too much regulation in guarantee’s terms and conditions.

Baird

Hey croucher could you edit your post, the entire thing is in quotes and i cant figure out who wrote what :D

Baird

croucher wrote: »

Agree that access to funding is a wider issue than the strength of the Irish economy. However, I don’t believe that Irish banks would be able to access wholesale funding at the required levels and interest rate if wholesale money markets were functioning in the correct manner.

Have a look at the bond markets croucher.
AIB CDS is now seen as almost soverign paper, this implies that any money to be
got in the wholesale makets they get to compete alongside AAA banks like Santander and HSBC.
Without the guarantee they couldnt even tender for this money, now they are at the top of the queue.
Problem is that it doesnt matter where you are in the queue if there is nothing there to get!
If the money markets were open, Irish banks could get any amount of it they
wanted at extremely competitive rates thanks to the guarantee.

One of the main drivers of the government bail out was to ensure that Irish banks (one in particular) were not downgraded by the credit agencies. If there had of been a downgrade, to cost of wholesale funding would have increased dramatically. The funding crises aside, confidence in the Irish economy and banking operations is not that high. I don’t think Ireland will be the first port of call for any of the larger pan European banks if they decide to acquire any banks.

No mate that is actually not true at all.
It had nothing to do with a credit rating for anglo or permo or any bank.
It was a lot LOT more serious than that and im not going to say anything
about it on this forum.

I haven’t stated that this is an Irish only problem. Credit in the local (as well as European market) has dried up. One of the contributors to this, at the local level, is that the value of the land and property supported by the bank loans of the past 3-5 years was effectively overvalued. Anyway, whatever happens, under fair value accounting rules, banks will have to disclose the true value of assets in the next reporting period (think this will be feb / mar). As stated, I don’t think the Irish banks want to be the first to carry out this exercise, and this is understandable.

The thing is croucher if the money markets were open Irish banks would get
money in spite of any bad debts possible.

We have 6 Irish banks vying for business (agree that they do not operate in all markets). Without knowing the true financial position of the Irish banks it is difficult to say how long they can sustain themselves in this current market. IMHO opinion it would be more prudent to restructure the market sooner rather than later to allow a more efficient sector to emerge. Too many financial institutions in a future market may lead us down a slippery slope again in terms of reckless lending and risky product offerings just to obtain market share (effectively price wars).

How can you say it would be prudent to restructure a market you just said
you dont understand?
The irish banks could saftely close up shop, refuse to lend anything for 5
years, run off their loan books and assume huge bad debts figure and still
generate profits.
This is true for all bar 1 of the irish banks.
Ill say it again, this is nothing to do with bad lending practices or asset values
it is 95% to do with the lack of available wholesale funding!

Eventually the government will inject capital into the banks as permitted by the Paris agreement (the method I’m not too sure off, probably a preferential share stake or some sort of bond).

Why will they?
If the bad debt charges are even twice what the banks are saying then they still do not need the capital injection.
If its the 800bps that some reckless brokers are saying then the country
has a much bigger problem than the banks going bust.

This injection will be funded via the ECB money market, or possibly the pension reserve fund. It may not cost billions, but this will definitely not be free to the taxpayer. The opportunity cost of this funding should be considered (e.g. the pension reserve fund may not be the most efficient place for money now, but some of this could be used for profitable capital investment programmes, this is for another day though !!!).

It would most definitely cost billions.
To get AIB to 8% core tier 1 would cost 2.5bn alone.
Anglo and BOI would require a lot more.
In total the 4 banks above 8% would at least cost 10bn.

Agree with you on BIFFO, although only time will tell if its genius. Our current intervention was free, but had the effect of saving a bank from collapse, however, our next intervention won’t be.

+1

Agree that without the scheme we would have been in trouble. I’m more concerned about the schemes design. It may well turn out prudent not to inject capital until things have calmed down, but I do believe that capital injection is not a long way off.

Is our last throw of the dice and should not be wasted unless is absolutely necessary.

In current times, does anyone understand how stock markets function !!! Experts told me to buy BOI at €8, it cant go any lower they said !! I think you are missing my point here. The current business models of Irish banks have been ridiculed, and there is no point saying that everyone else's have been as well, its irrelevant at this stage. Reckless lending to undercapitalised property developers, inefficient residential mortgages (e.g. unprofitable tracker mortgages, 110% mortgages). Come on, the greed culture and profit target nature of incentive schemes set by Boards are a major factor. I get your point re wholesale funding, but I don’t seriously believe that the finances of Irish banks will stand up to the intense scrutiny that will prevail when wholesale markets become liquid again.

The business model of the entire world banking system has broken.
To say this is the result of overleveraged lending to property developers is
niave to say the very very least.
If our 4 banks were personal lending only banks they would still be getting
hammered despite not doing anything wrong.
Banco Santander who are probably the richest in cash terms bank in the world have seen their share price fall 30% this year.
Their management are most certainly not to blame and in my opinion at least
2 of the Irish banks are in the same position (Big 2 obviously)

As for Michael O’Leary, nope, I wouldn’t sack him (although sometimes I would like to ring his neck !!!). Ryanair have a sustainable business model that allows them to continue trading and using their funds (internal and external) in an efficient manner. The banks do not have this same viable trading model. Banking CEO’s (national and international) presided over inefficient and risky banking models, and I think that they will all not survive in their jobs beyond the next annual report. (We will have to see on this, maybe we should have a bet !!!)

The banks most certainly do have a sustainable business model in normal market conditions.
Ryanair could not continue if oil stayed at 150 in the same way banks cant
operate without wholesale funding.
They are not the cause of the banking crisis they are being hurt badly by it.

To me it doesn’t seem like banks are capable of raising the required funding utilising the sale of existing assets. This will effectively be a fire sale. AIB will more than likely sell M&T, but not their polish operation. Again, looking to the long term, there has to be some diversification in their business to allow risk reduction.

Long term wont matter if you are nationalised

growler

Originally Posted by Baird "Take for example AIB, if they needed to get more capital they can sell their M&T stake (25% of the US 12th largest bank) they could sell Bank Zachoni ( Polands 3rd largest bank) they could withhold their div etc etc. They along with the other banks can raise capital without rights issues or gov intervention"

few little problems with that (a) there hasn't exactly been a flood of investors looking to increase their exposure to banks and finding an underwriter for any size of rights issue would be difficult (b) selling assets like M&T would require a buyer and there isn't much cash availabel for such large purchasers and secondly, selling such assets at this time would seem to be poor business and a very short term fix, with trillions required to kick the global lending market back into gear such a small amount of capital injection wouldn't really do much.

Baird

growler wrote: »

Originally Posted by Baird "Take for example AIB, if they needed to get more capital they can sell their M&T stake (25% of the US 12th largest bank) they could sell Bank Zachoni ( Polands 3rd largest bank) they could withhold their div etc etc. They along with the other banks can raise capital without rights issues or gov intervention"

few little problems with that (a) there hasn't exactly been a flood of investors looking to increase their exposure to banks and finding an underwriter for any size of rights issue would be difficult

Exactly this is the reason i said that a rights issue is not on the cards unless
its underwritten by the gov, which should definitely be the last port of call.

(b) selling assets like M&T would require a buyer and there isn't much cash availabel for such large purchasers and secondly, selling such assets at this time would seem to be poor business and a very short term fix, with trillions required to kick the global lending market back into gear such a small amount of capital injection wouldn't really do much.

Buffet already owns a stake in M&T and has previously registed his interest in the bank.
M&T are also seen as "clean" in terms of exposure to subprime and toxic
assets in the US as they are mainly a deposit bank and despite the lack
of appetite for M&A at this point in time, this is a bank there would
definitely be interest for.
A clean deposit bank of that size would see a lot of heavy hitters interested
as it would help negate some of their toxic asset exposure and provide some
much increase the buyers deposit base. In the present climate this is seen as
vital for a bank to succeed going forward.