Government may attack state pension fund to shore up e10BN for banks.

Run_to_da_hills

The government announced Sunday a 10BN rescue of Ireland's six main banks. The cash will be used to recapitalise banks by buying their shares and other measures.

It said the aim was to ensure the long-term sustainability of banks and to help the recession-hit economy by increasing credit flows.

"This initiative will help to foster and encourage the flow of funds to the economy, and limit the impact of financial market difficulties on businesses and individuals," the ministry said

The Department of Finance said the state may use money from the National Pension Reserve Fund. :eek:

What happens if the banks make a bo**ix of all this? Do we loose the pension ?

http://news.bbc.co.uk/2/hi/business/7782860.stm

Économiste Monétaire

Hate to break the secret of the century, but the majority of the money in the NPRF is actually borrowed, it's not sitting in a vault waiting for people to get old--this seems to be a fairly common perception. The government just likes to say it's contributing X amount per year. If every bank in this country were to fail, you won't have a pension. Good luck finding a post office when we all effectively recede to the cave lifestyle.

Senna

Will the gov (taxpayers) be getting preference shares and what percentage of the banks will "we" own?

Are the boards of the banks who get the bailout being made to resign? they are responsible for this, if the banks need capital, then the boards fecked up.

The_Minister

Senna wrote: »

Are the boards of the banks who get the bailout being made to resign? they are responsible for this, if the banks need capital, then the boards fecked up.

A bank can be in trouble at the moment without ****ing up in any way. It could have lent money to other solvent, respectable banks, which are now heading down the ****ter. Those loans are enough to put an otherwise healthy bank in trouble. And, as the recession deepens, more and more people who would have been "safe" borrowers, are defaulting, so even those banks which behaved themselves are seeing a rise in defaults.
So, despite whatever crappy indo columnist you've been reading has said, the guys who ran the Irish banks have not nessacerily ****ed up to find themselves in this situation (they did **** up, but still, it's like saying "all public servents are lazy" - it's too wide-reaching).
And our guys are saints not too bad compared to other countries.

Économiste Monétaire

Senna wrote: »

Will the gov (taxpayers) be getting preference shares and what percentage of the banks will "we" own?

Are the boards of the banks who get the bailout being made to resign? they are responsible for this, if the banks need capital, then the boards fecked up.

That depends on how much the banks request; I believe they need to present their proposals by the end of the month. The government will most likely take preference shares. The boards may resign, but explicitly the government would have no say in that. There may be a tacit quid pro quo resulting in some resignations for cosmetic purposes.

Senna

The_Minister wrote: »

A bank can be in trouble at the moment without ****ing up in any way. It could have lent money to other solvent, respectable banks, which are now heading down the ****ter. Those loans are enough to put an otherwise healthy bank in trouble. And, as the recession deepens, more and more people who would have been "safe" borrowers, are defaulting, so even those banks which behaved themselves are seeing a rise in defaults.
So, despite whatever crappy indo columnist you've been reading has said, the guys who ran the Irish banks have not nessacerily ****ed up to find themselves in this situation (they did **** up, but still, it's like saying "all public servents are lazy" - it's too wide-reaching).
And our guys are saints not too bad compared to other countries.

Sorry is this sarcasm?? Or is this what you believe?

Anyway;
Thats all very good in principal, but we know who they lent to, its wasn't to other respectable banks, it was to developers and property speculators. Who are leverage to the hilt, cant sell, cant rent and cant pay.

Our guys are saints? Ok i realise now your just taking the piss, good one, you had me going.

D.S.

Senna wrote: »

Sorry is this sarcasm?? Or is this what you believe?

Anyway;
Thats all very good in principal, but we know who they lent to, its wasn't to other respectable banks, it was to developers and property speculators. Who are leverage to the hilt, cant sell, cant rent and cant pay.

Our guys are saints? Ok i realise now your just taking the piss, good one, you had me going.

You've missed the point. Not all the banks are in trouble because of the property crisis. Some of the banks have been reasonably prudent in their lending policies and their exposure to commercial loans is well within tolerance levels. Some of the banks are really struggling on the inter-bank lending front which is a global phenomenon.

Your also speaking in generalities. We all know they lent to developers and speculators. But can you say how much of their net worth is currently exposed to this area? How much money is recoverable if ALL these developers went bust??

We don't really know as the figures have not been revealed.

There is no doubt the exposure to credit risk is significant but even at reduced prices, much of the debt is recoverable from the bank's point of view even if assets are sold at knock down prices. It's the wider economy and the property market who are really at risk.

In either case, your alluding to the fact that all the banks have been mismanaged which simply is too broad a generalisation.

Senna

If any banks have been miss managed, should the board of those be made to step down? I think yes and i think more than one bank has been miss-managed, but i'll take your point on being over general.
The figure of €100 billion to developers and property speculators was mentioned more than once. If this was a boom time figure, what percentage of this will already be worthless?

The_Minister

Senna wrote: »

Sorry is this sarcasm?? Or is this what you believe?

Anyway;
Thats all very good in principal, but we know who they lent to, its wasn't to other respectable banks, it was to developers and property speculators. Who are leverage to the hilt, cant sell, cant rent and cant pay.

Our guys are saints? Ok i realise now your just taking the piss, good one, you had me going.

Saints was a joke. Hence the strike out.

And, you are missing the point. I acknowledged that the banks made poor choices in lending, but that isn't the whole story. Banks can suffer certain losses without closing down (obviously, or they would shut down every week), but the inability of banks to pay each other back is leading to a situation where banks which would normally be able to survive are starting to fail. So even those banks that weren't too risky in their behaviour, are suffering disproportionately.
Property is a huge part of this crisis, but if the problem was just the property, then we would be sailing (no we wouldn't, but we wouldn't be in this mess). The credit crunch (a seperate phenomenon that happened at the same time, but made the property downturn worse (don't forget that Ireland was going down sharply before the sub prime issue)) has made everything worse, and that is more of an international banking issue (before anyone eats me - this is AH, I'm simplifying). The property lending alone we could weather easily, it's the wider global frenzy thats going to get us, and while Irish banks were a part of that, they were middling at best IMO.

So blaming the need for a bank bailout simply on the boards is too simplistic.
They do deserve lots of blame though.
Absolute heaps of it.
Just not all of them.


EDIT: Actually, just read D.S.'s post

lucernarian

Are we to continue expecting the banks to go to the international markets cap in hand until we kill off domestic investment, or allow the State to take a share in banks with undervalued market caps. and also ease access to credit??


I know which one I prefer.

D.S.

Senna wrote: »

If any banks have been miss managed, should the board of those be made to step down? I think yes and i think more than one bank has been miss-managed, but i'll take your point on being over general.
The figure of €100 billion to developers and property speculators was mentioned more than once. If this was a boom time figure, what percentage of this will already be worthless?

You're dead right - if any of the banks have been mismanaged then yes the board should be made to step down. But that's a decision for the bank's shareholders. They're the ones who ultimately own the company and need to make the call.

The Government - you could argue - should of been stricter with the rules of the State Guarantee Scheme in demanding more control over the management of the bank's but there were pro's and cons to this.

The figure of 100 billion doesn't mean a whole lot. How much is recoverable is the first question. How much of the remaining debt is unrecoverable and risks the solvency of the bank is the next question.

Word on the street is that only Anglo is in this sorry state but then again who knows.

AIB for instance, worst case, can start selling off assets in America or Eastern Europe if they need to recapitalise due to the increasing exposure on their books. Or they can partake in the state recapitalisation scheme if they really need to. Doesn't really sound like they are in too much trouble does it?

My point is simple - the media and public in general are talking in generalties like every bank has been completely mismanged by idiots. But nobody knows the cold hard figures so it's all talk.

Some banks have made grave errors in their lending policies and the corresponding exposure to the commercial property sector. Some banks have mitigated the risk in different ways.

However - there is no profit without risk taking. Business is about taking risk. I have been pretty appalled by the poorly informed media coverage of the credit crisis. Everybody has jumped on the band wagon the these banks have been poorly run which is a huge generalisation and at the end of the day that is only a question for the bank's shareholders (until such time as the government takes ownership of the banks)

Senna

The_Minister wrote: »

So blaming the need for a bank bailout simply on the boards is too simplistic.
They do deserve lots of blame though.
Absolute heaps of it.
Just not all of them.

ok i take the point on being over general, but which banks do you think have been prudent in their lending? None of the big 2/3 anyway.

And if they are to blame, why should the public not demand their resignation?
And does blame not ly with the central bank also? I think you know my answer.

D.S.

Senna wrote: »

ok i take the point on being over general, but which banks do you think have been prudent in their lending? None of the big 2/3 anyway.

And if they are to blame, why should the public not demand their resignation?
And does blame not ly with the central bank also? I think you know my answer.

The public can demand what they like but it's the shareholders who have the voting rights. Only if the government take an ownership in the bank's will the weight of public opinion really come to bear..

The central bank has been pretty weak in this situation but then it's powers are fairly useless in the monetary union. The European Bank is trying to act in the best interest's of all the European states which makes things a lot more tricky.

The real problem is not that the banks have lent excessively to the property sector but the fact the banks did not put enough money away during the boom times to allow for a future recession.

This problem though was not necessarily the fault of Irish banks but the fault of European legislation on capital adequacy which incentivised all the banks in Europe to reduce their capital adequacy rather than increase it. So really it's Charlie McCreevy's fault for not incentivising the industry more when he introduced the legislation to set more capital away.

There was huge money to be made during the boom times - any bank not participating would of been pummelled by shareholders for not making hay when the sun shone. A lot of the current problems are rooted in the way plc's across the board are incentivised and the way the Capital Markets work..

That being said I do genuinely think that AIB have been fairly solid in their lending standards. Yes they have a significant amount of risk to the property sector. But they also have huge assets. Yes it would be a huge pain to let these assets go but the bank is v well managed and is not in risk of insolvency..The bank's operations in Eastern Europe are v lucrative and the balance sheet is relatively healthy.

Irish Life & Permanent is an attractive proposition for all the players in the market.

It's too easy in a recession to look to the bank's and wag the finger. The whole country leveraged itself to the hilt - on credit card's, personal loans, asset finance, and mortgages. We had some prominent economists tells us for years that this would end in tears and we the general public put our fingers in our ear's and stuck our tongues out.

If there's anyone to blame, it's the Irish public who accepted high prices for necessary goods and services and who then leveraged themselves to the hilt to pay for luxury goods and services..

Matt Holck

if banks are an integral part of the entire economy
and our economy determines how we live
the people should handle that

D.S.

Matt Holck wrote: »

if banks are an integral part of the entire economy
and our economy determines how we live
the people should handle that

It's a capitalist society.. it doesn't legally work like that..

Shareholders - i.e. people who actually own a company determine how it's run..simple as..

Also, the Government have a greater influence on the economy and squandered 10 years of boom time money and only realised there was as recession coming in July??? Why haven't the public ousted that board yet????

Generally speaking, the public are p!ss poor at enacting change in this country.

Matt Holck

yes
if the government invest money
should the people be share holders

Senna

If AIB are in such a strong state, will they be begging for a part of the 10bn? And if they dont need it, why would they be getting it.

Just an example, but if the 1bn was put into AIB, BoI, PTSB etc, what percentage shareholder would the public be in that bank?

Darragh29

The_Minister wrote: »

A bank can be in trouble at the moment without ****ing up in any way. It could have lent money to other solvent, respectable banks, which are now heading down the ****ter. Those loans are enough to put an otherwise healthy bank in trouble. And, as the recession deepens, more and more people who would have been "safe" borrowers, are defaulting, so even those banks which behaved themselves are seeing a rise in defaults.
So, despite whatever crappy indo columnist you've been reading has said, the guys who ran the Irish banks have not nessacerily ****ed up to find themselves in this situation (they did **** up, but still, it's like saying "all public servents are lazy" - it's too wide-reaching).
And our guys are saints not too bad compared to other countries.

But what about the "respectable banks" that gave 100% plus mortgages, thereby leaving no room whatsoever for a reduction on property valuations and also departed from the standard rule of thumb of restricting mortages to approximately 3.5 times salary levels and instead gave out mortgages up to 10-15 times the salary income of an applicant??? And the banks that allowed borrowers borrow for investment properties abroad against equity in Irish property (that no longer exists or has greatly deminished)...

We don't have any of those banks in Ireland do we???

:D:D

xOxSinéadxOx

who cares? the pension fund is just going down and down and down in value so it doesn't really matter

Run_to_da_hills

xOxSinéadxOx wrote: »

who cares? the pension fund is just going down and down and down in value so it doesn't really matter

Thats only wheat is left of It, most of it is already blown on dud property deal investments.

D.S.

Senna wrote: »

If AIB are in such a strong state, will they be begging for a part of the 10bn?

My guess is that no AIB won't. But that's simply a guess. Eugene Sheehy has come out and said that recapitalising using Government money is a complete last resort. At this point of time I'd say AIB would look elsewhere before signing up.

No details have emerged as yet as to the conditions of the recaptilisation scheme but you would expect them to be strict.

Senna wrote: »

And if they dont need it, why would they be getting it.

Who said they were getting it??? No details have emerged. It's a scheme with which bank's will have to submit business plans if they even want to participate.

Senna wrote: »

Just an example, but if the 1bn was put into AIB, BoI, PTSB etc, what percentage shareholder would the public be in that bank?

Who knows?? It depends on 1) who signs up to partake, 2) what the government conditions are around the scheme re. pref shares etc, and 3) how much capital each bank signs up for.

It's not really an example you've provided. Besides - there's no details available on the scheme yet so it's too early to say..

The_Minister

Senna wrote: »

If AIB are in such a strong state, will they be begging for a part of the 10bn? And if they don't need it, why would they be getting it.

They don't particularly want to deal actually.

But we do.

Irish banks will nearly definitely survive the coming times, but at the moment they are turtling (no thats not a recognised economics term:p). They are recouping money and lending as little as possible. The thing is though, Irish businesses need credit to keep afloat, so alot of businesses will collapse if they don't get the bailout.
We are doing this for us, not for them.