Banking sector- The trouble with Tribbles

Dob74

oceanclub wrote: »

Because it wasn't in the vested interests of either the government or of the media. Anyone who questioned the status quo was told by our previous Taoiseach to commit suicide.

Consider these facts:

* In 2006, direct property tax revenues amounted to 17% of total tax revenues. This could exceed 30% when the indirect impact on income tax and VAT was included.

* 60% of the Irish Times advertising revenue came from property. The business editor of the Sunday Tribune was sacked for pointing out the hypocrisy of a property agent who was talking up the market while unable to sell his own house.

* 1 in 5 of the private workforce depended directly on construction.

* The number of residential mortgages _doubled_ between 2003 and 2006_.

P.

The numbers are scary. Was just on the central banks website. 55 billion in 2003 in mortgages. 2008, 123 billion in mortgages.
When you could make a fast buck by buying a house, holding it for a year or two then sell and make a massive profit. Its easy to see how things got out of hand.
What does the finanicial regulator do?
Nothing I suppose!

gurramok

First priority in a recession is survival. That means have as much money in the bank to make sure you will not be poor if you lose your job.

Buying a home is a bonus now, thats an advantage of renting, you will always have those savings to fall back on.
Of course if you lose your job, rent allowance won't cover the rent for a single person, but some savings will help tie you over to your next job.

Blackjack

Dob74 wrote: »

All of us tax payers have bailed out these dead beats out.

Please do outline the precise cost to date of the Governments Guarantee of the 6 participating banks?. In taxpayers money.

Dob74 wrote: »

we should let the banks crash.

Sorry to single you out, but this is something I've seen and heard a few people say. I'm sorry - but it's an absolutely ridiculous statement.

Letting one of the banks fail (Lehman Brothers) is what's made this whole Global financial crisis worse. Letting one of the Irish ones fail "to teach them a lesson" would have catastrophic results for the Irish Economy as a whole. The idea that it's only Bank employees that would lose their jobs is naive in the extreme.

SimpleSam06

Blackjack wrote: »

Please do outline the precise cost to date of the Governments Guarantee of the 6 participating banks?. In taxpayers money.

The cost of government borrowing has increased.

Blackjack

SimpleSam06 wrote: »

The cost of government borrowing has increased.

The Govt hasn't paid a penny to the Banks. The cost of the Governments borrowing hasn't increased diddly squat as a result of the Guarantee.

gurramok

Points you to the Economics forum http://www.boards.ie/vbulletin/showthread.php?t=2055436326
Look at the CDS ratings, they are worse than Italy or riot torn Greece. It's all a hefty cost down the line.

Blackjack

gurramok wrote: »

Points you to the Economics forum http://www.boards.ie/vbulletin/showthread.php?t=2055436326
Look at the CDS ratings, they are worse than Italy or riot torn Greece. It's all a hefty cost down the line.

Fair point. However, the Bloomberg screen in that particular attachment shows Greece as being ahead of ours. Admittedly it's over a 12 month period but the trendline is pretty much the same for the 5 countries graphically represented.

Announcing a 9BN budget Defecit and issuing 4BN in debt
- at the time First European Government back to the Debt issuance market since Lehman's collapse - during the period of ascendancy will have had a significant factor also.
The event itself was heavily subscribed (I believe oversubscribed in fact).

If that was the cost of the Guarantee, it was money well spent, and in essence, it was bugger all.
Would it have been cheaper to let one of the banks go to the wall?. I don't think so.
My initial point now seems a bit lost - people are under the assumption that the Government are propping up the banks (they're not) and that the government should have let one of the banks fail (they shouldn't).

gurramok

Which means the economy is suffering at the behest of not 'saving' the banks.

Anglo's share price hit 43c tonight, a new low ever for a bank. If one does go bust, the economy will suffer as this banking(Irish) crisis is a long way from over yet hence those calls from certain quarters for capitalisation of some sort.

Hence all this continuing banking crisis will continue to affect house prices as per the topic!

Anyway, what ammunition have the govt now to save a bank other than big international investors described as sharks?

Blackjack

gurramok wrote: »

Which means the economy is suffering at the behest of not 'saving' the banks.

I don't follow you here - the Economy is suffering for not saving the banks?. Does this not contradict what you've just said?.

gurramok wrote: »

Anglo's share price hit 43c tonight, a new low ever for a bank. If one does go bust, the economy will suffer as this banking(Irish) crisis is a long way from over yet hence those calls from certain quarters for capitalisation of some sort.

Hence all this continuing banking crisis will continue to affect house prices as per the topic!

Anyway, what ammunition have the govt now to save a bank other than big international investors described as sharks?

No doubt. I think we're likely to see a few developers go to the wall and a fairly serious "correction" in residential property in the new year, which is no doubt going to have a negative effect on the banks.

As regards Ammo the Govt has, I don't see much in their own coffers. Not sure that the suggestions from some quarters of using the NPRF and some of the local Asset Management companies would ever come to fruition.

Personally I'm not a big fan of the Private equity fund option.

SimpleSam06

Blackjack wrote: »

If that was the cost of the Guarantee, it was money well spent, and in essence, it was bugger all.
Would it have been cheaper to let one of the banks go to the wall?. I don't think so.

There are no guarantees that one of the banks would have gone to the wall had the government not intervened.

Lehman bros went under because of a practice known as "naked shorting" (since mostly banned) in US stock markets, which is like normal shorting except you don't borrow the stocks before you sell them, you just say you can get them at some stage in future. So there were many more stocks out there than actually existed, driving the price of real stocks down.

The possibility of this happening to an Irish bank was negligible.

20goto10

Eric318 wrote: »

My point is that things are bad, in fact very bad. Denial is one strategy and may actually be the best one as there is nothing much we can do at our level. It is not mine, I like to know.

OK fair enough I take back what I said about you moaning. Its hard to tell on this form of communication but thats just what I read into it. But my point still stands - its time to get on with things. You can do that without burying your head in the sand and I still think to do anything other than get on with things is ironically what I would call burying your head in the sand.

Eric318 wrote: »

I am not too sure about the argument that one might be worse off renting right now.

I'm not talking about which is the better investment. I'm simply saying if you're worried about losing your home if you lose your job, well you're more liklely to lose rented accomodation than you are a mortgaged home when you lose your job. So that argument doesn't stand. If you're holding out for a better "investment" then fair enough.

Dob74

Blackjack wrote: »

The Govt hasn't paid a penny to the Banks. The cost of the Governments borrowing hasn't increased diddly squat as a result of the Guarantee.

I think the government lost its triple A rating, so the cost of borrowing has gone up for the G. If the banks are flawed business models let them fail and the assets will be bought for what they are worth! Let the free market rain? Thats what we where told by all the big shots when the little guy was being screwed. Now that big business has failed its dole for the fat cats. "Something is rotten in the state of Denmark".

Danimalito

gurramok wrote: »

Anyway, what ammunition have the govt now to save a bank other than big international investors described as sharks?

well, they have

- nationalisation

doubt we can afford it. May turn profitable longterm for the taxpayer if the government follows, then improves upon the swedish model

- raiding the NPRF

gonna be difficult to push that through the Dail, but it's an option

- consolidation

sounds like a good option, but not sure it's going to work. 2 insolvent banks merging into one big insolvent bank isnt going to help things :rolleyes:

- private equity companies aka sharks

If they're interested, there /must/ be something of value in the banks. They usually go for badly run companies with considerable assets to be chopped up and sold of

Consolidation, followed by PE companies stepping in would be my bet.

ravendude

Blackjack wrote: »

The Govt hasn't paid a penny to the Banks. The cost of the Governments borrowing hasn't increased diddly squat as a result of the Guarantee.

This is one of the biggest myths going around at the moment.
ie. That the government guarantee is some kind of "master stroke" in that it costs the taxpayer nothing.
It costs us very significantly in a very direct, tangible manner. As a result of this guaranteem, Irish government bonds are deemed by rating agencies as having much more risk attached to them. Hence, the government must pay higher interest premiums to compensate for the higher risk rating.
Our borrowing costs have risen significantly, at the worst possible time; ie. a time when we will borrow more than ever.

This government guarantee is a very costly thing for the taxpayer indeed

Blackjack

SimpleSam06 wrote: »

There are no guarantees that one of the banks would have gone to the wall had the government not intervened.

watch this space.

SimpleSam06 wrote: »

Lehman bros went under because of a practice known as "naked shorting" (since mostly banned) in US stock markets, which is like normal shorting except you don't borrow the stocks before you sell them, you just say you can get them at some stage in future. So there were many more stocks out there than actually existed, driving the price of real stocks down.

The possibility of this happening to an Irish bank was negligible.

Not entirely true. Lehmans went to the wall because it's debts were about to exceed it's assets. It was mainly a Fixed Income house and Lehman was killed off by the weight of about $60 billion in toxic bad debts. It went under holding assets of $639 billion against debts of $613 billion. Added that and the market stopped trading, it did have a lot of reliance on the Repo market for its funding. If no one is willing to trade then you're screwed.

Blackjack

Dob74 wrote: »

I think the government lost its triple A rating, so the cost of borrowing has gone up for the G. If the banks are flawed business models let them fail and the assets will be bought for what they are worth! Let the free market rain? Thats what we where told by all the big shots when the little guy was being screwed. Now that big business has failed its dole for the fat cats. "Something is rotten in the state of Denmark".

It hasn't.

As regards letting one of the banks fail, it's really not a good idea.

Blackjack

ravendude wrote: »

This is one of the biggest myths going around at the moment.
ie. That the government guarantee is some kind of "master stroke" in that it costs the taxpayer nothing.
It costs us very significantly in a very direct, tangible manner. As a result of this guaranteem, Irish government bonds are deemed by rating agencies as having much more risk attached to them. Hence, the government must pay higher interest premiums to compensate for the higher risk rating.
Our borrowing costs have risen significantly, at the worst possible time; ie. a time when we will borrow more than ever.

This government guarantee is a very costly thing for the taxpayer indeed

the last Bond issuance by the Government was for 4Billion euros. Allowing one of the banks to fail would cost a whole whack more than that.

Trust me, this guarantee is a damn sight cheaper than the option of letting one go to the wall.

ravendude

Blackjack wrote: »

It hasn't.

As regards letting one of the banks fail, it's really not a good idea.

....eh, that publication is dated 23rd November 2007. It speaks of the government "expecting to post a surplus in 2007 year end".

....Me thinks things have changed ever so slightly since then. :rolleyes:

ravendude

ravendude wrote: »

....eh, that publication is dated 23rd November 2007. It speaks of the government "expecting to post a surplus in 2007 year end".

....Me thinks things have changed ever so slightly since then. :rolleyes:

Here is a more recent article, - while Ireland has managed to retain its AAA rating, there are considerable risk premiums

http://www.tribune.ie/business/news/article/2008/nov/30/irelands-risk-level-now-ahead-of-italy-slovakia/

Blackjack

ravendude wrote: »

....eh, that publication is dated 23rd November 2007. It speaks of the government "expecting to post a surplus in 2007 year end".

....Me thinks things have changed ever so slightly since then. :rolleyes:

You're right, the link was incorrect.

However, this link still shows the rating as being triple A, so unless you can provide me with one that shows there has been a ratings downgrade, I'll just have to believe it hasn't happened. S&P have made no changes to the ratings........:rolleyes:

SimpleSam06

Blackjack wrote: »

watch this space.

So you're saying that regardless of guarantees, one of the banks might fail anyway? Then what was the point?

Blackjack wrote: »

As regards letting one of the banks fail, it's really not a good idea.

Once again, had there been no guarantees, its quite unlikely that an Irish bank would have failed. There are also other routes that could have been taken.

Blackjack wrote: »

Lehmans went to the wall because it's debts were about to exceed it's assets. It was mainly a Fixed Income house and Lehman was killed off by the weight of about $60 billion in toxic bad debts. It went under holding assets of $639 billion against debts of $613 billion.

A couple of points here. In banking parlance, debts are a positive thing, the more debt you have the more people have to repay to you, so leveraging to the hilt makes sense. Secondly are you saying that Irish banks have similar performance ratios to Lehman bros, and what are you basing this on?

Dob74

Blackjack wrote: »

It hasn't.

As regards letting one of the banks fail, it's really not a good idea.

Why? A failed business model, is a failed business model. The gov wont bail out waterford crystal so why should they bail out a bank. The banks have acted completely irresponsible in shovelling money out the door and pushing up land prices up for everyone. There profits looked good on paper but now its time to call some of those loans. If they cant be paid back and the bank is insolvent they should be let go under. Anglo is in trouble, its share price is only 38 cent after being over 13euro last year. The investment community obviously know the game is up for them. They wanted the gov to under right a share issue and thankfully the BL turned them down.
Let the mantra of the last few years prevail, let the market sort it out. Let the banks who got themselves into this mess, get themselves out. Taxpayer money should not be used to help out these chancers.

Danimalito

Dob74 wrote: »

Why? A failed business model, is a failed business model. The gov wont bail out waterford crystal so why should they bail out a bank. The banks have acted completely irresponsible in shovelling money out the door and pushing up land prices up for everyone. There profits looked good on paper but now its time to call some of those loans. If they cant be paid back and the bank is insolvent they should be let go under. Anglo is in trouble, its share price is only 38 cent after being over 13euro last year. The investment community obviously know the game is up for them. They wanted the gov to under right a share issue and thankfully the BL turned them down.
Let the mantra of the last few years prevail, let the market sort it out. Let the banks who got themselves into this mess, get themselves out. Taxpayer money should not be used to help out these chancers.

With the irish state guaranteeing to honour the banks debts during the next 2 years, it's going to be extremely costly for the taxpayer to allow any of them to go under. Ireland could very well end up in IMF-bailout territory.

Blackjack

SimpleSam06 wrote: »

So you're saying that regardless of guarantees, one of the banks might fail anyway? Then what was the point?


Once again, had there been no guarantees, its quite unlikely that an Irish bank would have failed. There are also other routes that could have been taken.

At the moment the Government are making noise about changing legislation as to how the National Pension can be used to recapitalise/invest in the banks. Writing is on the wall there.
As regards the guarantee, I personally think it was a low cost solution to a high cost problem. Other people here would seem to disagree.

SimpleSam06 wrote: »

A couple of points here. In banking parlance, debts are a positive thing, the more debt you have the more people have to repay to you, so leveraging to the hilt makes sense. Secondly are you saying that Irish banks have similar performance ratios to Lehman bros, and what are you basing this on?

Not when the debts are becoming increasingly toxic, and can't be collected. I'm not saying that the Irish banks have similar performance ratios, or anything like. The initial point relating to Lehmans was to illustrate the cataclysmic effect of "allowing" a bank to fail, which is what some posters here think is an appropriate response to the situation.

Blackjack

Dob74 wrote: »

Why? A failed business model, is a failed business model. The gov wont bail out waterford crystal so why should they bail out a bank. The banks have acted completely irresponsible in shovelling money out the door and pushing up land prices up for everyone. There profits looked good on paper but now its time to call some of those loans. If they cant be paid back and the bank is insolvent they should be let go under. Anglo is in trouble, its share price is only 38 cent after being over 13euro last year. The investment community obviously know the game is up for them. They wanted the gov to under right a share issue and thankfully the BL turned them down.
Let the mantra of the last few years prevail, let the market sort it out. Let the banks who got themselves into this mess, get themselves out. Taxpayer money should not be used to help out these chancers.

Do you happen to have any savings, or even an account with any of the banks?. Just wondering how you would manage if your bank went down the tubes and you could not access any cash, pay any bills or the like for a few weeks/months/years until the liquidators sort that out for you, while in the meantime ensuring that the Taxman is first to get paid and yourself afterwards?.

Apply that on a wider scale (i.e. - not just for you but any company or individual who depends on a collapsed bank for their day to day requirements), let me know what you come back with. Waterford Crystal weren't in the process of funding loans, making payments on behalf of anyone who needed payments to be made, providing mortgages or car loans to those who needed them. Unfortunately for Waterford Crystal's employees and shareholders, their company is a bit more expendable than the banks, by virtue of the fact that Glass Ashtrays and expensive wine glasses aren't vitally important to how money moves about the financial system.

SimpleSam06

Blackjack wrote: »

As regards the guarantee, I personally think it was a low cost solution to a high cost problem.

If the problem was the need for the government to rush into a course of action so as to be seen to be doing something, which has proven little benefit and considerable expense, then it certainly was a solution of sorts.

Blackjack wrote: »

Not when the debts are becoming increasingly toxic, and can't be collected.

Given that they had no idea which ones were toxic and which weren't, naked shorting played a considerably more important role in the downfall of Lehman. The FTD rates daily were in the billions of dollars - utter madness.

Blackjack wrote: »

The initial point relating to Lehmans was to illustrate the cataclysmic effect of "allowing" a bank to fail, which is what some posters here think is an appropriate response to the situation.

Once again though, if the government had not issued guarantees, I doubt very much that any major Irish bank would have failed. All they really did was make themselves look good for a week or two and cost us another pile of cash we don't have.

Blackjack

SimpleSam06 wrote: »

If the problem was the need for the government to rush into a course of action so as to be seen to be doing something, which has proven little benefit and considerable expense, then it certainly was a solution of sorts.


Given that they had no idea which ones were toxic and which weren't, naked shorting played a considerably more important role in the downfall of Lehman. The FTD rates daily were in the billions of dollars - utter madness.


Once again though, if the government had not issued guarantees, I doubt very much that any major Irish bank would have failed. All they really did was make themselves look good for a week or two and cost us another pile of cash we don't have.

Actually what the Guarantee did do was allow the banks have a more stable credit environment and ensured that there was less concern and credit risk for them by counterparties. This meant that they were able to collect more deposits and prevented a run.

Joe Duffy himself caused a Run on the retail side with people running to the banks to take their money out and put it in Prize bonds and the like (I'm not joking).
Imagine that on the level of large cash deposits (which have increased considerably as people fly for Cash which is currently king) from the Corporate and the Institutionals - if you're not getting these deposits, you have no source of funding.

The guarantee gave the market a level of confidence that the Irish Banks were a safe haven for funds, which at the time the banks here were getting hammered and having to offer ridiculous rates in order to try to attract these large deposits.
Now they don't have to and they're getting far more in as a result of the guarantee. Without the guarantee, I strongly doubt that one or 2 particular ones would still be around. in their present form.

The_Conductor

We're currently paying fully 1% extra (and it looks like this will further increase) on our national debt as a result of the government action (prior to the government guarantee, Irish sovereign debt was rated about .1% above German debt- its now at 1.2% above German debt- despite the fact that both have been downgraded in a similar manner). This action will ultimately cost the taxpayer a hell of a lot more than the banks are ever going to pay for the government guarantee.......

Blackjack

smccarrick wrote: »

We're currently paying fully 1% extra (and it looks like this will further increase) on our national debt as a result of the government action (prior to the government guarantee, Irish sovereign debt was rated about .1% above German debt- its now at 1.2% above German debt- despite the fact that both have been downgraded in a similar manner). This action will ultimately cost the taxpayer a hell of a lot more than the banks are ever going to pay for the government guarantee.......

Would allowing one of the banks to fail have been cheaper do you think?.

SimpleSam06

Blackjack wrote: »

This meant that they were able to collect more deposits and prevented a run.

Would allowing one of the banks to fail have been cheaper do you think?.

The accumulation of deposits is neither here nor there. The main thrust of your argument is that the guarantee prevented a bank run. I would strongly debate that there was a run in the offing, or that the public was going to try to withdraw their deposits en masse.

Blackjack

SimpleSam06 wrote: »

The accumulation of deposits is neither here nor there. The main thrust of your argument is that the guarantee prevented a bank run. I would strongly debate that there was a run in the offing, or that the public was going to try to withdraw their deposits en masse.

There were a lot of people taking money out of the banks.

If you think a run was not in the offing, then fair enough. I disagree, but I think we'll just have to agree to disagree.

Dob74

Blackjack wrote: »

Do you happen to have any savings, or even an account with any of the banks?. Just wondering how you would manage if your bank went down the tubes and you could not access any cash, pay any bills or the like for a few weeks/months/years until the liquidators sort that out for you, while in the meantime ensuring that the Taxman is first to get paid and yourself afterwards?.

Apply that on a wider scale (i.e. - not just for you but any company or individual who depends on a collapsed bank for their day to day requirements), let me know what you come back with. Waterford Crystal weren't in the process of funding loans, making payments on behalf of anyone who needed payments to be made, providing mortgages or car loans to those who needed them. Unfortunately for Waterford Crystal's employees and shareholders, their company is a bit more expendable than the banks, by virtue of the fact that Glass Ashtrays and expensive wine glasses aren't vitally important to how money moves about the financial system.

Of course I have a bank account. But have taken money out of the bank that has been to forefront in lending to developers and is just a commercial bank.
The financial system is in need of deep reforms and these reforms are not going to happen unless one of them goes wallop. In 85 AIB went under and the government bailed them out. It looks like nothing has changed since than. The gov did not get anything in return for stepping in. Senior management has not admited to any wrong doing, which I think is a serious mistake. They have not written down there assets. This would solve alot of the problems, as investor confidence would return. At the moment the economy is dying the death of a thousand cuts and it will years for it be corrected.
If AIB or BOI were going to go under then yes the gov should step in. They are too big and would affect the whole country. Its a sad reflection that this is probably the most rounded debate I have seen on this issue. For something that happened 10 weeks ago. The idiots who lead this country are doing enough to save the economy.

Dob74

Danimalito wrote: »

With the irish state guaranteeing to honour the banks debts during the next 2 years, it's going to be extremely costly for the taxpayer to allow any of them to go under. Ireland could very well end up in IMF-bailout territory.

Longtime it may profitable to takeover the debts and resell the assets at a later date. Short term it would be painful

The_Conductor

Blackjack wrote: »

Would allowing one of the banks to fail have been cheaper do you think?.

Given the difficulties the NTMA are suggesting we are going to have in selling ~25 billion in government bonds in '09- hell yes, Anglo Irish and a few other lesser candidates should have been allowed go up the wall. The current situation is to dilute the risk among all the institutions and the exchequer. Its unlikely- but possible that the implications of this could be far worse than anyone anticipates.......

Blackjack

Dob74 wrote: »

Of course I have a bank account. But have taken money out of the bank that has been to forefront in lending to developers and is just a commercial bank.
The financial system is in need of deep reforms and these reforms are not going to happen unless one of them goes wallop. In 85 AIB went under and the government bailed them out. It looks like nothing has changed since than. The gov did not get anything in return for stepping in. Senior management has not admited to any wrong doing, which I think is a serious mistake. They have not written down there assets. This would solve alot of the problems, as investor confidence would return. At the moment the economy is dying the death of a thousand cuts and it will years for it be corrected.
If AIB or BOI were going to go under then yes the gov should step in. They are too big and would affect the whole country. Its a sad reflection that this is probably the most rounded debate I have seen on this issue. For something that happened 10 weeks ago. The idiots who lead this country are doing enough to save the economy.

I'm sure there's more than you have savings and depend on the bank you have taken your money out of.
This is the scale I'm referring to, there are plenty of any banks customers who would be affected.

Dob74 wrote: »

Given the difficulties the NTMA are suggesting we are going to have in selling ~25 billion in government bonds in '09- hell yes, Anglo Irish and a few other lesser candidates should have been allowed go up the wall. The current situation is to dilute the risk among all the institutions and the exchequer. Its unlikely- but possible that the implications of this could be far worse than anyone anticipates.......

We're not going to have to sell that 25 Billion in Bonds as a result of any Bank Guarantee.
That 25 Billion is just to keep the Government in the money it has budgeted to spend.

Seriously - what do you estimate the costs to the economy to be in allowing a bank failure?.

The_Conductor

Blackjack wrote: »

We're not going to have to sell that 25 Billion in Bonds as a result of any Bank Guarantee. That 25 Billion is just to keep the Government in the money it has budgeted to spend.

Seriously - what do you estimate the costs to the economy to be in allowing a bank failure?.

In the first instance- the additional cost associated with the 25billion as a result of the government guarantee is an immediate additional cost of 250 million, probably higher- depending on whether the spread with the other Euro bonds increases beyond the 1.1% its currently at.

I do not believe that there would be any cost to the Irish economy in allowing a bit player such as Anglo Irish go up the wall. 91% of depositors in that institution would have availed of full protection under the deposit protection scheme, and thats even before the increase in the scheme. Its acknowledged that Anglo Irish are toxic- none of the larger institutions are interested in taking them over- unless their loan book can be totally ringfenced, and any losses guaranteed by the government (the government is guaranteeing loans and deposits- not historic loan books). The cost of doing this could well be an additional 18-20 billion (depending on what the eventual realisable value of those assets are).

We've had US, UK, French, German, Swiss and Italian bank failures. The sky hasn't fallen in- why would removing such an atrocious overhang of toxic debt from the Irish market not be a good thing (other than the associated cost to the taxpayer if it was forced to merge with another entity). Allowing it to go whallop, would wipe out the shareholders- certainly. But by the same hand- a 94% reduction in Bank of Ireland's share price has caused shocking hardships for a lot of people- and you do not hear any mutterings of the problems their hardships are causing the economy- or indeed any suggestion that they be bailed out.

What do you think the economic implications of allowing Anglo Irish to go up the wall would be (I am not suggesting allowing AIB or BOI fail.......)

S.

Blackjack

smccarrick wrote: »

In the first instance- the additional cost associated with the 25billion as a result of the government guarantee is an immediate additional cost of 250 million, probably higher- depending on whether the spread with the other Euro bonds increases beyond the 1.1% its currently at.

I do not believe that there would be any cost to the Irish economy in allowing a bit player such as Anglo Irish go up the wall. 91% of depositors in that institution would have availed of full protection under the deposit protection scheme, and thats even before the increase in the scheme. Its acknowledged that Anglo Irish are toxic- none of the larger institutions are interested in taking them over- unless their loan book can be totally ringfenced, and any losses guaranteed by the government (the government is guaranteeing loans and deposits- not historic loan books). The cost of doing this could well be an additional 18-20 billion (depending on what the eventual realisable value of those assets are).

We've had US, UK, French, German, Swiss and Italian bank failures. The sky hasn't fallen in- why would removing such an atrocious overhang of toxic debt from the Irish market not be a good thing (other than the associated cost to the taxpayer if it was forced to merge with another entity). Allowing it to go whallop, would wipe out the shareholders- certainly. But by the same hand- a 94% reduction in Bank of Ireland's share price has caused shocking hardships for a lot of people- and you do not hear any mutterings of the problems their hardships are causing the economy- or indeed any suggestion that they be bailed out.

What do you think the economic implications of allowing Anglo Irish to go up the wall would be (I am not suggesting allowing AIB or BOI fail.......)

S.

There is a difference between allowing a bank failure (ah la Lehmans) and Nationalisation which is what's happened in the UK and other countries).

There is a distinct difference between the 2.

As regards the economic implications of allowing one of the banks to fail - considerable. Even if it were one of the bit players as you put it, picture the below scenario:

People who have funds with said bank not being able to access them in the event of the insolvency. You're not going to have instant access regardless of any government guarantee. This has the effect of freezing up available funds to individuals and businesses - if you can't access your cash, you can't pay for stuff.

Any payments that anyone would be due that may flow via said bank, would either be cancelled or frozen. Anyone depending on these funds, would be without them until the whole mess was sorted out.

Thousands of people unemployed overnight - no matter which of the banks this were to happen to - the figure would be significant. Add to the economy the Social Welfare cost and reduced tax take that in itself would create havoc with our significantly weakened economy.

Add to that, the outflow of funds from all the other banks as people lose confidence in the Irish banking system. This would be quite significant, as investors and individuals alike adopt a flight to quality.

Like it or not, allowing any one of the banks to go to the wall would cause a run on the banks here and that would be a far more serious problem.

Sorry - I just don't think it's a good idea to allow one to go to the wall, just to "teach the banks a lesson".

The_Conductor

I'm not suggesting allowing Anglo Irish go to the wall "to teach them a lesson". The perception is that there is a very large amount of toxic debt on the books of Irish banking institutions- but given their understandable reticence in quantifying this debt, its an unknown factor. The extent of to what extent this is known or unknown, is measured by the relative difficulties the different institutions had in accessing funds on the interbank market, prior to the government guarantee. Anglo Irish had to pay over 26% on the interbank market- recognition that internation financial institutions saw it as a hazard to kept well away from- unless they were paid sufficiently as a gamble. Neither AIB nor BOI were anything near this high (however they would still have considered the premium they were paying as crippling).

None of the Irish institutions have any interest in merging with Anglo Irish- unless the government underwrites their loan book in perpetuity.

The ILP/EBS/FN group- is seen as positioning itself to the best of its limited abilities- so they are not subsumed into AIB or (less likely) BOI on unfavourable terms. At least ILP has the pension fund on which to rely for cashflow- a source of income the others are plainly envious of.

Anglo Irish is a particular anomaly- which should have been reigned in a long time ago. They bet big on property. For a long time they were the darlings of the stock exchange- they couldn't do any wrong. However the inevitable, when it did come to pass, has meant they are a terminal basket case on life support. Who would suffer were they allowed to be liquidated- primarily the shareholders- but also the taxpayer, because of the government guarantee schemes (loan and deposits). Would the economy as a whole suffer- hell no. It might be the impetus needed for the other institutions to get their houses in order. Is there any reason for BOI or AIB to trade at 25-27 times earnings- hell no, there isn't....... What would be a reasonable multiple- perhaps 12 to 14? Given the collapse in EPS- this would indicate even current depressed share prices are not necessarily good value- unless there is confidence in bad debts- which there isn't........

Suggesting letting Anglo Irish go up the wall "to teach them a lesson"- would be vindictive. I'm stating that they no longer have a viable business- and their continued existence is a drag on the solid fundamentals that exist in other Irish institutions.

Given the $50billion ponzi (pyramid) scheme which was uncovered in the US over the weekend- I'm not sure that the appalling mess in the Irish financial sector is necessarily a result of bad regulation in the Irish financial sector. There was totally irrational exuberance, fed in no small part by the media. People were afraid of missing the boat- whatever that meant to them- every second person wanted their property empire. In a market of stratospheric property price rises- it was seen as a sure bet to continue to shovel money into the market. Was it a pyramid scheme- hell, sure it was. Was it any worse than the $50billion fraudulent scheme uncovered at the weekend- in essence, no it wasn't.

Sometimes we have to take short term hurt in order to establish longterm sound fundamentals.

DJDC

I'm not suggesting allowing Anglo Irish go to the wall "to teach them a lesson". The perception is that there is a very large amount of toxic debt on the books of Irish banking institutions- but given their understandable reticence in quantifying this debt, its an unknown factor. The extent of to what extent this is known or unknown, is measured by the relative difficulties the different institutions had in accessing funds on the interbank market, prior to the government guarantee. Anglo Irish had to pay over 26% on the interbank market- recognition that internation financial institutions saw it as a hazard to kept well away from- unless they were paid sufficiently as a gamble. Neither AIB nor BOI were anything near this high (however they would still have considered the premium they were paying as crippling).

None of the Irish institutions have any interest in merging with Anglo Irish- unless the government underwrites their loan book in perpetuity.

The ILP/EBS/FN group- is seen as positioning itself to the best of its limited abilities- so they are not subsumed into AIB or (less likely) BOI on unfavourable terms. At least ILP has the pension fund on which to rely for cashflow- a source of income the others are plainly envious of.

Anglo Irish is a particular anomaly- which should have been reigned in a long time ago. They bet big on property. For a long time they were the darlings of the stock exchange- they couldn't do any wrong. However the inevitable, when it did come to pass, has meant they are a terminal basket case on life support. Who would suffer were they allowed to be liquidated- primarily the shareholders- but also the taxpayer, because of the government guarantee schemes (loan and deposits). Would the economy as a whole suffer- hell no. It might be the impetus needed for the other institutions to get their houses in order. Is there any reason for BOI or AIB to trade at 25-27 times earnings- hell no, there isn't....... What would be a reasonable multiple- perhaps 12 to 14? Given the collapse in EPS- this would indicate even current depressed share prices are not necessarily good value- unless there is confidence in bad debts- which there isn't........

Suggesting letting Anglo Irish go up the wall "to teach them a lesson"- would be vindictive. I'm stating that they no longer have a viable business- and their continued existence is a drag on the solid fundamentals that exist in other Irish institutions.

Given the $50billion ponzi (pyramid) scheme which was uncovered in the US over the weekend- I'm not sure that the appalling mess in the Irish financial sector is necessarily a result of bad regulation in the Irish financial sector. There was totally irrational exuberance, fed in no small part by the media. People were afraid of missing the boat- whatever that meant to them- every second person wanted their property empire. In a market of stratospheric property price rises- it was seen as a sure bet to continue to shovel money into the market. Was it a pyramid scheme- hell, sure it was. Was it any worse than the $50billion fraudulent scheme uncovered at the weekend- in essence, no it wasn't.

Sometimes we have to take short term hurt in order to establish longterm sound fundamentals.

Nice post. Anyone who still thinks Anglo have a viable future in their present form is a donkey.

johnnyskeleton

smccarrick wrote: »

Given the difficulties the NTMA are suggesting we are going to have in selling ~25 billion in government bonds in '09- hell yes, Anglo Irish and a few other lesser candidates should have been allowed go up the wall. The current situation is to dilute the risk among all the institutions and the exchequer. Its unlikely- but possible that the implications of this could be far worse than anyone anticipates.......

Hopefully though, the government will use Anglo as a "bad bank" like the Sweeds did i.e. put all the bad loans into it, thus freeing up other banks to have sensible lending policies and good loan books, and also freeing Anglo to be ruthless in pursuing the developers and multi BTLers.

Blackjack

smccarrick wrote: »

I'm not suggesting allowing Anglo Irish go to the wall "to teach them a lesson".

Unfortunately there was such a suggestion earlier in this tread. I believe the expression used was:
"If you want to separate the men from the boys we should let the banks crash."
Personally it's that attitude to be rather irritating and irrational (I know it wasn't you by the way).

smccarrick wrote: »

The perception is that there is a very large amount of toxic debt on the books of Irish banking institutions- but given their understandable reticence in quantifying this debt, its an unknown factor. The extent of to what extent this is known or unknown, is measured by the relative difficulties the different institutions had in accessing funds on the interbank market, prior to the government guarantee. Anglo Irish had to pay over 26% on the interbank market- recognition that internation financial institutions saw it as a hazard to kept well away from- unless they were paid sufficiently as a gamble. Neither AIB nor BOI were anything near this high (however they would still have considered the premium they were paying as crippling).

None of the Irish institutions have any interest in merging with Anglo Irish- unless the government underwrites their loan book in perpetuity.

Agreed that the books are probably a bit scary. I don't have a lot of the detail on specifically Anglo's loan book but they appeared to be funding a lot of Commercial Property purchases that did not make a whole lot of sense, and pushing prices up.

smccarrick wrote: »

The ILP/EBS/FN group- is seen as positioning itself to the best of its limited abilities- so they are not subsumed into AIB or (less likely) BOI on unfavourable terms. At least ILP has the pension fund on which to rely for cashflow- a source of income the others are plainly envious of.

ILP and EBS seems to be the one that's most likely to come through and makes what seems to be the most sense as regards a merger - whether others join the fray remains to be seen. Personally I can't see FN holding out independantly through this, but it seems that as per Simon Carswell in todays Irish times that the government is keen to have one mutual left after all of this, for reasons I don't quite understand.

AIB is the strongest of all at the moment. BOI have to be a bit shaky if they have to talk to JC Flowers.

smccarrick wrote: »

Anglo Irish is a particular anomaly- which should have been reigned in a long time ago. They bet big on property. For a long time they were the darlings of the stock exchange- they couldn't do any wrong. However the inevitable, when it did come to pass, has meant they are a terminal basket case on life support. Who would suffer were they allowed to be liquidated- primarily the shareholders- but also the taxpayer, because of the government guarantee schemes (loan and deposits). Would the economy as a whole suffer- hell no. It might be the impetus needed for the other institutions to get their houses in order. Is there any reason for BOI or AIB to trade at 25-27 times earnings- hell no, there isn't....... What would be a reasonable multiple- perhaps 12 to 14? Given the collapse in EPS- this would indicate even current depressed share prices are not necessarily good value- unless there is confidence in bad debts- which there isn't........

The "Borrow short/Lend Long" model is clearly of the bygone day. Unfortunately, I suspect that a lot of the borrowing done by Anglo was lent by some of the Irish banks. Had they been let go to the wall, then I suspect that we would not have had a situation of the rest of the institutions getting their house in order, but nursing losses. All depositors running to take their cash and no one willing to touch an Irish bank if Anglo were the one that were to be allowed to fail prior to the guarantee. If that were the case, then, well, welcome to Iceland.

smccarrick wrote: »

Suggesting letting Anglo Irish go up the wall "to teach them a lesson"- would be vindictive. I'm stating that they no longer have a viable business- and their continued existence is a drag on the solid fundamentals that exist in other Irish institutions.

Given the $50billion ponzi (pyramid) scheme which was uncovered in the US over the weekend- I'm not sure that the appalling mess in the Irish financial sector is necessarily a result of bad regulation in the Irish financial sector. There was totally irrational exuberance, fed in no small part by the media. People were afraid of missing the boat- whatever that meant to them- every second person wanted their property empire. In a market of stratospheric property price rises- it was seen as a sure bet to continue to shovel money into the market. Was it a pyramid scheme- hell, sure it was. Was it any worse than the $50billion fraudulent scheme uncovered at the weekend- in essence, no it wasn't.

Sometimes we have to take short term hurt in order to establish longterm sound fundamentals.

I would agree that there has to be changes at Anglo in order for it to survive. I note another poster has suggested it be deemed as the "bad bank". Not a bad idea in theory, and I certainly hope that the Government are exploring all these options. I don't have the confidence in them to do so however.
Not knowing what Anglo's Loan book looks like, apart from not pretty, I can only imagine that this is the only solution for them.

As regards the Madoff Scandal, it's remarkable in this day and age that such a thing went unnoticed. Even more remarkable is the list of Investors caught up in this and how this wasn't spotted by the Regulators. I'd hazard a guess the Appointed auditors of this company were complicit also. If not they were certainly incompetent.

As regards the irrational exuberance as regards property in this country, I've quoted a poster in my sig which I believe was posted in April 2006 (not by me). Seems quite apt now, thats for sure.
Waiting for the bottom of that curve myself.

spockety

methinks the mod should split off the last few posts into a new banking thread. Keep clicking on the latest posts here expecting to find info on "prices down 40%"...

The_Conductor

spockety wrote: »

methinks the mod should split off the last few posts into a new banking thread. Keep clicking on the latest posts here expecting to find info on "prices down 40%"...

Me bad.....
Will do when I get a spare minute here....

Shane

The_Conductor

Originally in the accommodation & property forum- more happily at home elsewhere?