FG proposes new banks with clean balance sheets

Sully

Fine Gael is calling on the Government to establish "good banks" with clean balance sheets as an alternative to the €7bn recapitalisation proposal that is expected to be approved by the cabinet today.

The party says the current plan requires taxpayers to put huge amounts of money into AIB and Bank of Ireland without knowing how weak their balance sheets are.

It says this leaves the entire country dangerously exposed to massive bad debts.

Instead, Fine Gael is proposing the creation of new banks within both AIB and BoI, into which the €7bn in taxpayers' money would be invested.

These new banks would then take over all deposits and good loans from AIB and BoI, leaving the bad debts behind in legacy banks that would no longer engage in any lending.

Source: http://breakingnews.ie/ireland/mhsnideyauoj/

I think Labour also suggested something like this today but I cant seem to find the article. RTEs website is so poor and BreakingNews doesnt have it as a main headline.

So, what do people think of the suggestion? Its an interesting idea but its unlikely the government will take any notice. Its probably also a bit late to be making solutions to the problem. Im not happy with how the government are treating the whole bank problems at the moment and they dont seem to be tackling the problem properly. The proposal by FG, and I believe something similar by Labour, seems to address a small aspect of how the tax payers money might not fix the complete problem and only address one aspect.

Fratton Fred

and what, the bad debt will magically go away?

Sully

Fratton Fred wrote: »

and what, the bad debt will magically go away?

A good question. I guess we will have to wait for a more detailed report in tommrows papers.

I think its been suggested a few times that banks just write of the bad debts and its one reason why banks are being told to delay in repocessing houses etc.

BroomBurner

Won't writing off bad debt inevitably lead to the taxpayer paying for it indirectly?

eoinbn

Fratton Fred wrote: »

and what, the bad debt will magically go away?

The media has been very poor at explaining this, as they often are.

This is how I understand it.

Anglo buys the toxic assets in BoI and AIB with government money. BoI/AIB are now free of bad debt and have been recapitalized. Now that their books are in good shape they can start to loan out money more freely which helps the economy.
Anglo on the other hand stops it's normal practice of lending money and just focuses on selling the 'toxic assets'. Anglo would pay BoI/AIB a reasonable price for the assets. Anglo is in no rush to sell the assets, unlike BoI/AIB who would of needed a fast/cheap sale(as there is little to no interest in buying land/property atm) to raise capital, so they can afford to wait for an upturn in the market or for a potential investor that is willing to give a fair price.

Nothing magical, just freeing up money to get the economy moving.

Fratton Fred

eoinbn wrote: »

The media has been very poor at explaining this, as they often are.

This is how I understand it.

Anglo buys the toxic assets in BoI and AIB with government money. BoI/AIB are now free of bad debt and have been recapitalized. Now that their books are in good shape they can start to loan out money more freely which helps the economy.
Anglo on the other hand stops it's normal practice of lending money and just focuses on selling the 'toxic assets'. Anglo would pay BoI/AIB a reasonable price for the assets. Anglo is in no rush to sell the assets, unlike BoI/AIB who would of needed a fast/cheap sale(as there is little to no interest in buying land/property atm) to raise capital, so they can afford to wait for an upturn in the market or for a potential investor that is willing to give a fair price.

Nothing magical, just freeing up money to get the economy moving.

sounds like the same end result to me, but with less government control over AIB and BoI.

At the end of the day, there is only a certain amount of money in the kitty no matter how you shuffle it around.

jmayo

The one supposed advantage of this is that the other banks are free of the toxic debt and thus can entice investors and interbank loans at reasonable rates.
This way the semi solvent banks are made solvent and more attractive and thus can go back to lending and behaving like a normal bank.

Either way the government, sorry let me rephrase that the taxpayers, are going to get stuck with the bad debts.

Anglo would be the leader as regards being the bad bank and BOI, AIB would be considired the good banks.

Anyway a lot of analysts state 7 billion is conservate estimate as regards bailing out and recapitalising.

Most commentators would argue that the banks need to pay for their wrecklessness and any bailout or buying of toxic debt should not be free get out of jail card and the taxpayers should be given some chance of getting something back long term.
Whether the government have the balls to stick it to the banks is another question :rolleyes:

jmayo

jmayo wrote: »

Whether the government have the balls to stick it to the banks is another question :rolleyes:

This is my question: Why exactly don't the government have the balls to stick it to the banks? Why are they allowing executives to keep 12m+ salaries as opposed to telling them to get lost and "You'll get paid what we say you will or you wont get your bailout".

I really don't get it. What have they got to lose here? The banks hardly going to turn around and say they'll go without the bailout.

eoinbn

Fratton Fred wrote: »

sounds like the same end result to me, but with less government control over AIB and BoI.

At the end of the day, there is only a certain amount of money in the kitty no matter how you shuffle it around.

Well yes, both have the same goal. It's not a new idea, it's just a different to approach the problem. Sweden did it this way ~15 years ago, and the Obama admin has been talking about doing something similiar over the last few weeks.

jmayo

Rojomcdojo wrote: »

This is my question: Why exactly don't the government have the balls to stick it to the banks? Why are they allowing executives to keep 12m+ salaries as opposed to telling them to get lost and "You'll get paid what we say you will or you wont get your bailout".

I really don't get it. What have they got to lose here? The banks hardly going to turn around and say they'll go without the bailout.

Ah but you see the governmnet, or more particularly FF, appear to be very buddy buddy with all of them, and in particular it seems the more infamous ones who gained most and are now up to their necks in all the bust.

Bertie was great buddies with Fitzpatrick and Dunne.
Dunne's little project in Ballsbridge was been heavily touted by none other than Des Richardson, who happened to be the organiser of the Galway tent.

Who put Lar Bradshaw on the board of the Dockland's authority?
Who put Fitzpatrick on the board of Aer Lingus ?

Is the Docklands Authority not another quango ?
Why did it have one of it's meeting in San Sebastion in Spain to decide fate of Irish Glass Bottlers site ?
Why did it have prominent bankers on board deciding fate of sites that the bankers developer clients wanted ?

Look at Docklands Authority, it was filled with bankers, accountants from top accounting firms who happen sometimes to be auditing the banks of their fellow directors.

Follow the money. I think to a degree we are all bogged down on issue of public sector jobs and forgetting what is happening in the banks.
We need to find out who purchased the 10% that Quinn did not want, who were the ones given the money by Anglo, securitised on Anglo shares, to buy Anglo shares ?

If someone joins the dots I bet you will get a very interesting picture.
Of course proving any inpropriety is difficult in this country but the whole system stinks and the stench I bet goes to the top.

EDIT: interesting that regulator is investigating how billions were depostied into Anglo from IL&P around finanical year end.
http://www.rte.ie/news/2009/0210/angloirish.html

Good God what was the regulators office doing the last 7/8 years.
The whole thing is one rotten mess, first Nationwide was involved in their little hidden deals, then Quinn, now Il&P.
Who next ?

The_Minister

Rojomcdojo wrote: »

This is my question: Why exactly don't the government have the balls to stick it to the banks? Why are they allowing executives to keep 12m+ salaries as opposed to telling them to get lost and "You'll get paid what we say you will or you wont get your bailout".

I really don't get it. What have they got to lose here? The banks hardly going to turn around and say they'll go without the bailout.

They might.
They can survive without it, but only by turtling.

This hurts both them and us - we benefit from them taking the bailout, and they do too, but if the price is too high then they may choose to go it alone, a very risky proposition.

Don't forget that the people who make that call are the people whose salaries you want to cut in return for the bailout. By doing so you turn the decision from being about the good of the bank to being about their loss of income.