Banks pass stress test

nesf

http://businessetc.thejournal.ie/good-news-aib-boi-and-ilp-banks-pass-latest-round-of-stress-tests-300392-Dec2011/

A bit of good news. The banks are looking in fairly good shape at the moment from a stress test point of view with some of them holding over twice the amount of Tier 1 Capital that they need to meet requirements. Better than having to pump more money into them this year anyway!

Cookie_Monster

so given that, when are they likely to start repaying the bailout monies with this "spare" cash?

kennyb3

The same tests dexia passed? Just playing devils advocate. That is a bit of good news though and better than the normal bad news.

Although does a europe wide stress test take account of our unique mortgage crisis?

Only another 3.1bn in promissory notes to pay re anglo next year so.

nesf

kennyb3 wrote: »

The same tests dexia passed? Just playing devils advocate. That is a bit of good news though and better than the normal bad news.

Although does a europe wide stress test take account of our unique mortgage crisis?

Only another 3.1bn in promissory notes to pay re anglo next year so.

The model for banks in each country would have to be different otherwise a Europe wide stress test would be pointless. What's common is the assumption of a recession of the same depth in each of the different models used for the various countries.

kennyb3

I think this shows why the markets will pay no heed to this.

We all know the rumours about CA last week.

Commerzbank must be in some mess, it seems it will have to be nationalised.

Still its the best bit of news about Irish banks in a while.

I guess the overall news is that euro banks need 115bn IF there are no further haircuts, defaults or bank runs. A scary thought.

nesf

nesf wrote: »

The model for banks in each country would have to be different otherwise a Europe wide stress test would be pointless. What's common is the assumption of a recession of the same depth in each of the different models used for the various countries.

Actually, with the above I may be wrong. I can't remember exactly what kind of stress tests were done this time. I know the ICB does country scenario specific ones anyway.

kennyb3

nesf wrote: »

Actually, with the above I may be wrong. I can't remember exactly what kind of stress tests were done this time. I know the ICB does country scenario specific ones anyway.

Its late, something i want to look into properly myself, it can wait till tomorrow though.

nesf

kennyb3 wrote: »

Its late, something i want to look into properly myself, it can wait till tomorrow though.

Late? I finally got the final kid asleep a half hour ago, my day's just begun...

liammur

Cookie_Monster wrote: »

so given that, when are they likely to start repaying the bailout monies with this "spare" cash?

It shouldn't take long in the case of IL&P to get a big profit. The 4bn recap has been met 2.3bn gov injection 400 mill contingency notes,200mill shareholders contribution plus the 1.05bn raised through the LME. Shareholders got left with 1% of the company, despite the fact that the €4 bln will never be needed. Very very unfair.

fortuna22

I want to endure a bit of ridicule - I've bought AIB shares and have been keeping an eye on the market - there are deals of up to 90k going on with the AIB shares though most of the transactions are really small (less than 5k) - if the banks are passing a stress test, then how long until they start to declare small earnings ?
Certainly those who bought shares in AIB when it hit the floor in late september have done really well, really really, but if AIB recovers, actually when it recovers since it is backed by the good folk of Ireland through their tax receipts, as well as those who went one step further and supported AIB through buying the stock will be well rewarded as well as the good folk of Ireland through the windfall to the department of finance who owns the equity stake mostly.
comments please, any other venture capitalists out there who have traded and supported AIB in these rough times ?

Jaysoose

Of course they have capital they are not holding up their side of the bailouts by lending to small business, its a typical false economy that can only be seen as good news in ireland.

liammur

fortuna22 wrote: »

I want to endure a bit of ridicule - I've bought AIB shares and have been keeping an eye on the market - there are deals of up to 90k going on with the AIB shares though most of the transactions are really small (less than 5k) - if the banks are passing a stress test, then how long until they start to declare small earnings ?
Certainly those who bought shares in AIB when it hit the floor in late september have done really well, really really, but if AIB recovers, actually when it recovers since it is backed by the good folk of Ireland through their tax receipts, as well as those who went one step further and supported AIB through buying the stock will be well rewarded as well as the good folk of Ireland through the windfall to the department of finance who owns the equity stake mostly.
comments please, any other venture capitalists out there who have traded and supported AIB in these rough times ?

I find it very strange that the government gave AIB a multiple of the price that they gave IL&P. AIB cost the tapayer over €20 bln. I would certainly stay well clear of Irish companies after that Mugabe style swoop on IL&P.

thebman

Jaysoose wrote: »

Of course they have capital they are not holding up their side of the bailouts by lending to small business, its a typical false economy that can only be seen as good news in ireland.

A lot of those small businesses will go under even if they are given the loans and we'll just end up bailing out the banks again.

The not lending to small business thing is a bit of a con in some ways. A lot of Irish businesses are just going under because they were involved in construction which is all but dead at the moment or they overstretched themselves in good times on credit or their business strategy depends on peak time demand for products that does not exist in a recession.

So I'd be very weary of small businesses saying all they need is a small loan and they'll be fine. Once they've spent that small loan, will they suddenly be fine or will it just make the next few months easier and then they'll be back for more?

Jaysoose

thebman wrote: »

A lot of those small businesses will go under even if they are given the loans and we'll just end up bailing out the banks again.

The not lending to small business thing is a bit of a con in some ways. A lot of Irish businesses are just going under because they were involved in construction which is all but dead at the moment or they overstretched themselves in good times on credit or their business strategy depends on peak time demand for products that does not exist in a recession.

So I'd be very weary of small businesses saying all they need is a small loan and they'll be fine. Once they've spent that small loan, will they suddenly be fine or will it just make the next few months easier and then they'll be back for more?

Thats a completely different issue the banks are not lending to anybody which is alledgedly contrevening part of the bailout terms. Its easy for them to suddenly appear like they are improving when they are only taking money and not operating in a lending capacity.

The validity of small firms linked to the construction sector is not the issue.

liammur

thebman wrote: »

A lot of those small businesses will go under even if they are given the loans and we'll just end up bailing out the banks again.

The not lending to small business thing is a bit of a con in some ways. A lot of Irish businesses are just going under because they were involved in construction which is all but dead at the moment or they overstretched themselves in good times on credit or their business strategy depends on peak time demand for products that does not exist in a recession.

So I'd be very weary of small businesses saying all they need is a small loan and they'll be fine. Once they've spent that small loan, will they suddenly be fine or will it just make the next few months easier and then they'll be back for more?

Yes, it seems very strange that you over capitalise banks just so that they can lend again. Over capitalise and wipe out existing holders in the process. There will be a court case in January as IL&P investors sue the government.

Slydice

any odds on when the next banks stress test will be?

you know... the one where they'll have "figured it out this time for sure"... again:rolleyes:

K-9

Slydice wrote: »

any odds on when the next banks stress test will be?

you know... the one where they'll have "figured it out this time for sure"... again:rolleyes:

AFAIK they've come in under budget on the IMF/EU bank bailout package.
http://economic-incentives.blogspot.com/2011/11/some-general-government-debt.html

€24 Billion out of the €35 Billion set aside was used.

I don't know if it is envisaged to do another round as it seems the EU actually did a proper investigation and not relied on the banks. Credit Unions seem to be the next ones!

thebman

Jaysoose wrote: »

Thats a completely different issue the banks are not lending to anybody which is alledgedly contrevening part of the bailout terms. Its easy for them to suddenly appear like they are improving when they are only taking money and not operating in a lending capacity.

The validity of small firms linked to the construction sector is not the issue.

I don't think I said that was the sole issue but if a company can't even stay still without a loan, how is it sustainable in the medium to long term?

liammur

K-9 wrote: »

AFAIK they've come in under budget on the IMF/EU bank bailout package.
http://economic-incentives.blogspot.com/2011/11/some-general-government-debt.html

€24 Billion out of the €35 Billion set aside was used.

I don't know if it is envisaged to do another round as it seems the EU actually did a proper investigation and not relied on the banks. Credit Unions seem to be the next ones!

It wasn't the EU, but BlackRock, a US company. No bank in Europe would pass the tests they imposed on the Irish banks. If all the capital is required, they country is in a far worse position than most think it is, and most think it's very bad!

Scofflaw

thebman wrote: »

I don't think I said that was the sole issue but if a company can't even stay still without a loan, how is it sustainable in the medium to long term?

Virtually no small business is viable without access to credit. You may be under the impression that customers pay on time. They don't, but staff still need to be paid.

A new survey from ISME shows that 40% of small and medium sized businesses experienced delays of three months or more to receive payments for goods and services sold during the fourth quarter. This compares with 42% in the previous quarter.

The ISME credit watch survey for Autumn 2011 shows the actual average payment period in Ireland for SMEs is 71 days, a slight improvement on the previous quarter's figure of 72.

I don't know any small business which offers more than 30 days for payment, so you're looking at an additional 40 days there. Credit access is vital.

cordially,
Scofflaw

liammur

Scofflaw wrote: »

Virtually no small business is viable without access to credit. You may be under the impression that customers pay on time. They don't, but staff still need to be paid.



I don't know any small business which offers more than 30 days for payment, so you're looking at an additional 40 days there. Credit access is vital.

cordially,
Scofflaw

This is true, but thebman is also correct. There are businesses out there that will be seeking loans which is just postponing the inevitable.

Scofflaw

liammur wrote: »

This is true, but thebman is also correct. There are businesses out there that will be seeking loans which is just postponing the inevitable.

Sure, but the "borrowing to postpone the inevitable" numbers will necessarily be a small proportion of SME needs for credit at any given moment. An interesting way of looking at the delay in payments to SMEs is that it's essentially free credit. I haven't seen a recent figure, but I know that back when the late payments legislation was first introduced here the Irish SME sector was effectively providing about €10bn in interest-free credit to larger businesses, semi-states, and government at any given time.

cordially,
Scofflaw

Solair

Are you sure they didn't just pass this stress test instead ?

nesf

Scofflaw wrote: »

I don't know any small business which offers more than 30 days for payment, so you're looking at an additional 40 days there. Credit access is vital.

cordially,
Scofflaw

My company has had payments delayed by 6 months or longer from some extremely well known companies in good standing and without cashflow problems. Anyone thinking customers generally pay on time has never worked in the small business sector.

coolshannagh28

We have become a cash economy ,the value of any product ie a house ,car ,coat is the amount of cash you are willing to take for it .The reason being 1971 levels of credit in the economy ,this is killing business.The reason for the lack of credit despite overcapitalisation of the banks is that a steam train of mortgage ,commercial and credit card debt is coming down the line which will blow their capital into oblivion.Savings rates are sky high curtailing business as well ,no confidence out there .This one has a way to go yet .

ednwireland

nesf wrote: »

My company has had payments delayed by 6 months or longer from some extremely well known companies in good standing and without cashflow problems. Anyone thinking customers generally pay on time has never worked in the small business sector.

+1 the company i work for was close to not being able to pay wages before christmas (we are owed a lot by several large customers)

as an aside why are the banks closed today , normal working day isnt it ?

johnnyskeleton

nesf wrote: »

Scofflaw wrote: »

I don't know any small business which offers more than 30 days for payment, so you're looking at an additional 40 days there. Credit access is vital.

cordially,
Scofflaw

My company has had payments delayed by 6 months or longer from some extremely well known companies in good standing and without cashflow problems. Anyone thinking customers generally pay on time has never worked in the small business sector.

But did you ever step back and consider this practice? Perhaps build up a cash reserve to cover this gap instead of perpetual borrowing? How about cash on delivery or cash in advance? Granted, some of the larger customers can be afforded more favourable terms if needed, but in these straightened times a small customer who doesn't pay in advance often will never pay at all, and if you provide a service there is no comeback if they go bust.

BuzzFish

ednwireland wrote: »

as an aside why are the banks closed today , normal working day isnt it ?

Today is a Bank Holiday..... Not to be confused with a Public Holiday, which explains why I'm in work and bank staff are not!

ednwireland

BuzzFish wrote: »

Today is a Bank Holiday..... Not to be confused with a Public Holiday, which explains why I'm in work and bank staff are not!

its defo not a bank holiday, heard somewhere about privilege days

johnnyskeleton wrote: »

But did you ever step back and consider this practice? Perhaps build up a cash reserve to cover this gap instead of perpetual borrowing? How about cash on delivery or cash in advance? Granted, some of the larger customers can be afforded more favourable terms if needed, but in these straightened times a small customer who doesn't pay in advance often will never pay at all, and if you provide a service there is no comeback if they go bust.

no ones talking about offering better terms, our customers are asking for work to be done then argueing about paying and we burnt through our cash reserve as well (which was there to cover just such an occurrence)

BuzzFish

ednwireland wrote: »

its defo not a bank holiday, heard somewhere about privilege days

I stand corrected. I had always thought that when all the banks closed it was a Bank Holiday but somewhere along the line public holidays started getting referred to as Bank holidays.

Banks always take a couple of extra days between Christmas and New Years.... lucky sods.

nesf

johnnyskeleton wrote: »

But did you ever step back and consider this practice? Perhaps build up a cash reserve to cover this gap instead of perpetual borrowing? How about cash on delivery or cash in advance? Granted, some of the larger customers can be afforded more favourable terms if needed, but in these straightened times a small customer who doesn't pay in advance often will never pay at all, and if you provide a service there is no comeback if they go bust.

We have a cash reserve built up and operate on a shoestring overheads wise. So we can afford the delays. But many business models can't do this as easily as we can so are unfortunately dependent on loans to tide them over during bad times during a year despite the company technically being profitable on a year to year basis.

This is especially true if any sale requires you to outlay a lot of cash upfront to buy materials. Such businesses have a much harder time of things.