Well, bank recapitalisation is here

Économiste Monétaire · 14-12-2008 10:03PM #1

The government has announced a 10bn fund to aid recapitalisation for banks.

http://www.rte.ie/news/2008/1214/bank.html

BenjAii · 14-12-2008 10:27PM

A few things that spring to mind.

€10 billion - they could actually buy the entire Irish banking sector three times
over for that amount.

The US/UK don't seem to have succeeded much in persuading the banks they have recapitalised to lend the money on in to the wider economy - what's our plan to do this differently.

None of the the banks, and especially Anglo Irish, seem to be able to be up front about the extent of their loans to now dud commercial property. In which case, how long are they expecting to ride on the coat tails of Irish sovereign credit.

Particularly AIB, who seem to want the best of both worlds, no recpaitalisation and the diminution that would imply, while still taking advantage of unlimited tax payer guarantees for the bad debts they can't be honest with us about.

johnnyskeleton · 14-12-2008 11:01PM

There's no mention of who gets what though. It almost sounds like the government will lodge deposits with the banks, and equally it sounds like a first come first served basis rather than the more rational "support only the banks that will survive" approach.

cavedave · 15-12-2008 01:26AM

Should The Government Stop Dumping Money Into A Giant Hole?

All joking apart what do we get for this money? Not eqity in the banks as the government could outright buy them for less.

Économiste Monétaire · 15-12-2008 01:44AM

BenjAii wrote: »

A few things that spring to mind.

€10 billion - they could actually buy the entire Irish banking sector three times
over for that amount.

The US/UK don't seem to have succeeded much in persuading the banks they have recapitalised to lend the money on in to the wider economy - what's our plan to do this differently.

None of the the banks, and especially Anglo Irish, seem to be able to be up front about the extent of their loans to now dud commercial property. In which case, how long are they expecting to ride on the coat tails of Irish sovereign credit.

Particularly AIB, who seem to want the best of both worlds, no recpaitalisation and the diminution that would imply, while still taking advantage of unlimited tax payer guarantees for the bad debts they can't be honest with us about.

I agree, but it's quite difficult to micromanage and set an effective floor on how much banks should lend.

johnnyskeleton wrote: »

There's no mention of who gets what though. It almost sounds like the government will lodge deposits with the banks, and equally it sounds like a first come first served basis rather than the more rational "support only the banks that will survive" approach.

I believe the banks must present a proposal for the funds by the end of the month. It's fairly sparse on details, at the moment.

cavedave wrote: »

Should The Government Stop Dumping Money Into A Giant Hole?

All joking apart what do we get for this money? Not eqity in the banks as the government could outright buy them for less.

I believe the intent is for preference shares, then to sell whenever the banks regain a reasonable level of their previous market value (if that happens at all, who knows).

gurramok · 15-12-2008 01:54AM

They better clear out the bank boards for this. Taxpayers money should not be managed by the same fools who got the Irish banking system near to collapse.

Funny thing, the govt and a few posters here had always maintained for many months that there was nothing wrong with the Irish banks in the first place and yet today we have an attempted rescue.

So the guarantee has not worked, will this latest attempt of rescue work?

Any predictions on how the markets will react tomorrow?

Économiste Monétaire · 15-12-2008 10:56AM

Well, that depends on what you think the guarantee's purpose was. Was the purpose of the guarantee to stop (or postpone) the collapse of the Irish banking sector? If so, then I would say it has worked; possibly not as well as the government had hoped, i.e. a finality instrument. The reason the government said there was nothing 'wrong' with the banks was because the FSAI said they were sound--'wrong' being defined by capital adequacy. (Read Patrick Honohan's piece in the IT, here.)

Also, the question of "will this work" depends on what you believe it's supposed to do. Will it guarantee lending? No. Britain has shown that even with government owning a very large proportion of shares, lending to businesses is not guaranteed. It won't solely be the government putting money in; think of it as another public-private partnership

Of course, that's all dependant on the terms and conditions of the scheme. It's probably going to be a while before we see which banks partake. AIB seems very reluctant.

ranger4 · 15-12-2008 12:03PM

Économiste Monétaire wrote: »

Well, that depends on what you think the guarantee's purpose was. Was the purpose of the guarantee to stop (or postpone) the collapse of the Irish banking sector? If so, then I would say it has worked; possibly not as well as the government had hoped, i.e. a finality instrument. The reason the government said there was nothing 'wrong' with the banks was because the FSAI said they were sound--'wrong' being defined by capital adequacy. (Read Patrick Honohan's piece in the IT, here.)

Also, the question of "will this work" depends on what you believe it's supposed to do. Will it guarantee lending? No. Britain has shown that even with government owning a very large proportion of shares, lending to businesses is not guaranteed. It won't solely be the government putting money in; think of it as another public-private partnership

Of course, that's all dependant on the terms and conditions of the scheme. It's probably going to be a while before we see which banks partake. AIB seems very reluctant.

Wouldnt aib be seen to be at a real disadvantage against the other irish banks if they decide to not partake in gov recap seeing their share values fall even further or are they best positioned to ride out this financial storm and come out the other end the strongest and best postioned in a few years.

thebman · 15-12-2008 12:15PM

TBH, I think this is the one thing I'd trust FF to do right. I believe they'll come up with a way to end up getting more money back out of the banks.

15-12-2008 02:20PM

brim4brim wrote: »

TBH, I think this is the one thing I'd trust FF to do right. I believe they'll come up with a way to end up getting more money back out of the banks.

no FF always get more money out of the Taxpayer, and here again they are blowing our money ....

10 billion could have started a new healthy bank

thebman · 15-12-2008 02:29PM

Deleted User wrote: »

no FF always get more money out of the Taxpayer, and here again they are blowing our money ....

10 billion could have started a new healthy bank

I don't believe so in this case. FF usually are good at "helping out" friends who have "helped" them.

The banks have fooked themselves up and damaged FF's reputation. They should expect to be taken to the cleaners in the long term.

15-12-2008 06:20PM

brim4brim wrote: »

I don't believe so in this case. FF usually are good at "helping out" friends who have "helped" them.

The banks have fooked themselves up and damaged FF's reputation. They should expect to be taken to the cleaners in the long term.

some people cant be saved. If FF were so great at helpin their buddies their wouldnt be such a huge number of unemployed builders

I dont trust them in the slightest with our money. They are wasting it

Économiste Monétaire · 15-12-2008 06:21PM

ranger4 wrote: »

Wouldnt aib be seen to be at a real disadvantage against the other irish banks if they decide to not partake in gov recap seeing their share values fall even further or are they best positioned to ride out this financial storm and come out the other end the strongest and best postioned in a few years.

Well, I believe the chief executive of AIB said they were looking for investors, just not government funds. Rather, the government scheme is last chance saloon.

Deleted User wrote: »

no FF always get more money out of the Taxpayer, and here again they are blowing our money ....

10 billion could have started a new healthy bank

No, the chaos that would occur by letting the large clearing banks fail would be monumental. Banking isn't like other industries. there would be a huge fall in the money supply. Think Great Depression scale.

15-12-2008 06:29PM

Économiste Monétaire wrote: »

No, the chaos that would occur by letting the large clearing banks fail would be monumental. Banking isn't like other industries. there would be a huge fall in the money supply. Think Great Depression scale.

we shall see which choice will lead to the worst "chaos" over the next few years. I know one way would be quicker than the other.

Économiste Monétaire · 15-12-2008 06:42PM

Deleted User wrote: »

we shall see which choice will lead to the worst "chaos" over the next few years. I know one way would be quicker than the other.

What do you believe will occur over the next few years?

defiantshrimp · 15-12-2008 09:02PM

I agree, they should clear out the top management in the banks. They are only making things worse at the moment by refusing to aknowledge the scale of the problems they face.

Mikel · 15-12-2008 09:19PM

Deleted User wrote: »

we shall see which choice will lead to the worst "chaos" over the next few years. I know one way would be quicker than the other.

Tempting as it is to think the banks should be left to fail, this ignores the importance of them to the rest of the economy. They are not just another company.
You could make an argument that given this special position, that they should be under more control or even state ownership, and that may be where things are headed.

Glacier · 15-12-2008 09:46PM

If there were only 2 Banks left, could they be in a stronger position in a few year's with less competition?

daveirl · 15-12-2008 09:47PM

This post has been deleted.

silverharp · 15-12-2008 11:24PM

Couldnt resist, from the Mish blog

http://1.bp.blogspot.com/_nSTO-vZpSgc/SUa272c5yXI/AAAAAAAAD-8/nQkDGOA9LAk/s1600-h/Bernanke-QE-Cartoon.png

Économiste Monétaire · 22-12-2008 12:04AM

More details have been released about this:

Anglo Irish Bank to get €1.5bn. BOI and AIB looking for approx. €2bn each.

http://www.finance.gov.ie/viewdoc.asp?DocID=5609
http://www.rte.ie/news/2008/1221/bank.html

rrpc · 22-12-2008 10:37AM

daveirl wrote: »

This post has been deleted.

+1, People are confusing share values with capitalisation which uniquely in banking aren't the same thing.

As somebody else said on this thread, there's no way any bank can stay out of this scheme if the others are getting into it whether they are strong enough financially or not. It'd be like the Gvernment investing money in Aer Lingus and not in Ryanair, you think Michael O'Leary would stay quiet about that?

The same goes for consolidation. You lump a weak institution with a strong one and you get a bigger, weaker entity. There's no gain for the sounder institutions in such a scenario.

I think that's the balancing act that's being worked here, look closely at what the bigger banks are saying about the possible rights issues and you get an idea as to who's the stronger.

andrewdeerpark · 22-12-2008 11:36AM

How much would it have cost for a full nationalisation of Anglo Irish bank instead of the current 1.5bn bailout.

By a full nationalisation I mean closing the bank, taking over its deposit base, selling off its loan book and laying off its staff.

An auction of its loan book of 70billion plus its deposit base would have generated money for the government unless its auditors and directors have been grossly exaggerating and in that case they would have to go to jail.

I see no value in 1.5billion for a lame bank like Anglo; government needs to show leadership and just take it out.

Also this would have the effect of scaring all the other banks if they know the government was willing to take the “nuclear option”. Right now the government is playing Russian roulette with the main bankers in the country however they know their's no bullets in their gun; another fudge from spineless Cowen & Lenihan.

I accept the need for AIB and BOI to receive funds however with a board clearout. Anyway do Irish CEO ‘s have no shame or Patriotism proceeding over a collapse in the company’s share price, putting the country close to bankruptcy, and still hang on their jobs!

rrpc · 22-12-2008 12:01PM

andrewdeerpark wrote: »

I accept the need for AIB and BOI to receive funds however with a board clearout. Anyway do Irish CEO ‘s have no shame or Patriotism proceeding over a collapse in the company’s share price, putting the country close to bankruptcy, and still hang on their jobs!

You would think that the same could be said for Google, Dell, Intel, Ryanair and Aer Lingus to name but a few.

BanjoKelly · 22-12-2008 12:31PM

http://www.thedailystuff.ie/bankers_bailout.html

An attempt at humour, but this bailout is a serious situation in terms of moral hazard.

loyatemu · 22-12-2008 03:06PM

can anyone tell me, what have we got to lose by letting Anglo fail? Its a minor investment bank - they pumped up their stock value during the boom, but their importance to the real economy is minimal as far as I can see. Let them go to the wall.

Économiste Monétaire · 22-12-2008 03:09PM

Anglo Irish Bank is not an investment bank. It is a commercial/retail bank, or a "high street" bank. Whether or not to let it fail would depend on how you judge what is systematically important for the country. If it were to fail, you would still have to offload the deposit arm of the business, and the loan book.

woodseb · 22-12-2008 04:41PM

loyatemu wrote: »

can anyone tell me, what have we got to lose by letting Anglo fail? .

letting anglo fail will send many developers to the wall as their loans are bought by more agressive entities. This will cause more distressed selling of housing in ireland, hastening and exagerrating the decline of the housing market

cavedave · 22-12-2008 06:23PM

woodseb

letting anglo fail will send many developers to the wall as their loans are bought by more agressive entities. This will cause more distressed selling of housing in ireland, hastening and exagerrating the decline of the housing market

And this would be good. Having zombie banks propping up bankrupt property speculators to hold empty estates of houses is not efficient.

If I make a bad mistake in my average industrial wage paying job I would get fired. How come a banks board member who makes millions a year make a mistake over the course of years that costs billions and still have a job?

andrewdeerpark · 22-12-2008 06:39PM

Why are the economists who advocate a free market afraid of its consequences right now regarding our Irish property market?

Lets have a blood on the floor and be done with it regardless of who fails (big developers, insurance moguls etc), p*****g away our future retirement fund on a failed entity is that any better??!!

It is amazing how learned economists run from radical market movements they prefer to write about such events (in retrospective) rather than let them run in practice proving the spineless nature of the science.

rrpc · 23-12-2008 11:00AM

cavedave wrote: »

And this would be good. Having zombie banks propping up bankrupt property speculators to hold empty estates of houses is not efficient.

And letting these housing stocks go at fire damage sale prices would create a negative equity situation for thousands of people who bought at the height of the market. Maybe that's not you Dave but you proabably know lots of people who are already there.

If I make a bad mistake in my average industrial wage paying job I would get fired. How come a banks board member who makes millions a year make a mistake over the course of years that costs billions and still have a job?

Lending is a risk assessment activity. On a micro scale, if you borrowed 300k to buy a house two years ago, would you have believed then that it was a bad investment? Yet now, this kind of borrowing is described as irresponsible

Obviously many people didn't, but they are now in possession of unsaleable houses whose value has dropped below the price paid at the time.

Well, bank recapitalisation is here

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