Irish banks+subprime exposure
- Thread starter thomsk
- Start date
Brendan Burgess
Founder
- Messages
- 52,270
Hi thom
We don't allow discussion of the share prices of Irish companies. Which I presume is the reason you are asking this question? If so, we will close the thread. If not, specify your reason and we will leave the thread open.
I have had to delete three replies which referred to share prices of Irish banks.
Brendan
Administrator.
We don't allow discussion of the share prices of Irish companies. Which I presume is the reason you are asking this question? If so, we will close the thread. If not, specify your reason and we will leave the thread open.
I have had to delete three replies which referred to share prices of Irish banks.
Brendan
Administrator.
To be fair Brendan, I didn't mention any company's share price or potential stock market performance. I approached the question from a pure credit risk prespective. I think NR has shown that there are other concrens with regard to banks other than a falling share price. I understand though that you need to be careful though so apologies if I did the breach the guidelines by discussing individual banks.
Z
z109
Guest
According to this two of the definitions of sub-prime used in the US is:
"Large loans relative to the securing property (high LTV ratio)"
"Maxed out credit cards"
As far as I can see, in the US anything over 80% LTV is considered high ratio.
So, any banks in Ireland that offer loans of greater than 80% LTV are exposed to Irish sub-prime.
The other bit, the maxed credit cards, is more difficult to define as I don't believe Irish banks and credit card companies share this information or look at it when deciding on a loan application. How many people out there do you know with maxed credit cards and a mortgage?
"Large loans relative to the securing property (high LTV ratio)"
"Maxed out credit cards"
As far as I can see, in the US anything over 80% LTV is considered high ratio.
So, any banks in Ireland that offer loans of greater than 80% LTV are exposed to Irish sub-prime.
The other bit, the maxed credit cards, is more difficult to define as I don't believe Irish banks and credit card companies share this information or look at it when deciding on a loan application. How many people out there do you know with maxed credit cards and a mortgage?
The definition is wrong. Mortgages in the States are given something called a FICO score and this defines if a mortgage is Sub-prime, prime or somewhere in between. The score is based on variables such as debt levels, payment histories etc. The score ranges from 300 to 850 and anything below 620 is considered a sub prime mortgage. The LTV plays a tiny if any part in the overall credit score. Just because a mortgage is over 80% LTV doesn't make it sub prime.
Z
z109
Guest
Sorry, but I disagree. A large part of your FICO score is based on your available credit. If less than 75% of your credit lines are available to you, your FICO score decreases substantially. Home equity and credit card debt are the main source of equity available to most people in the US.
Last edited by a moderator:
I agree that the amount of revolving credit such as credit cards available is important as this makes up 30% of the FICO score. I just disagree that a LTV over 80% makes it a sub-prime mortgage. That's not correct. FICO is based on your ability to repay. I could have an LTV of 65% but a FICO score of 500 and I would still be sub-prime. I could have a LTV of 95% but a FICO score of 800 and would be a prime mortgage. (I have a 88% LTV but am certainly not a sub prime borrower) The FICO score usually dictates the LTV. A person with a low FICO score would be required to put in more equity so is more likely to have a lower LTV. This is all theory by the way bacause nobody understands what has gone on with regard to lending standards over the past few years over there!!
Z
z109
Guest
Okay, fair enough, but in terms of measuring the risk of mortgage arrears/default - which is one area where the sub-prime mortgages are having an effect on banks' valuations - a high LTV and other debts leaves a bank more exposed than a low LTV (even with other debts) as the overall equity position of the borrower is better.
The other point to consider is that the banks have mortgages as assets on their balance sheets. If residential or commercial property prices fall, the value of the assets the banks hold is reduced. If the bank has borrowed to fund the lending of these assets, they owe more than the assets are worth. This crimps their ability to lend to new business and so generate new profit.
I couldn't agree more!
The problem in Ireland and the UK is that there aren't standard measurements for credit risk. As can be seen from the solicitors farango, the banks have no idea what other debt people have when they apply for a mortgage.
Brendan...The reason I posted the question was to find out if I had missed any facts regarding Banks exposure to the subprime problem here, in Ireland.
I am not interested in banks shares - more, I am gathering facts to give more of an idea as to what can be expected to happen to the Irish economy next year. The performance of banks is a good starting point I think - as it can have a knock-on effect regarding many financial decisions.
I am not interested in banks shares - more, I am gathering facts to give more of an idea as to what can be expected to happen to the Irish economy next year. The performance of banks is a good starting point I think - as it can have a knock-on effect regarding many financial decisions.
L
limerickboy1
Guest
we are in meltdown at the moment but we cant fall for ever. i think we will continue to fall for another 2-3 weeks while US earnings come out. when they are out we should bottom and begin a rally (not for more than 3-4 months though). retail investors are at present getting out of the market as they are losing too much money. this is a sign its the last sell off in the market. that is the time to buy. just wait until you see a massive reversal day in the states.
Do you know how many big reversal days there have been in the States over the past couple of months? How do you even define a big reversal day? There have been days with 8-10% swings. It would take a very brave (or foolish) person to call a bottom with this volatility. Countries are still working to solve the financial crisis. They haven't even started to look at the real economy which is getting worse and worse in every developed country every month. When you have the FED starting to buy commercial paper in the States, it shows just how much trouble the real economy is in and is going to be in. This global recession is going to be long and hard.
L
limerickboy1
Guest
im not saying it wont be a bad recession but there are always bear market rallies. the dow cant keep falling and we havent had any proper reversal days like we had in january and march i.e. down 600 points and then finish in the green. monday we were down 700 and finished down 380, thats not a reversal