# Government guarantees all deposits in Irish banks



## Brendan Burgess

According to RTE news, the Irish government has guaranteed all deposits and loans of the following financial institutions:

AIB
Bank of Ireland
Irish Life & Permanent
EBS
Anglo Irish Bank
Irish Nationwide


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## Brendan Burgess

While this is good for shareholders and depositors, it must put the financial stability of the government at risk. 

It will also result in an unprecedented level of intervention in Irish banks. 

Some possible implications/what should be done:

1) Banks will be told not to pay dividends
2) Irish Nationwide (and Anglo?)  may be told not to make any more loans until further notice.
3) All banks will be told to stop lending to property developers
4) Loan to value ratios for home loans may be set at a maximum of 70%. 
5) The government will appoint directors to the financial institutions
6) Some limits may be put on executive remuneration.


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## Fanny

Hi, 
How about Halifax, they are a British Bank I know, set used to be part of  the Irish compensation scheme? Do they guarantee 100 pc of 100?
Fanny


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## Guest124

This is fantastic news and as I jumped out of bed to have a quick check on the situation it was exactly what I wanted to hear. People spreading money around various Banks for protection was causing problems. Next up a merger of a few of our smaller banks I would suspect.


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## dockingtrade

what about 1st active


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## Brendan Burgess

Only the listed banks are covered by the Irish government's guarantee.

Halifax and First Active are not covered.

Brendan


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## banter

_Is it also a possibility that if the banks go bust we will not have access to ready cash (I think it could be several weeks or more before the goverment guarantee actually gives us access to our money), so if everyone takes out cash we could be in a worse state or maybe I should take out a sizeable lump of cash to tied me over the next few weeks and a bit extra if a good oportunity comes along. What do you think? _


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## Sunny

Something like this had to be done and I admire the Government and regulator thinking outside the box and being pro-active rather than reactive. And it certainly is to be welcomed by ordinary depositors. 
Having said that I don't think it solves the medium to long term problem. There are still serious concerns about Irish Banks capital. I have already talked to a couple of foreign banks and their reaction is the same. It helps the banks liquidity position (but not sure by how much because they said their credit departments weren't rushing to increase credit lines and they didn't have money to lend anyway) but it doesn't help solve the underlying problem. Irish banks are heavily exposed to Irish and UK residential and commercial property and they see massive losses in these areas. We are not at the end of this by any means. What it does mean is that Irish Banks can now not be allowed fail with this guarantee in place because the taxpayer will be left picking up a massive bill that would make the current budget deficit look like loose change.


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## Strasser

Brendan said:


> Only the listed banks are covered by the Irish government's guarantee.
> 
> Halifax and First Active are not covered.
> 
> Brendan


 
Is that just today's announced measure or are they also not covered by the 20k now 100k guarantee.


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## zztop

No permanent TSB.I have a deposit there.Should I be very worried


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## kaych

Any ideas what will happen to the deposit guarantee if one of the banks covered is bought out by a foreign bank within the two year window?


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## Guest124

dockingtrade said:


> what about 1st active


 

On 5 January 2004 First Active became a wholly owned member of the Royal Bank of Scotland Group so the answer is no.


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## ubiquitous

At first glance, this seems to be either a stroke of genius or a stroke of madness. A commentator on RTE this morning estimated that the guarantee is worth €500 billion to Irish banks. It beggars belief that the government could underwrite potential liabilities of this magnitude. If it were stung for a tiny fraction of this total, say €10 billion, the effect on the public finances would be enormous.


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## Duke of Marmalade

Brendan said:


> While this is good for shareholders and depositors, it must put the financial stability of the government at risk.
> 
> It will also result in an unprecedented level of intervention in Irish banks.
> 
> Some possible implications/what should be done:
> 
> 1) Banks will be told not to pay dividends
> 2) Irish Nationwide (and Anglo?) may be told not to make any more loans until further notice.
> 3) All banks will be told to stop lending to property developers
> 4) Loan to value ratios for home loans may be set at a maximum of 70%.
> 5) The government will appoint directors to the financial institutions
> 6) Some limits may be put on executive remuneration.


Some very interesting thoughts there, _Boss_. I see the initial euphoric response in the stockmarket has become somewhat muted. There will be a price for this.

But all the same a brilliant, brilliant move. Wasn't leftie Lee pathetic on RTE, goin' on about hard pressed mortagees etc. One thing for sure no coalition involving Labour would ever have been able to do this.


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## Brownie10

This is ridiculous.  If he was going to do this, he needed to do it for irish owned banks.  He has given an unfair advantage to these 6 banks (3 of which have huge exposures to property) which and will kill the others.

Actually it should been done at a european level to keep a level playing pitch or done nothing at all.


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## clareboy

does this mean ulster bank and halifax deposits are still guaranteed up to 100k euro


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## Ryang

Hi 

I have a 12 month fixed term bond with Irish Nationwide. Are these covered by the government gaurantee. ? 

Please forgive my ignorance of such matters.


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## Meathman99

ubiquitous said:


> A commentator on RTE this morning estimated that the guarantee is worth €500 billion to Irish banks. It beggars belief that the government could underwrite potential liabilities of this magnitude. If it were stung for a tiny fraction of this total, say €10 billion, the effect on the public finances would be enormous.



Its amazing that the Americans wouldnt agree to 700 billion to their banks even if the lower figure suggested above is the true extent of the governments cover


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## Car Park

My question relates to monies invested in Anglo's 'Capital Account Schemes.  I invested my savings in 2 such schemes  as the capital invested was guaranteed. The question of whether I might make money on them was obviously always a moot one. At the time of investment it never would have occurred to me that the world banking system might be under threat! 
Will an investment/deposit such as this come under the ambit of the Government's protection or am I still out in the cold?
Thank you.


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## gullmacm

A note of caution. The government can "say" that they are guaranteeing all deposits but it still has to pass through the Oireachtas. Imagine the difficulty this will present for some TDs at election time if they vote for a bill that effectively bails out the banls. 

Can this really be called a "guarantee" just yet?


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## ClubMan

For it to fail surely there would need to be a rebellion by members of the Government parties and that seems unlikely. Will be funny to see how the _Greens _square this one with their alleged principles!


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## irishlinks

clareboy said:


> does this mean ulster bank and halifax deposits are still guaranteed up to 100k euro


Yes


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## irishlinks

zztop said:


> No permanent TSB.I have a deposit there.Should I be very worried


PTSB is part of Irish Life and Permanent - so they should be covered .


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## theoneill

ClubMan said:


> For it to fail surely there would need to be a rebellion by members of the Government parties and that seems unlikely. Will be funny to see how the _Greens _square this one with their alleged principles!



The Greens will ease their conscience with some deal that involves an additional carbon related tax. They’ll win, the government coffers will win and anyone who doesn’t exhale will also win.


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## zztop

irishlinks said:


> PTSB is part of Irish Life and Permanent - so they should be covered .


 
Doh.Cheers IL.


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## mayway

Can anyone explain how the gov. can guarantee upwards of 400 billion when they just don't have it? How can this be having a positive affect on the bank share price, it's all meaningless?


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## Sunny

mayway said:


> Can anyone explain how the gov. can guarantee upwards of 400 billion when they just don't have it? How can this be having a positive affect on the bank share price, it's all meaningless?


 
Good question. Irelands future is now tied to the future of the banks. If the Government, regulator and banks are correct about solvency and losses etc and the worldwide financial system heals itself, then we don't have a problem. If they are wrong, Ireland is about to enter a period that could make the 1980's look like a glorious time in our economic history


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## theoneill

Sunny said:


> Good question. Irelands future is now tied to the future of the banks. If the Government, regulator and banks are correct about solvency and losses etc and the worldwide financial system heals itself, then we don't have a problem. If they are wrong, Ireland is about to enter a period that could make the 1980's look like a glorious time in our economic history




I’m going to have to file worrying about the banking crises in the same part of my brain that deals with the treat of nuclear war and the possibility of an asteroid impact. The dye has been cast and all we can do is wait and see how this plays out.


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## seansean

Does anyone know if this "no limits" covers sterling deposits in a UK Branch of Bank Of Ireland??


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## PaulHoughton

Does this move not encourage the banks to trade recklessly? The proposal includes the provision that the state guranatees loans taken out by Irish banks. This will massively increase the availability of credit to irish banks, regardless of risk. Is this a good thing?

As pointed out above, the Irish state cannot possibly afford to guarantee €400bn. It's turnover is only about €50bn and itj's heading ofr a €7bn loss this year. How would we fund this guarantee? I know - maybe we could borrow it.


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## irishlinks

seansean said:


> Does anyone know if this "no limits" covers sterling deposits in a UK Branch of Bank Of Ireland??



The full name given in the guarantee is "The Governor and Company of Bank of Ireland"  If your account is with something else like "Bank of Ireland UK ltd" or something similar - then I doubt it is covered by this new guarantee.
Let us know if you find out different.


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## tiger

I think this dramatically increases the likelyhood of "bailout" measures for the property market in the upcoming budget.
The difficulty the Irish banks face at the moment is linked to the large amount of loand they have to developers for landbanks and unsold property.  If the appartments don't sell, the bank doesn't get paid.  As of today, Joe tax payer now picks up the tab.  Effectively we have a 2 year ticking clock to clear up the "property overhang" we currently have.


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## Smart_Saver

Strasser said:


> Is that just today's announced measure or are they also not covered by the 20k now 100k guarantee.


 

Does anyone know the answer to Strassers Q ? Reason I ask is becasue I have modest savings in 1st Active doing the Regular Saver. Don't know if I should drive down and try and get the cash out or not. any replies pleasse ??


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## Sunny

PaulHoughton said:


> Does this move not encourage the banks to trade recklessly? The proposal includes the provision that the state guranatees loans taken out by Irish banks. This will massively increase the availability of credit to irish banks, regardless of risk. Is this a good thing?


 
Looking at money and capital markets this morning, there is no lending state guarantee or not. The only lenders at the moment are the Central Banks. I am sill seeing Irish Bank bonds trading quite wide considering they are state guaranteed.

Another consequence of this is that spreads on Irish soverign debt have widened. Therefore funding this deficit that we are running is going to become harder and more expensive for the NTMA. Hopefully the charge to the banks for the guarantee will be enough to cover that. Be interesting to know what they are charging. I presume it has to be at market rates and if so, it is going to be very expensive for the banks based on Credit Default Swap levels.


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## irishlinks

GoMayoGo said:


> Does anyone know the answer to Strassers Q ? Reason I ask is becasue I have modest savings in 1st Active doing the Regular Saver. Don't know if I should drive down and try and get the cash out or not. any replies pleasse ??



First Active is still covered up to the 100k -  don't panic..


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## roker

There was a statement on Cork 96FM this morning that there is no €100,000 government guarantee to foreign banks in Ireland. I do not think this correct? any comments


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## Sunny

roker said:


> There was a statement on Cork 96FM this morning that there is no €100,000 government guarantee to foreign banks in Ireland. I do not think this correct? any comments


 
The €100,000 scheme is still in place for foreign banks that are regulated by the Irish Financial Regulator


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## Fanny

getting alot of contradictory answers whether First Active is covered. Ulster bank claims all Irish RBS branches are covered same as Irish and 100 pc cover! There are people here claiming otherwise and I am unsure. Have most savings with Irish branches of British banks. Does anyone have 100% accurate info?
Fanny


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## ClubMan

What rate are you getting with them? If it's not competitive then why not just move the money to a better rate/bank with a higher guarantee anyway?


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## Sunny

Fanny said:


> getting alot of contradictory answers whether First Active is covered. Ulster bank claims all Irish RBS branches are covered same as Irish and 100 pc cover! There are people here claiming otherwise and I am unsure. Have most savings with Irish branches of British banks. Does anyone have 100% accurate info?
> Fanny


 
Todays announcement of a guarantee does not cover any of the UK or European banks so Ulster Bank are incorrect (unless the Government have added them this morning without me seeing it). They are covered under the Irish Deposit Protection Scheme which means savings in a single institution of up to €100,000 are protected.


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## ClubMan

Latest update from _IFSRA _might answer some questions:

What level of protection is there for my deposits?


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## LucanMan

WHICH BANKS ARE COVERED BY GAURANTEE (30th September 2008) 

The guarantee pledged by the Government today applies to six lenders - four banks and two building societies.
The move comes ten days after the Government increased the statutory limit for the deposit guarantee scheme for banks and building societies from €20,000 to €100,000 per depositor. 

Today's move sets no limit to the funds guaranteed at the six named lenders. The guarantee expires in September 2010: 

*The banks and building societies covered are:* 

Allied Irish Bank 
Bank of Ireland 
Anglo Irish Bank 
Irish Life and Permanent (Permanent TSB) 
Irish Nationwide Building Society 
Educational Building Society 

The guarantee also extends to subsidiaries of these banks and building societies. 

Other financial institutions, many of which are wholly owned by foreign institutions, are not covered under the new scheme. 

*They are:* 

National Irish Bank, which is owned by Danish bank Danske 
ACC and Rabodirect, which are owned by Dutch bank Rabobank 
Ulster Bank and First Active, which are owned by UK bank Royal Bank of Scotland 
Bank of Scotland (Ireland) and Halifax, which are owned by the merged UK bank, Lloyds TSB/HBOS 
IIB Bank, which is owned by Belgian bank KBC 
Irish credit unions 
Postbank, which is jointly owned by An Post and Belgian-Dutch bank Fortis 

However, the foreign-owned financial institutions above are covered by the Government’s previous Deposit Protection Scheme on sums up to €100,000 or, if they are regulated overseas (NIB and Rabodirect), they can make a request to the Financial Regulator to be covered up to this amount. 

NIB has applied to increase its protection to €100,000 and confirmed today that its depositors are now covered up to this amount, while Rabo has not applied to the regulator because they feel their Dutch parent bank is financially strong enough.


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## Duke of Marmalade

Sunny said:


> What it does mean is that Irish Banks can now not be allowed fail with this guarantee in place because the taxpayer will be left picking up a massive bill that would make the current budget deficit look like loose change.


That is the clear message. It would be a bit silly to allow a bank to fail and still pick up all its liabilities. In effect the government is now bound to nationalise any of the six if they get into trouble. I think they knew that anyway so they might as well face that inevitability now rather than wait for an actual failure.

The question of the "commercial" charge for this seems a bit silly to me. Insurance relies on the law of large numbers. Six is not a large number. If this guarantee bites no amount of funding or commercial charges will be anywhere near adequate. The government should charge something and let that be part of the solution to its budgetary problem, but forget any illusion that we are insured against the financial apocalypse.


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## Sunny

I am waiting for the details of this plan but after hearing Brian Cowan speak, I am getting worried. He seemed confused about capital structures when I heard him earlier.

By the way, why hold Irish bank equity now if you have any doubts about any of the six banks survival because the Irish Taoisach has just announced you will lose if the worst comes to the worst and a bank needs to be rescued. 

This all comes down to the banking sector and the government deciding all these problems are a liquidity issue. Personally, I think they are living in a dream world. There is international concern about Irish Banks solvency considering their current very low loan loss provisions and the future losses expected on Irish and UK property. This has the potential to bring this country to its knees. I am looking forward to hearing more........


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## gunners10

reading some of the wording one point really sticks out and thats the part that states 'The guarantee also extends to subsidiaries of these banks and building societies.' 

this seems to cover any investors investing in Irish subsidiaries of the 6 banks named. For example I know Anglo Isle of Man & BOI Isle of Man have announced that investments in their deposits are covered under this scheme as their parent co is Irish based. These providers have informed their existing clients that this is fact! This means it would cover Sterling deposits and not just euro
As this scheme covers corporate investments any Offshore company that invests in these deposits for their underlying client could be fully covered by the scheme as the deposit investments are registered in the company name and not the underlying clients name. Meaning *any* foreign client can get access to this guarantee through an offshore wrapper or by direct investment in a subsidiary - was that intended?.

Isn't it logical that we will see a lot of corporate investments (for individual clients) into deposits with these banks and a lot of money will come into wrapped products that allow cash deposits to be held. I'd think that unless the UK announce something similar then surely UK clients will invest into these deposits for the guarantees that they give.......same way Irish investors placed deposits into NR - or have I missed something here?


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## darag

Ignoring the risk to public finances, I was struck by an idea while looking at some of the UK finance websites and the Times Online which are encouraging UK savers to open deposit accounts with the Irish banks who operate in the UK.  We do not operate in a financial vacuum so any measure which makes some banks seem more secure and attractive just increases the squeeze on others. 

There is a finite amount of deposit money.   Even in these weird times people are not going to stick wads of cash under the mattress so the movement of deposit money is something of a zero-sum game.  A measure like this encourages deposit savings to slosh around from one institution to another which will increase instability.

Northern Rock has been hovering up deposits recently and apparently are about to start turning away further funds or at least new accounts as they are reaching some limit or other.  

If there is a massive movement of deposits into these 6 Irish institutions then the government is likely to have to get involved to stop them taking any more deposit cash (like the UK government is doing with Northern Rock) to prevent those outside the umbrella going to the wall.  Another possibility is that the UK government will have to match our guarantee if our banks start hovering up UK deposit money.

In the end, having suffered the instability and uncertainty while people move their deposit money hither and thither, we'll be back to where we were with no increase in liquidity and the same level of bad loans, except we'll now either have an executive role for public servants in the running of the banks and/or increased moral hazzard among bankers who are allowed to operate with a degree of independence.

I really don't think they thought this through properly.  I don't mind when the Irish government is the first to come up with policies like the plastic bag tax and banning smoking in pubs but I worry about this given the financial and economic ignorance displayed by all politicans and even among people I know who have reasonably senior rolls in the civil service.


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## The_Banker

Just watching Sky News and a reporter outside the Bank of Ireland was actually urging Britons to put money into Irish Banks and listing the ones that have branches in the UK.


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## Ellie32

tiger said:


> I think this dramatically increases the likelyhood of "bailout" measures for the property market in the upcoming budget.
> The difficulty the Irish banks face at the moment is linked to the large amount of loand they have to developers for landbanks and unsold property. If the appartments don't sell, the bank doesn't get paid. As of today, Joe tax payer now picks up the tab. Effectively we have a 2 year ticking clock to clear up the "property overhang" we currently have.


 
Are we the only ones that see this???

IMO the banks will reciprocate (this move by the Govt) by easing lending criteria on mortgages.

I would wager my house on it.


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## Murt10

Europe is unimpressed with us according to the FT but Lenihan had a ready answer which was the correct one. What did they want us to do?

"...Brian Lenihan, finance minister, said he had notified the European Commission of the plan but “a member state is responsible for the stability of its own banking system and I am responsible for the stability of these particular banks.

“In the absence of a Europe-wide system, there is an onus on the Irish government as the sovereign body with responsibility in this state to take action.”"

http://www.ft.com/cms/s/0/b514c10a-8f2e-11dd-946c-0000779fd18c.html


Murt


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## Ret45

Two weeks ago the head of the Irish Banking Federation said that Irish banks were well capitalised and would comfortably ride out the credit crunch. Today, following news that several Irish banks were about to under, the Government stepped in and pledged EURO 400 billion to guarantee liabilities of the Irish banking sector. EURO 400 billion represents 37 years of government tax receipts. Ireland's credibility and income for a generation is being used to support a banking system that is essentially insolvent. Irish banks made massive gambles in financing property developers at the height of the property bubble, and many of those loans will wind up as bad debt - do you really think that Dunner will sell 37 floors of apartments at 2 million euro a pop, cos that's what needs to happen.  Unlike with Northern Rock in the UK, the banks haven't been nationalised, but all the risk has been transferred to the taxpayers, which will encourage continued risky trading by the banks. The Irish Government have provided a guarantee that is nine times bigger than the national debt of the country. Ireland is in euroland and cannot inflate its way out of this debt.  I am stunned and shocked and appalled and wondering how on earth I can protect my family from this lunacy.


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## Nascon

What guarantees are there for Irish savers with First Active (owned by Royal Bank of Scotland)


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## tiger

Interesting article from the nytimes about the Swedish banking crisis in the 90's posted on the property pin.
Effectively we're in the same position, the question now is whether we go Swedish or Japanese...


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## LDFerguson

Nascon said:


> What guarantees are there for Irish savers with First Active (owned by Royal Bank of Scotland)


 
100% of deposit up to a maximum of €100,000 per individual.


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## dereko1969

tiger said:


> Interesting article from the nytimes about the Swedish banking crisis in the 90's posted on the property pin.
> Effectively we're in the same position, the question now is whether we go Swedish or Japanese...


thanks for posting that, i'd seen the 'swedish solution' mentioned in a number of articles as the best solution to the current crisis, including this interesting article from joseph stiglitz 
http://www.guardian.co.uk/commentisfree/2008/sep/30/marketturmoil.wallstreet
but hadn't found a decent description of it


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## Dinarius

A few points....

One of the six banks has behaved prudently over the last few years. Another is a testosterone driven basket case and it is about time that it called time on the shed load of bad loans on its books. No need to name names, it is screamingly obvious which banks I am referring to - particularly in the second case.

There is talk today that the UK banking system is up in arms since now there is a temptation for their citizens to move their banking here, because even the dogs of Dublin 2 are suddenly triple A rated. It could only happen in Ireland.

Also, surely there is a huge temptation for those dogs to repackage their bad debt and sell it off 'sub-prime' style since it has the backing of the Irish government. i.e. Us! Will the Central Bank ensure this doesn't happen? Does the legislation guard against this? I don't think it does.

No one in the Central Bank has come forward to be interviewed. Incredible! Look at Bernanke and Mervyn King. Do you know what they look like? I'll bet you do. Would you recognize our governor in a photograph? I doubt it.

The Central Bank has fallen asleep at the wheel. Will heads roll? Are you serious?! This is Ireland. There is NO accountability. Joe and Jane Citizen ALWAYS pick up the tab.

It is a fact that there was a run on the banks on Monday because they are seen as riddled with bad debt. This debt is not being addressed. It has not been removed from their books. Therefore, they cannot borrow against it, and without the ability to borrow they can't do business. It's as simple as that. Presumably, the government and the Central Bank are hoping that the dogs will trade their way out of this in the next few years. We shall see.

Finally, interest rates tend to rise in tranches of 25 and 50 basis points (0.25% and 0.5%). My parents bought their first house when rates were around 15%. If the rate rose by 0.5%, they didn't bat an eyelid. Similarly, if the rate fell by 0.5%, they didn't go out and celebrate. 

In these testosterone driven times, it was conveniently forgotten that if people bought their (highly priced because rates were low) house when Eurozone base rates were @ 2% and they rose by 0.5%, they were suddenly faced with a 25%(!!) leap in their repayments. (I know that no one bought at 2%, but I am exaggerating to make the point.) Did the market take this into consideration? Of course not!

My tuppence worth.............

D.


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## Dinarius

ps..........

The brilliant Swedish solution would involve holding those responsible to account: or at least hanging them out to dry. That is not going to happen here.

Cynic? Moi?

D.


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## ClubMan

Dinarius said:


> when Eurozone base rates were @ 2% and they rose by 0.5%, they were suddenly faced with a 25%(!!) leap in their repayments.


This is only the case if you are talking about an interest only loan. For an annuity/repayment loan with repayments comprising capital and interest (and over time the latter becoming a smaller and smaller proportion of the total repayment) this is not true in the general case.


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## CN624

Is it just me or does the fact that no-one from the Central Bank is willing to discuss this publicly make it look like there is something to hide? Is there something in this that they are attempting to keep under the carpet until the bill goes through?


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## Dinarius

CN624 said:


> Is it just me or does the fact that no-one from the Central Bank is willing to discuss this publicly make it look like there is something to hide? Is there something in this that they are attempting to keep under the carpet until the bill goes through?



And how did they arrive at such a specific figure as €400bn? 

[Note that both Sweden in the 90s and the US now gambled a fraction of GDP. We're looking at gambling, if I'm not mistaken, multiples of our entire GDP. I think I heard three years mentioned. But, please correct me on this.]

Doesn't such a specific and very large sum suggest to you that some or all of it will be spent?

Why not, say, €50bn and, in the event of a nightmare scenario, increase it if necessary.

€400bn is terrifying.

D.


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## Sunny

Dinarius said:


> Why not, say, €50bn and, in the event of a nightmare scenario, increase it if necessary.
> 
> €400bn is terrifying.
> 
> D.


 
Because it is a system guarantee. €400 billion is roughly the amount of liabilities that the 6 banks have and the amount isn't set in stone. Thats just the estimate. Likely to be more! They couldn't just say €50 billion because the market wouldn't know what liabilities were guaranteed and what weren't.


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## Dinarius

Sunny said:


> Because it is a system guarantee. €400 billion is roughly the amount of liabilities that the 6 banks have and the amount isn't set in stone. Thats just the estimate. Likely to be more! They couldn't just say €50 billion because the market wouldn't know what liabilities were guaranteed and what weren't.



Thanks for clarifying that. Makes sense now.

I still like the Swedish solution! ;-)

Europe is now saying that countries shouldn't act unilaterally in this crisis. Will be interesting to see if they can impose their will on this one.

D.


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## Sunny

Dinarius said:


> Europe is now saying that countries shouldn't act unilaterally in this crisis. Will be interesting to see if they can impose their will on this one.
> 
> D.


 
Yeah and Brown is going on about competition laws. Strange how competition laws didn't seem to matter when he forced the marriage of Lloyds and TSB and allowed Nothern Rock to operate with a state guarantee (and allowed them compete against Irish banks here). Lenihan was right to tell them all to butt out. Until they come up with a European wide alternative, we have to take responsiblity for our own banks.


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## Duke of Marmalade

This is all baloney about a €400Bn taxpayer risk.  If Bord Failte were to guarantee American tourists that the lakes of Killarney were really there would we be assessing the costs in the event that they disappeared?

The vast bulk of that 400Bn is as safe as houses eek and as certain as the lakes of Killarney.  If the 400bn vanishes then the Irish taxpayer has lost everything anyway irrespective of the governement guarantee.


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## VOR

This guarantee makes sense. The banks can now borrow at rates akin to the government and they can stay liquid. Confidence was dwindling in Irish banks and money was getting very expensive.
As S&P said this morning "Term senior debt issuance falling within the scope of a timely guarantee covering the full tenor of the instrument could be raised up to the sovereign credit rating on the Republic of Ireland".
Irish banks were borrowing at 20+bps above interbank rates and the margin was increasing daily. This is a simple and timely solution. 
Afterall HBOS held on when they were paying a 25bp premium. The lending rate sky-rocketed overnight and the bank crashed. This was going to happen to at least 2 if not 3 Irish banks on Monday night. I hate to say it but it's true.
This move costs nothing up front, and solves the number one crisis in Irish banking  -  confidence. They are not “bailing-out” anyone – they are guaranteeing/underwriting the debts. Ok if a bank still goes to the wall it will cost billions but this measure will strengthen the banks and should avoid exactly that scenario.


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## Sunny

Duke of Marmalade said:


> This is all baloney about a €400Bn taxpayer risk. If Bord Failte were to guarantee American tourists that the lakes of Killarney were really there would we be assessing the costs in the event that they disappeared?
> 
> The vast bulk of that 400Bn is as safe as houses eek and as certain as the lakes of Killarney. If the 400bn vanishes then the Irish taxpayer has lost everything anyway irrespective of the governement guarantee.


 
I think everyone accepts that the €400 billion figure is purely theoretical but I wouldn't be as convinced as our government that no part of the guarantee would ever be drawn on. But only time will tell. I take your point though. The figure is headline grabbing but is not really relevant. What really matters now is the value of the bank's assets.


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## Sagairt

Something like this had to be done and I admire the Government and regulator thinking outside the box and being pro-active rather than reactive. 


"Outside the Box" thinking alright - particularly when they have allowed banks loan masses of money,100% mortgages, interest only mortgages to people who basically cannot afford to buy and also cause (partly) the artificial fuelling and bloating of house prices in Ireland for the last 10 years.

Bit late for "Outside the Box" thinking!!!


----------



## Askar

Sagairt said:


> Something like this had to be done and I admire the Government and regulator thinking outside the box and being pro-active rather than reactive.
> 
> 
> "Outside the Box" thinking alright - particularly when they have allowed banks loan masses of money,100% mortgages, interest only mortgages to people who basically cannot afford to buy and also cause (partly) the artificial fuelling and bloating of house prices in Ireland for the last 10 years.
> 
> Bit late for "Outside the Box" thinking!!!


 
Apart from ranting on about the obvious have you any constructive contribution? What other credible alternatives were there, in your opinion?


----------



## Sunny

Sagairt said:


> Something like this had to be done and I admire the Government and regulator thinking outside the box and being pro-active rather than reactive.
> 
> 
> "Outside the Box" thinking alright - particularly when they have allowed banks loan masses of money,100% mortgages, interest only mortgages to people who basically cannot afford to buy and also cause (partly) the artificial fuelling and bloating of house prices in Ireland for the last 10 years.
> 
> Bit late for "Outside the Box" thinking!!!


 
I agree but thats a seperate issue for another day. At the end of the day the Government found itself in the position on Monday night that Anglo Irish Bank for one was unlikely to survive another 24 hours if it couldn't access short-term funding. The Government could have let them go and nationalised them and then moved onto the next bank with problems like the UK but instead decided to use a systematic approach. Whatever about the rights and wrongs of it, it was a brave move that I reckon most other European Countries are today examining to see if they can follow. The Government will live or die by the decision but at least they made one and showed some leadership (for once). 
The issues you mentioned above are all valid points and I am sure our very competent rolleyes opposition parties will be mentioning over and over again once things calm down!


----------



## Duke of Marmalade

The problem in America is that they have a presidential election next month. If we had a general election next month would the government have been so brave? The 100K thing was popular especially with those who benefited, but the general feel I get is that this latest extension is perceived as a bail out of fat cats.

The fascinating conundrum is how does the Government charge for it? It might cost nothing, it might cost a bomb. We do not have a historical statistical database for assessing the probabilities. The price put on Irish bank risk by the capital markets is wholy unreliable, they have simply ceased to function in any rational fashion. 

Anyway, say we knew that the risk of failure was 1 in 20 and the average loss in event of a failure was 20Bn. That's an insurance cost of 1Bn. But what's the point of charging 1Bn, it would be a drop in the ocean if the "insured" event came to pass, and meanwhile making that charge could make matters worse.


----------



## Dinarius

Duke of Marmalade said:


> Anyway, say we knew that the risk of failure was 1 in 20 and the average loss in event of a failure was 20Bn. That's an insurance cost of 1Bn. But what's the point of charging 1Bn, it would be a drop in the ocean if the "insured" event came to pass, and meanwhile making that charge could make matters worse.



Isn't that why the Swedish solution of taking a stake (through nationalization) and then making a killing later by re-privatizing the bank(s) is the most efficient way?

At least one of these six barks and wears a collar, probably more than one. Nationalizing it will at least permit it to be run responsibly.

Does anyone here give a damn if this meant foreclosing on one or more of the fat cats who borrowed money from these dogs, to buy land on which not a sod has been turned in some cases? I certainly don't.

Oh, but hold on a second: Isn't it the same fat cats who fund our political system? Sorry, I forgot that.

D.


----------



## Sagairt

Askar said:


> Apart from ranting on about the obvious have you any constructive contribution? What other credible alternatives were there, in your opinion?


 

The action they took was correct on monday - i wasn't disputing that - its there lack of action while filling their bellies and courting the Developers in the FF Tent at the Galway Races for the last 10 years..that annoys me.

Had they been as vigilant and even thought outside the box a bit more we wouldn't have so many ordinary people up the creek to put in mildly. While the Banks leading staff do not suffer at all.

Was it not this lack of vigilance and greed  that caused so much (not all) of the issues with sub prime lending/credit crunch etc in the states which started this whole disaster.

It is embarrasing to hear the minister for finance announce to the nation that he was up until 4.30 am throwing together a "bail out" package for the banks which for weeks they have denying would ever happen


----------



## putsch

I really can't get my head around this Government guarantee for (certain) "Irish" banks. In a globalised world is it meaningful to ascribe nationality to banks. Can't depositors (private and commercial) from anywhere deposit in, or borrow from, "Irish" banks (subject to AML) - are we Irish taxpayers now guaranteeing the whole world. Scarey times.


----------



## darag

I'm not sure why there seems to be a consensus that this was the correct or even a reasonable response from the government.  The more I think about this deal the more it stinks.

It is simply a fact that at least one (perhaps two) of the banks are insolvent and have more liabilities than assets on their balance sheets; the markets knew this and thus their share prices were heading rapidly to zero.

This is the fundamental issue here as far as I am concerned and instead of dealing with the reality (that these banks are simply bust) before any more contagion can happen, the government has been duped by banking executives into leaving them with complete control of a what is effectively a blank cheque.  The insolvent will not only be allowed but will be aided in persuing savings from punters and other financial institutions (who will be delighted to effectively lend money to the Irish government at rates much higher than they could through the bond markets) in a desperate attempt to "trade" their way out of the mess they are in.  I think we can safely assume that the executives which drove the banks into this sorry state during a boom period will fail miserably to trade their way out of it during a recession.

To use an analogy, what do you do with some-one who you suspect is deep in negative equity with their home and who is struggling to keep up with their mortgage payments who for some reason you cannot allow to go bankrupt?  About the worst thing you could do would be to guarantee their liabilities unconditionaly allowing them to rack up extra loans and put new TVs and holidays on their credit-card (although this would undoubtably be popular with the person you are trying to help and they are likely to promise that they'll mend their ways and come up with someway to close the gap).  Instead the first thing you do is get the house revalued at current market rates, you look at the size and cost of ALL of their debts and then calculate the shortfall between their wages and the cost to sevice their debts.  If necessary, the house may have to be sold (though there is no reason to rush) and the money used to pay off as much of the mortgage as is possible and demand a chunk of their wages before taking on the remaining debt yourself.

So where exactly are the banks going to find the profits over the next two years to shore up their capital base?  It's all very well taking in depositors money and flogging bonds to other institutions but these activities do absolutely nothing for a busted balance sheet.  It's the height of financial naivity to think that profits of this magnitude can be magiced out of an Irish economy especially when the most optimistic don't see growth returning for another year or so.

You can be 100% sure that the inevitable will eventually occur and the government will be forced to step in to sort out the mess left by a collapse.  Unfortunately this measure means that the problem is likely to be much much worse when it does happen as a result of this guarantee with billions extra worth of savings and bond holders to be compensated.

If this measure simply deferred the moment of reckoning, then I would perhaps consider this head-in-the-sand approach to be cowardly but perhaps not damaging.  Unfortunately it will excarcerbate the mess and multiply the already huge cost to the tax payer while perpetuating the current economic uncertainty.

What needs to be done is that every bank needs to go over its balance sheet meticulously repricing their assets and liabilities in light of the changes in the Irish property market and in the global financial system.  The shortfall in their balance sheets is exactly what the government is exposed to if they are to step in to prevent the failure of one bank from causing knock on effects in the economy (i.e. by winding up the bank and effectively making up the shortfall with tax payers money).  With this information an informed strategy to deal with the problem could be formulated; i.e. a plan to fold one or more of the banks.

Unfortunately an approach like this would require: pragmatism, intelligence, balls and the power to stand up to a very powerful special interest group (the bankers).  I don't see an abundance of these qualities in the leadership of this country.  So the banking executives (talk about turkeys and christmas) managed to convince a weak and franky stupid government and public service into taking responsibility for all the pain for the f*ck-ups made by these very executives.


----------



## Guest124

If we get another vote on Lisbon this guarantee could become an issue if the EU try and get the Government to change it. Lisbon is all forgotten for now with this current crisis and if anything I'm sure some people are saying so glad I voted No.


----------



## Gondola

On CNBC this morning: 
Irish Government has extended the offer to Foreign Banks with Operations in Ireland. 

So - IIB, Halifax and the others may avail of guarantees that were initially offered to the 6 institutions mentioned in this thread.


----------



## Dinarius

The Financial Times Lex column of yesterday makes sobering reading. I bought the paper - you can't access it online unless you are a subscriber.

It points out that 80% of Anglo Irish Banks loan book is made up of rapidly declining Irish and UK property loans. BofI's loan book is 71% property and AIB's is 60%.

It also points out that it is very easy to give these guarantees (the Irish Government's new law) but extremely painful to honour them.

Even with the government's guarantee, will the wholesale money markets once again start lending to the likes of Anglo? If they do, will it be at a premium which prudence would suggest shouldn't be taken up? Will this only result in a bigger mess?

Will those in charge in these six banks attempt to trade their way out of this mess when they know they should be putting their hands up (in some cases, not all) and saying that the game is up, we need to merge/shut up shop?

As to Lisbon, it hasn't a prayer of being passed now. This cock up is pure gold for the likes of Libertas. I, for one, would have liked more Brussels intervention. We're incapable of acting honestly ourselves. 

This entire saga is pure "Galway Tent Politics": Clique-ish, secretive, unaccountable and probably bad for us.

D.


----------



## PaddyW

I just read there that loans to developers and builders ae not covered by this guarantee are not covered. Is this true? Will this have any consequences?


----------



## PaddyW

Edit not working in this tread?


----------



## Sunny

PaddyW said:


> I just read there that loans to developers and builders ae not covered by this guarantee are not covered. Is this true? Will this have any consequences?


 
Why would they be covered? Its the banks deposits, interbank funding and debt that is being guaranteed


----------



## PaddyW

Just asked the question is all. Not fully clued up on the whole situation at all. Thanks for clarification.


----------



## Duke of Marmalade

darag said:


> To use an analogy, what do you do with some-one who you suspect is deep in negative equity with their home and who is struggling to keep up with their mortgage payments who for some reason you cannot allow to go bankrupt? About the worst thing you could do would be to guarantee their liabilities unconditionaly allowing them to rack up extra loans and put new TVs and holidays on their credit-card.


_Darag_, I think you lost your way with this analogy. The correct analogy is that the bank are demanding back the mortgage. Maybe there is negative equity, maybe not. The value of the house is somewhat irrelevant as the person may be struggling but is fully confident of paying pack the mortgage over time. 

As the parent of this person you have no problem telling the bank to back off and that you will guarantee the mortgage. The alternative is to see your son and grandchildren thrown out on the street. Chances are the guarantee will cost you nothing, bit of a no brainer to me. Of course you make absolutely sure your son does not abuse this lifeline, so let us see what terms and conditions the government sets.


----------



## tiger

Duke of Marmalade said:


> As the parent of this person you have no problem telling the bank to back off and that you will guarantee the mortgage. The alternative is to see your son and grandchildren thrown out on the street. Chances are the guarantee will cost you nothing, bit of a no brainer to me. Of course you make absolutely sure your son does not abuse this lifeline, so let us see what terms and conditions the government sets.


 
I agree with this analogy, the parent doesn't want to see the son thrown out on to the street.  As you've said there needs to be some tough love with this as well, the son needs to look at their lifestyle, cut back on the hols, sell the flash car, stop eating out all the time.  At the moment I don't see any tough love being shown to the Irish banks.


----------



## tiger

Also, the assumption is that we're fully confident the son can pay back the mortgage.  I don't believe this to be the case, at least not for all 6 "sons".


----------



## Flax

Maybe I'm dumb, but why do the banks desperately need to start lending again? Don't they already make a profit on the massive amount of interest they currently collect?


----------



## Sunny

Flax said:


> Maybe I'm dumb, but why do the banks desperately need to start lending again? Don't they already make a profit on the massive amount of interest they currently collect?


 
They need to start *borrowing* again. Thats the problem


----------



## Flax

Sunny said:


> They need to start *borrowing* again. Thats the problem


 
OK, but I assume that's borrowing so they can lend more money? If so, I do not understand how their business model doesn't support the idea of making money off their current loans.


----------



## Sunny

Flax said:


> OK, but I assume that's borrowing so they can lend more money? If so, I do not understand how their business model doesn't support the idea of making money off their current loans.


 
They have to borrow to continue to fund their existing business never mind future lending. Banks fund their loan books and general business in different ways. Customer Deposits, interbank funding, bonds etc. These all have different maturities and have to paid back. To do so, they need to borrow. Every bank has day to day funding needs and has to have access to money and capital markets. In Ireland's case they didn't, hence the liquidity crisis


----------



## markowitzman

http://www.cnbc.com/id/26986243


----------



## Compass

SPC100 said:


> I think doing the figures is important - I don't have enough information but here is my attempt .....  After doing those figures, I am not as worried about the system wide guarantee - It seems clear that the banks assets and liabilities are ok.


 
Is there not a wee problem here?
Does anyone really know to what extent the taxpayer is exposed - do the banks themselves know?
Have they been 'upfront and honest' to the Irish public and our politicians?
To the ordinary person this really looks like we are 'buying a pig in a poke'. It might work but it might not .. someway to run a country. A gamble, part of life, but is that not also part of the reason why this crisis arose in the first place. Doubles or quits!!


----------



## Brownie10

Heard a rumour that Ulster bank, NIB and Postbank are applying?  Anybody else hear this?


----------



## iPoker

SPC100 said:


> But when the developer can not repay the loan to the bank, if the bank can't repay the loan to the other bank, You and Me will be repaying the loan.
> 
> I think doing the figures is important - I don't have enough information but here is my attempt
> 
> Irish times quote
> "The NTMA had calculated that the liabilities of the six banks amounted to €440 billion while their assets came to €520 billion. Expanding the scheme to cover foreign-owned banks would have an impact on the calculations and would only be taken after serious consideration, the Minister said.
> "
> 
> 520 Billion of assets
> l*ets assume 90% of assets is is loan book* = 468B loan book
> 70% of loan book is property ref post earlier in this thread = 326B Loans tied to property
> 
> To erase the 80B more assets than liability, 50% of these loans must turn bad, and the underlying properties on the bad loans would only have to sell for 50% of their value.
> 
> Even assuming the bank asset values are based on 2006, Regardless of how bad it gets it is hard to imagine this case - Remember also a good percentage of their loan book will still be in positive equity, being made pre 2005. so it seems they have more assets than liabilities and a cushion.
> 
> After doing those figures, I am not as worried about the system wide guarantee - It seems clear that the banks assets and liabilities are ok.
> 
> But, we might still get hit having to pay out on one bank, I don't have figures for each bank to take a look at each bank, and see what it might cost us.


 

Makes sense....

also, is it not the case that a significant portion of AIB's liabilities are owed to BOI, and vice versa, and similar permutations for the other 4 groupings? As such, while GROSS liabilities may be €440 b, the use of this figure is kind of an irrelevance (if I'm right that balances exist between the groupings)...obviously assets would also be grossed up in this situation. 

Overall, I find the reporting of this story in the media ridiculous. There is no relevance to this €440 b figure. It is a scare tactic. It means absolutely nothing. 

As for the potential widening to subs of UK banks, on face value, yes, I don't see why Irish regulated entities (even if subsids) should not be given equal treatment, HOWEVER, I (and presumably most other taxpayers) are concerned that this could be abused by UK parent companies whereby they USE the benefit of the guarantee to access cheaper funding for their entire UK operations at our expense, and (more dramatically) and T-1 to filing for bankruptcy, transfer all assets out of the Irish entity, leaving the Irish entity (and consequently the Irish taxpayer) lumbered with the full value of their gross obligations. WHY AREN'T THE BBA LOBBYING THE UK GOVERNMENT FOR A SIMILAR GUARANTEE, RATHER THAN COMPLAINING TO US POOR IRISH!!


----------



## Dinarius

iPoker said:


> WHY AREN'T THE BBA LOBBYING THE UK GOVERNMENT FOR A SIMILAR GUARANTEE, RATHER THAN COMPLAINING TO US POOR IRISH!!



Because, as has already been pointed out by some British commentators, the equivalent figure for London would be truly astronomical.

D.


----------



## Sunny

Latest rumours are that more European Countries are looking to follow in the absence of anything else. To be fair to Lenihan, he is taking alot of stick from the British and some Europeans but I have yet to hear of one feasible alternative from any source. The UK are not exactly a shining example of how to deal with a crisis after the Northern Rock debacle.


----------



## iPoker

Dinarius said:


> Because, as has already been pointed out by some British commentators, the equivalent figure for London would be truly astronomical.
> 
> D.


 
relatively? 

Irish GDP is about 140b, this guarantee over GROSS liabilities of 440b
UK GDP is about STG£1trillion, potential guarantee has been estimated at STG£1.1 trillion
??

seems less atronomical for them, relatively


----------



## Dinarius

Well, it looks like an astronomical sum to me! ;-)

Though I admit that, given its size relative to GDP, the risk does appear smaller on the surface.

I forgot to mention that another barrier to a similar scheme in the UK would be the sheer number of institutions - potentially dozens, if not 100+. 

Lenihan is talking about putting in people to watch over our risk in the six named so far. To do the same thing in the UK would be a bureaucratic nightmare.

They know this and this is partly why they're up in arms about our move. I presume that France and Germany would have similar problems of scale, if they felt the need to act.

D.


----------



## Duke of Marmalade

Professor Morgan Kelly (you know the guy that makes George Lee sound positive) writes as follows in today's IT:



> Banks will package toxic loans as asset-backed securities and sell them off with a Government guarantee, passing on their losses to the Irish taxpayer.


He has to have that wrong. There is no way that the XYZ Bank will be allowed to dump all its toxic waste on the Irish taxpayer and continue with the rest of its profitable business. I presume the Irish taxpayer will only step in when XYZ Bank is unable to honour any guarantees on such packaging i.e. when it is insolvent or when all other avenues (mergers etc.) have failed. 

Why does the good professor wish to grossly mislead like that?


----------



## darag

Duke of Marmalade said:
			
		

> Darag, I think you lost your way with this analogy. The correct analogy is that the bank are demanding back the mortgage. Maybe there is negative equity, maybe not. The value of the house is somewhat irrelevant as the person may be struggling but is fully confident of paying pack the mortgage over time.


No it's not the correct analogy.  The 100K depositor's guarantee stopped the flight of deposit money.  The problem isn't that the (two) dodgy banks are being hounded to hand back what they've borrowed; it's because no-one will lend them a penny more more because of a justifiable fear that it cannot be paid back.

The correct analogy is that the son has remortgaged to the hilt using the equity in house (and is now in a negative equity position) and has  maxed his current account overdraft and his credit cards and now finds that nobody - even the door-to-door money lender - will lend him any more.

But he needs to borrow even more just to keep going.  Unless he has a huge promotion and pay rise coming up in work or the value of his house suddenly rockets or he wins the lotto, his situation is doomed and going guarantor to allow him to borrow more just to keep ticking over for a few more months or even years is the last thing a responsible parent would do.  Do that just defers dealing with the underlying issue and in fact the problem will be much worse when you eventually do have to face the music and you have now endangered your own financial security.

Unfortunately, sorting a situation like this demands your son will lose the house but them's the breaks.  He'll have learned a lesson as he goes back to a frugal lifestyle renting a bedsit; you'll be burdened with his debts but at least the two of you will have dealt with the problem face on before it had spiralled out of control threatening to take you down with him.  At least he can look to his sister for inspiration who, in contrast, put money aside during the good times, borrowed only what she could afford to pay back and while things are tough at the moment her house is safe.

The problem with (at least one of) the banks is so simple: they owe more than they own and in fact it's gotten so bad they need to borrow even more just to survive.  Other banks and financial institutions know this and were refusing to lend to them.  As a result they were about to go belly up.  And that's all there is to it; a child could understand it.  Everything else is just obfuscation.

This cowardly stupid scheme just defers the inevitable and makes the inevitable sh*t sandwich even bigger.  And worse it endangers the finances of entire country.


----------



## darag

Compass said:


> Is there not a wee problem here?
> Does anyone really know to what extent the taxpayer is exposed - do the banks themselves know?
> Have they been 'upfront and honest' to the Irish public and our politicians?
> To the ordinary person this really looks like we are 'buying a pig in a poke'. It might work but it might not .. someway to run a country. A gamble, part of life, but is that not also part of the reason why this crisis arose in the first place. Doubles or quits!!


I couldn't have put it better myself, Compass.

Where are the figures in this debate?  The 400B figure is absolutely useless. 

I remember being shocked but impressed at the start of the year when UBS took the hit on their balance sheet by writing it down 20B.  This was after writing off 9B or something a few months earlier.  Has any Irish bank even attempted to be as straightforward and honest about their position?

Would it be too much to ask to be told how much each bank owes and how much they own?  And could we have a breakdown of the latter figure by type please and when it was valued?

I doubt we will be told as I expect the truth will make the correct course of action too obvious which is to fold the one or two dogs and shore up the capital base of the others by taking equity.


----------



## darag

Duke of Marmalade said:


> Professor Morgan Kelly (you know the guy that makes George Lee sound positive) writes as follows in today's IT:
> 
> 
> He has to have that wrong. There is no way that the XYZ Bank will be allowed to dump all its toxic waste on the Irish taxpayer and continue with the rest of its profitable business. I presume the Irish taxpayer will only step in when XYZ Bank is unable to honour any guarantees on such packaging i.e. when it is insolvent or when all other avenues (mergers etc.) have failed.
> 
> Why does the good professor wish to grossly mislead like that?


What are you  about?  At best we are looking at getting a member representing the government on the board.  I didn't hear anything about the government taking any sort of executive role.  And even if it wanted to where is the expertise going to come from to supervise every money market and bond market deal of six banks?  Not to mention that most of these deals aren't even done in public markets and don't have standarised contracts.  How the hell is the government going to vet every bond every bank sells?  Are they going to hire an army of high-end financial legal people to examine the small print of every deal?  There is absolutely nothing in the legislation that I know of that provides this sort of micro control to the government.  It's the very first thing I'd do if I was a bank exec; i.e. get these rotten loans off my books at the expense of the Irish taxpayer.


----------



## darag

It didn't take them long: 

If they can come up with a retail product like this within days, I can't wait to see what schemes those clever bankers will come up to convert the govnerment guarantee into free money.


----------



## Duke of Marmalade

darag said:


> It's the very first thing I'd do if I was a bank exec; i.e. get these rotten loans off my books at the expense of the Irish taxpayer.


I think you are totally missing the plot here. It is not the rotten loans that are being guaranteed, it is the bank in its entirety. No way can a bank offload its toxic loans on the Irish taxpayer and continue business as usual on the rest, I think that is the US solution, but clearly it is not ours. This is what the professor very disingenuosly suggests.


----------



## Duke of Marmalade

darag said:


> It didn't take them long:
> 
> If they can come up with a retail product like this within days, I can't wait to see what schemes those clever bankers will come up to convert the govnerment guarantee into free money.


_Darag_, I agree that that promotion is an absolute disgrace. It doesn't even benefit from the Government guarantee as it is a 3 year bond, and yet all the body language suggests that it does.


----------



## putsch

It didn't take them long: 

If they can come up with a retail product like this within days, I can't wait to see what schemes those clever bankers will come up to convert the govnerment guarantee into free money



Oh my! That is really scarey - has this been approved by the regulator?

On another point has anyone done a comparison of pay packets of Irish bankers vs other European CEOs? Just happened to be looking at Credit Agricole today - largest banking group in Europe. Their CEO earned something like 2.5m in 2007 wihile BOI CEO earned c.4m - what's the rationale for this?


----------



## putsch

""





putsch said:


> It didn't take them long:
> 
> If they can come up with a retail product like this within days, I can't wait to see what schemes those clever bankers will come up to convert the govnerment guarantee into free money""
> 
> 
> Oh my! That is really scarey - has this been approved by the regulator?
> 
> On another point has anyone done a comparison of pay packets of Irish bankers vs other European CEOs? Just happened to be looking at Credit Agricole today - largest banking group in Europe. Their CEO earned something like 2.5m in 2007 wihile BOI CEO earned c.4m - what's the rationale for this?


----------



## darag

Duke of Marmalade said:


> I think you are totally missing the plot here. It is not the rotten loans that are being guaranteed, it is the bank in its entirety. No way can a bank offload its toxic loans on the Irish taxpayer and continue business as usual on the rest, I think that is the US solution, but clearly it is not ours. This is what the professor very disingenuosly suggests.


Duke, this is banking.  You cannot offer the type of guarantee the government just did and interpret its financial implications in the literal way you seem to be doing.  Structuring deals to convert different types of assets and liabilities into each other is basic bread and butter stuff for a bank.

Straight off the top of my head; say I'm an exec in one of the 6 banks with a bunch of sh*t loans that in reality are worth about 10% of their book given most of them are non-performing.  Bundle 'em up wrapped as a zero coupon bond with as long a maturity date as you can get away with.  Easy to sell these because even if you go bust or the assets behind aren't worth a penny,  our government is guaranting that the purchaser will get every penny of the face amount at maturity.  Bingo - toxic loans off the books (you don't even have to worry about trying to sort out the mess) and another bundle of cash to keep the bank going a bit longer even if it's losing money hand over fist.  

It's a win-win for the teathering bank and the institutional purchaser.  Tell me with a straight face deals like this aren't going to happen?  If I was a bank exec why would I even try to do something difficult like struggle to turn around my profitability in a tough environment  (e.g. by slashing costs, providing better services to REAL customers, making people redundant, etc.) or even do the brave thing like try to wind things up before things get worse knowing that no turn around was possible?  Why attempt any of this when I could spend my days dreaming up deals like this to convert sh*t into gold?

Now if they just had a straight equity injection then the writing on the wall would be stark and clear.  These guys can do sums and would quickly work out how long the equity is going to last if they keep losing money the way they are.  And when it's gone that'd be it.  Like what the Swedes did.

You couldn't create a more perverse incentive scheme if you tried.  Well actually it's not surprising; the bankers rang rings around the two Brians.  

What amazes me, reading the papers, is that they've managed to sell this ticking time-bomb to the public.  I even read a letter which said they were "inspired" no less by the governments actions.  What a bad joke.


----------



## horatio1

Are you feeling a lot more secure in your bed? I certainly am not.We are now being asked to put our trust and worse our money in the people who:
1. Could not keep the water out of a tunnel or keep the water in an aquatic centre.
 2. Currently are paying storage for e-voting machines than will never be used in this country.
3. Up to a couple of weeks ago were telling us there was no need to increase the deposit guarantee,Then they increased it to 100,000 euro because of Joe Duffy,but said that it was a cosmetic measure as our banks were fine and dandy,then go and bring in a full guarantee for € 400 billion because our whole financial system was about to crash but don't worry it will never have to be used because (and you may recall hearing this before) our banks are perfectly safe.
4 Predicted a few months ago that the public finances would be € 3 billion short,and now look like being at least double that amount.Yes folks the people who are promising us that they have done the math on this guarantee predicted that the tax take in the second half of this year would be greater in the second part of the year as history had shown we earn more/pay more tax in the secon part of the year,priceless.
5. Basicly get a kicking from the C&AG in his report every year as they are spectacular in the incompetance they show when budgeting even the smallest projects.
 I could go on but you get the drift,Whatever disaster may have been on the horizon on Tuesday,just watch and see what comes down the line.We expect the people responsible for all the above to join forces with the people who systematicly defrauded the state,who at every opportunity have overcharged customers,and who having been bailed out by government before failed to(or were not forced to) learn the lessons, to now guide us through to calmer waters.
You have the regulator on prime time tonight evading the tough questions and spitting out the same vague cover lines we have been hearing for years.Nobody accepting any resbonsibility it was all down to Global credit crunch.Does it not seem strange to anybody that it was the banks that had to call the regulator and the minister in to tell them we were at the edge of the abyss? Surely if they were both doing what they are paid for they should be calling the banks in?
And finally the people who frowned at us for being so anti-european have turned around and given the biggest 1 fingered salute to the rest of the Union,alienated the banking communities and may have broken the competion and state aid laws! Remember folks "we can not live on the edge of Europe we are either in it or we ain't".Mr Lenihan or Mr Roche I believe.
 So sleep tight we are all great lads/lasses sorting out that auld banking thing there the other day.

p.s I have voted Fianna Fail since I could vote and voted yes on Lisbon.


----------



## Duke of Marmalade

darag said:


> Straight off the top of my head; say I'm an exec in one of the 6 banks with a bunch of manure loans that in reality are worth about 10% of their book given most of them are non-performing. Bundle 'em up wrapped as a zero coupon bond with as long a maturity date as you can get away with. Easy to sell these because even if you go bust or the assets behind aren't worth a penny, our government is guaranting that the purchaser will get every penny of the face amount at maturity. Bingo - toxic loans off the books (you don't even have to worry about trying to sort out the mess) and another bundle of cash to keep the bank going a bit longer even if it's losing money hand over fist.


For a start, that maturity date can't be any longer than 2 years. More importantly, you may have got them off the books (shame on the accountants if so) but you have *not* escaped their consequences on profitability. This is the point which you and the good professor are missing (deliberatley?). Not until overall insolvency sets in does the government guarantee kick in. You cannot get the government to underwrite simply the manure stuff while you breeze along happily with the rest.


----------



## darag

So hot on the heals of the EBS product, more shennanigans: [broken link removed]

Obvious Fingleton Jn is a bit slow.  By email Micheal?  What were you thinking?  Having been given a blank cheque by the government, you'd think the least you would do would be to have a bit of political sensitivity for your benefactors.  Do you not realise we have to convince the public that this is a reasonably deal?

Of course Cowen's naivity is almost touching too.  Surprised Brian?  What did you expect to happen?  And what will the regulator do?  Tell him not to do it again?  The regulator and government have no teeth to do anything.

And so it starts.... Loss making Irish banks with more liabilities than assets flashing the platinum credit card generously supplied by Daddy Cowen taking on even more debt.  That wasn't hard to predict was it?  Why wouldn't they? It's much easier to stretch the party on a little bit more than face the horrible inevitability.  The problem for us is that some of these banks will never be in a position to pay back some of the money they currently owe so this is just piling more cash on to the taxpayer's already huge tab.

Imagine the sorts of deals the smarter bank execs are working as we speak on the basis of this guarantee?  The ones who will use things like phones and meetings instead of sending bulk mail on the internet where it could fall into anyone's hands.  It's simply scary.

Does anyone still think this was a good idea?  I know I've been effectively ranting here but I haven't been as outraged by a government decision in my lifetime.  I mean you expect various forms of inept government interference with various markets - that's politics - but the level of idiocy and scale in terms of cost to the public finances of this decision is unprecedented.  This is potentially a bust-the-public-coffers type policy that I assumed only happened in poor South American and sub-Saharan African countries.


----------



## darag

Oops - just saw that this was covered in another thread.


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## darag

Duke of Marmalade said:


> For a start, that maturity date can't be any longer than 2 years.


Is this sort of nitpicking the best you can come up with?  You claimed it was impossible for a bank to offload toxic assets using this guarantee; in about 10 seconds I described a way of doing it.  What I described was crude and blatent but I suppose if you gave me say an hour I'd have crossed the Ts and dotted the Is a bit better.


> More importantly, you may have got them off the books (shame on the accountants if so) but you have *not* escaped their consequences on profitability.


Eh what are you talking about consequence on profitability?  That's the whole point; there is no incentive to address profitability in this plan.  The lads will be concentrating on balance sheet exercises to avoid marking their bad assets to market thus hiding their true position.

And yes I'm sure our regulator will say "shame on you" in a very angry voice.  At least I don't know what else he will be able to do and frankly after watching his performance on Prime Time on the rte web site, I am even more depressed.


> This is the point which you and the good professor are missing (deliberatley?). Not until overall insolvency sets in does the government guarantee kick in. You cannot get the government to underwrite simply the manure stuff while you breeze along happily with the rest.


Deliberately eh?  Why would I do that?  I am pretty much certain to lose my job if banks collapse.  But I also happen to be an Irish citizen and it's in the latter position that I'm outraged by this.  What's your motivation for cheering this on?

And absolutely no-one is talking about breezing along happily.  This is a nightmare situation for all involved.  Even the execs in the bad banks know that eventually, unless they can magic up billions of real assets to add to their balance sheets (this can only happen by becoming profitable), that they are doomed.

Like I said above, the effect of this are not at all hard to predict.  If you think that a bank has to go bust before the two year window closes for the tax payer to be scr*wed by this, it demonstrates to me that you are (deliberately?) unwilling to actually contemplate how this is going to pan out.   

Let's say one of these profitless "negative equity" banks survive in true Ponzi fashion on deposit money and institutional borrowing for a year and a half.  What do you expect to happen as the guarantee window starts coming to a close?  Unless it's extended, it will trigger a real old fashioned style run on these banks (and not just a freeze out from the money and bond markets) as the institutions scrable to withdraw funds start before the expiry of the government guarantee.

Of course, the bury your head in the sand for 2 years option is far more comfortable than facing the unpleasant reality.


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## Duke of Marmalade

_Sunny_, please help ajudicate between me and _daragh_, as you seem to know what you are talking about.

_daragh_ is arguing that with this guarantee the banks can effectively walk away from their manure, leaving that to the government.

I am saying, no way, their shareholders will as before take the full hit if the toxic assets collapse.  Only when the capital base has been eroded will the government step in.  The shareholders are no better off than before in this particular respect.


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## PaddyW

Are the sh*tbags that got us into this mess gonna take wage cuts or even get the door?? Sounds ridiculous to think that after getting us into these situations that they should be allowed stay at the helm of the business' they are destroying. Read somewhere today that the six heads of the banks take home 13 million a year between them? Can they not be forced into taking a wage cut and putting some of this scandalous wage back into the banks? Or are they just gonna be allowed to carry on as normal and put this nations welfare right up sh*t creek? Cos that's what it looks like right now and it's a disgrace.


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## darag

Duke, just because you don't agree with me doesn't mean I don't know what I'm talking about.  As I alluded to, I work in this sector.

There is simply no way, beside micro-managing every aspect of day-to-day operations to prevent banks from offloading the toxic stuff effectively wrapped in the tax payers' guarantee.

The government have made it clear that, except from some silly populist "cap on bonuses" cr*p, they have no intention of micro-managing the banks.  Instead they will trust that clown of a financial regulator to start doing what he has singularly failed to do over the last 10 years - i.e. stop the banks from behaving recklessly.  Note that the regulator's staff are - like himself - career civil servants and most have never worked in a bank.


----------



## bren48kelly@

Brendan said:


> While this is good for shareholders and depositors, it must put the financial stability of the government at risk.
> 
> It will also result in an unprecedented level of intervention in Irish banks.
> 
> Some possible implications/what should be done:
> 
> 1) Banks will be told not to pay dividends
> 2) Irish Nationwide (and Anglo?) may be told not to make any more loans until further notice.
> 3) All banks will be told to stop lending to property developers
> 4) Loan to value ratios for home loans may be set at a maximum of 70%.
> 5) The government will appoint directors to the financial institutions
> 6) Some limits may be put on executive remuneration.


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## bren48kelly@

*The ultimate value of deposit accounts*

Should all depositors with accounts over 5000 euro unite and demand free shares in the bank to leave their deposits with the respective bank as we have seen the banks are only sound when it has deposits  and at this moment *deposits are king*


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## Duke of Marmalade

darag said:


> Duke, just because you don't agree with me doesn't mean I don't know what I'm talking about. As I alluded to, I work in this sector.


_Darag_, I believe you know your onions and maybe I am misunderstanding your point. The following is how Anglo chief described it on RTE. 





> Only if a bank fails, i.e. the shareholders have been wiped out, does the guatantee kick in. In the first place this bail out is by the other still standing banks. _(That for a start should help the sector put manners on itself.)_ *Only when every one of the six banks has failed will the taxpayer be required to step in.*


I simply fail to see how shareholders can ever gain from this at the taxpayers expense no matter what clever dickery their corporate finance departments dream up. You admitted to needing an hour to actually cross the "t"s and dot the "i"s on such a scam. Can you now outline for me a scheme which would do as you say i.e. dump the manure on the taxpayer and keep the sweet stuff for the shareholders?


----------



## darag

Ok.  I am calming down a little bit - I've read a bit more about it and some of my earlier claims were not accurate.  However this deal still stinks.

To think about the problem clearly we have to consider the problems faced by the banks separately: solvency and liquidity.

Solvency is easily understood it applies to all businesses.  A business is insolvent if it has no future - its liabilities exceed its assets and it's not expected to produce profits at sufficient rate to shore up this shortfall.

It seems quite clear that one - maybe two - of the banks are in this state.  They just haven't admitted it publicly.

They have not published marked to market figues for their assets but given what we know of the composition of their balance sheets and what has happened to the value of property in the markets they are exposed to, it is reasonable to assume that their balance sheets are shot.  The fact that they refuse to even try to publicly explain where they stand is all the confirmation we need.

Secondly it is well known that their profitability is shot as they took a strategic decision a few years ago to concentrate on borrowing in the money markets and investing in property development and commercial property here and in the UK.  This business model (a variant of the Northern Rock model) is finished - it basically doesn't exist anymore - so whatever profits they were making by doing this are gone; this leaves their neglected retail banking business as their sole source of future profits.  This is a reasonably mature business so it is relatively easy to estimate how much money can be made on current accounts, car loans, mortgages, etc and as it turns out there is simply no way that they can squeeze the sort of profits they need out of their customer base to support their survival. 

My analysis above does not require a PhD and the stock market and other financial institutions have come to the same conclusions and were pricing the shares and credit accordingly.  If the analysis was wrong, it would be almost trivial for Anglo to publicly refute it by simply publishing the relevant details of the balance sheets and their profit centres.  The silence is damning.

As far as I am concerned these insolvent institutions are zombies - the walking dead - and should have been folded straight away.   Directors of an ordinary business which is insolvent who continue to trade - in particular increasing their liabilities knowing their position - can be prosecuted.  There is good reason for this law and the contrast with what the government guarantee encourages the banks to do is stark.  Notably the Japanese attempted to keep their zombie banks alive after their property bust and as a result created more than a decade of economic stagnation.

The other problem, liquidity, is particular to banks as their day to day operations depend on participating in the money markets.  An analogy with an ordinary business would be a perfectly profitable shop, for example, which was shut off from its suppliers - say due to bad weather or some infrastructural disaster - was about to have it's business collapse as a result.  Now apparently it looked like ALL the banks not just the two basket cases were going to be shut out of the money markets.  This situation did require intervention but I think the correct action would have been to solve the short term liquidity problem - perhaps with a direct injection of equity (i.e. buy shares) but to immediately initiate the winding down the insolvent banks.

The unfortunate thing about the government's choice of action is not that it was made in haste but that they left themselves no room for subsequent manouver.  There was obvious pressure to do something about the liquidity problem; there would have been huge knock on effects on the rest of the economy if the sudden shut down of a couple of banks caused the flow of money - which is essential to commerce - to stop.  So I think they should have addressed the short-term liquidity immediately but they should NOT have committed themselves long-term at that stage.  They are stuck with this guarantee because if they change their mind having committed themselves, it would create so much uncertainty that it is likely to devastate the positions of the other banks.

To answer your question regarding shareholders Duke, the shareholders are going to get it in the neck - guarantee or no guarantee.  Anglo's share price will continue on a downward spiral for example.  It won't go to zero because there is always a chance of a miracle or the government forcing one of the big boys to take it over.

Also I want to correct some of the claims I made in earlier posts which were wrong.  It wasn't just that Anglo were being refused funding in the markets they were also experiencing the start of a "run" - over 100m had been withdrawn in the week prior to the crisis.  The problem is that while it is claimed that 100k guarantee for retail deposits meant 97% of accounts were fully protected, the problem is that the remaining 3% actually held a hugely disproportionate amount of funds - maybe up to half of all the deposit money.  The way to stop this of course would be for the government to guarantee all retail deposits.

What I find interesting is that the economists who also dislike this plan - Morgan Kelly, for example - are the ones who predicted exactly what has happened.  At the time he was lambasted for "talking us into a recession" or being too negative and other such nonsense.  The clowns who are fans of it - take Damien Kiberd, for example, has been predicting that our economy was just about to take off like a rocket again and that at least our banks were sound every couple of weeks for the last year; he was also saying that there was great value in Irish residential property a few months ago even as the average house price stood at 8 times avereage industrial wage.


----------



## Duke of Marmalade

Well hats off to you _darag_ good post  I still think Morgan Kelly in particular was way offside in saying that banks can dump their manure on taxpayers whilst leaving shareholders with the sweet stuff. Why does he say that?


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## z109

DoM, I presume because it is possible. The banks could issue two year notes backed by land-loans they know are not going to be worth much at the end of two years, use the cash in the hope that there will be a miracle turnaround, but meanwhile they have to come good to buy these loans back at the end of two years. If they can't the taxpayer is on the hook.

To be fair, it's not really necessarily anything to do with toxic stuff. The banks can sell two year notes backed by anything and use they cash they receive as they wish with the taxpayer providing the guarantee. 

The question to me is not so much what the banks sell as what they do with the money they get from the sales!


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## darag

Excellent point yoganmahew.  It is not at all necessary for them to explicitly link their toxic loans to any bonds they issue - the effect is the same.


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## hatfield

I would think If the banks are willing to cover the liabilities of any of the other banks in return for the government guarantee then they must all be in trouble. Why would any well run bank want to be liable for the errors of less well run banks ???????


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## Duke of Marmalade

Okay, _Yog_ and _darag_.  You are talking about a book-keeping time buying exercise.  But I don't see any shareholder benefit at the expense of taxpayers, unless of course they make massive share buy-backs and/or dividends in the 2 year window.  The Ts and Cs must forbid that.


----------



## dewdrop

If  property lending is the root cause of the trouble affecting irish banks why are so many other world banks now being rescued. while property lending and resultant write offs may have caused much unease i feel it is the complete cessation of inter bank lending is the major cause. In th  e fifties and later when major irish banks relied on their home deposit base to fund their lendings growth was very slow. Inter bank lending became the norm and nobody batted an eye lid until it stopped.


----------



## z109

Duke of Marmalade said:


> Okay, _Yog_ and _darag_.  You are talking about a book-keeping time buying exercise.  But I don't see any shareholder benefit at the expense of taxpayers, unless of course they make massive share buy-backs and/or dividends in the 2 year window.  The Ts and Cs must forbid that.


"Must" and "do" are the two things I'd like to see in the t&cs. I also think it would give the public more faith in the process if divideds and share buybacks were cancelled for the duration of the program.

This idea that moral pressure can be put on the banks by government or the public is nonsense - actual contractual conditions are going to be the only way to go.


----------



## z109

dewdrop said:


> Inter bank lending became the norm and nobody batted an eye lid until it stopped.


Who is this fool "nobody" that many people keep talking about?:
"Nobody saw it coming"
"Nobody thought it would get this bad"
"Nobody batted an eyelid"

It is completely untrue to say that "nobody" was talking about this. Many, many economists, international institutions (the OECD, the IMF, even our own Central Bank as far back as 2000), and even journalists warned that the credit bubble in Ireland was unsustainable and that it was built on foundations of sand (borrowing short to lend long at excessive levels of leverage, risk and sectoral concentration).


----------



## redstar

Absolutely right. Many commentators were warning about the housing bubble, only to be answered with ".. but Ireland is different .. we're just catching up". Playing catchup was true for a portion of the growth in house prices but that factor has long ago dissipated.

Increasing the 2.5 times income limit on lending to house buyers was mad. This kind of activity should in future be outlawed.
Lending more like that just pushed up house prices even more, encouraging developers to build more and more at inflated prices with borrowed money which now they cannot repay.

Listening to the Regulator last week was truly revealing. The banks lending practices were not the problem. Liquidity was the problem. Not much hope of tackling the root causes of the problem if the Regulator thinks like that !


----------



## hatfield

yoganmahew said:


> Who is this fool "nobody" that many people keep talking about?:
> "Nobody saw it coming"
> "Nobody thought it would get this bad"
> "Nobody batted an eyelid"
> 
> It is completely untrue to say that "nobody" was talking about this. Many, many economists, international institutions (the OECD, the IMF, even our own Central Bank as far back as 2000), and even journalists warned that the credit bubble in Ireland was unsustainable and that it was built on foundations of sand (borrowing short to lend long at excessive levels of leverage, risk and sectoral concentration).



Everyone was talking about it. Particularly at sites such as 
www.thepropertypin.com.
Peoples savings were lent out based upon over inflated asset prices. Savings in a bank account are supposed to be safe but they were risked without regulation. Now the money has evaporated.


----------



## darag

Duke of Marmalade said:


> Okay, _Yog_ and _darag_.  You are talking about a book-keeping time buying exercise.  But I don't see any shareholder benefit at the expense of taxpayers, unless of course they make massive share buy-backs and/or dividends in the 2 year window.  The Ts and Cs must forbid that.


You're right - there is nothing in this for shareholders.

SPC100, what your calculation is missing is the fact that the banks' exposure to property is not just through mortgages; they have also invested directly in commercial property and have taken equity in development deals.  The other problem is your assumption that the government will be able to force BOI and AIB to take over a failing bank.  I really cannot see how this will be possible legally - it certainly wasn't mentioned in any of the initial details on the deal.  Anyway it would defeat the whole purpose which presumably is to provide containment if they attempt to transfer the toxic stuff from any failing banks to the survivors.


----------



## Duke of Marmalade

Interesting that the Danes have forbidden all dividends and share buy-backs.


----------



## Duke of Marmalade

SPC100 said:


> Sean Fitzpatrick has said very clearly on Marion on RTE last weekend, that that the remaining banks will shoulder the fall out from the first bank, and the tax payer will only be called in if all banks are going down.


 I heard that too and it made me wonder what all the fuss is about taxpayer risk. Yet I feel SF must have this wrong. The Minister has Emperor like powers, he will call it as he sees fit. I am sure there are scenarios where it would make more sense to nationalise a failed bank rather than force its troubles on the rest of the industry, in which case taxpayers could be out of pocket *before* all banks go to the wall.


----------



## z109

Duke of Marmalade said:


> I heard that too and it made me wonder what all the fuss is about taxpayer risk. Yet I feel SF must have this wrong. The Minister has Emperor like powers, he will call it as he sees fit. I am sure there are scenarios where it would make more sense to nationalise a failed bank rather than force its troubles on the rest of the industry, in which case taxpayers could be out of pocket *before* all banks go to the wall.


Yup, I agree with you entirely. And due to the netting of the assets and liabilities over the whole banking system we will be bearing the highest cost up front. Why? Because the bank with the greatest disparity of assets to liabilities (most over-valued assets) is likely to go bust first based on other banks assessments of it's likely losses and unwillingness to loan money to it.


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## Square Mile

Hello

The government has given a pledge to protect all deposits up to 100k for all banks/BS etc, and a further pledge to guarantee the total deposits of six banks.

Has the 100k guarantee in all banks actually taken effect yet or are we waiting for it to be ratified by the dáil next week aloong with the further measure covering all deposits?

SM


----------



## justsally

Square Mile said:


> Hello.
> 
> Has the 100k guarantee in all banks actually taken effect yet or are we waiting for it to be ratified by the dáil next week aloong with the further measure covering all deposits?
> 
> SM


 
Listening to Eamon Gilmore's questions to Brian Cowen it appears no "deal" has yet been completed.

http://www.rte.ie/news/2008/1008/economy.html

"The Taoiseach has indicated that delays in finalising details of the bank guarantee scheme are due to the Government's concern to ensure the State did not taken any inordinate risks.
Brian Cowen told the Dáil that the scheme would have to take account of the views of the European Commission and of developments in other jurisdictions particularly the UK.
He was responding to Labour Party leader Eamon Gilmore, who claimed delays in bringing forward the scheme were 'creating uncertainty' and that in the meantime Ireland seemed to have an open-ended guarantee. This afternoon, the Cabinet will hold another special meeting to discuss next week's Budget and the State scheme to guarantee bank deposits"


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## AMO

I think the main aspect of the guarantee are in place - ie in relation to the 6 main banks.


[broken link removed]

[broken link removed]

Anyone agree ?


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## Guest124

I can see a run on a certain Irish Bank soon - I was under the impression this was done and dusted.


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## Guest124

SPC100 said:


> our regulator thinks the 100% deposit guarantees are in place. see here


 


- Yes the regulator is great - not!


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## darag

SPC100 said:


> You sound better informed then me, would you like to update my calculations with your guesses on this, and how it affect the underlying solvency of the entire industry.


I know of lots of instances of banks holding equity in various development schemes and of them owning commercial property but have no idea of the overall scale of their exposure.  You regularly hear of them buying and selling commercial property here and abroad in the business sections of the newspapers.

Anglo are by all accounts in the worst state so I had a look at their [broken link removed].  This is from March 2007 and to be honest I'm not qualified to read it properly but it looks - to my eyes - that they had 15+ billion of their own investments, about 60 billion of customer loans, about 12 billion of loans to other banks and about 1 billion of other bits and pieces.  One thing I find striking 'though is that even a year and a half ago, when their share price represented a market cap of about 12 billion, their balance sheet only showed equity of 3.5 billion.

I think it's fair to say that if a year and a half ago, they had equity of 3.5 billion on 16 billion of their own assets and 60 billion of customer loans and given the massive deterioration of all asset values since then, that their balance sheet must be in a pretty horible state as we speak even if you assume zero write down on their loan book.  It seems like the market believes the same given their current market cap is only about 1.5 billion which is miniscule  for an bank with a notional 100 billion of assets.


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## chara1

Hello. have two questions please.  
Have € 350k in E.B.S. from house sale, renting now.  This money is my family's whole future, if E.B.S. fails tomorrow will I get full amount as the government says or will I only get € 200k (it' s a joint account) since the full guarantee has not gone to oireachtas yet (by the way when will the full guarantee be legally complete)
Second;
Is there a potential for my € 350k to become worthless as a result of the euro possibly becoming worthless. I don't mean by inflation, I kind of mean like the way some currencies are worth nothing like in Zambia (not sure if that's the right country) Thanks sick worrying over losing this money.


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## Sunny

chara1 said:


> Hello. have two questions please.
> Have € 350k in E.B.S. from house sale, renting now. This money is my family's whole future, if E.B.S. fails tomorrow will I get full amount as the government says or will I only get € 200k (it' s a joint account) since the full guarantee has not gone to oireachtas yet (by the way when will the full guarantee be legally complete)
> Second;
> Is there a potential for my € 350k to become worthless as a result of the euro possibly becoming worthless. I don't mean by inflation, I kind of mean like the way some currencies are worth nothing like in Zambia (not sure if that's the right country) Thanks sick worrying over losing this money.


 
You won't lose money if the EBS goes. The government won't allow it just because there is a delay in finalising the details of the plan. 

As for your second question, people just need to take a deep breath and relax. But if you really think that is likely to happen, buy gold. By the way I think you mean Zimbabwe not Zambia


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## chara1

I appreciate the reply.  But one question doesn't gold also have the potential to devalue like any other asset in life does.  P.S.thanks for the clarity, I was trying to say Zimbabwe


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## dewdrop

I wonder has there been any debate about what may happen when the  improvGovernment Guarantee is about to expire. It seems to me that unless matters have greatly improved the Govt will be forced to extend the Guarantee


----------



## darag

dewdrop, I raised this issue soon after the scheme was announced.

What is absolutely guaranteed to happen is that in the run up to the expiration of the guarantee we will see a full scale institutional "run" on one or more of the banks.  Why would you leave any money with a bank which is about to lose it's guarantee and you suspect is dodgy in any way?  This will immediately force the renewal of the scheme or a bank collapse.  The government is likely to chicken out again and go for the former storing up the big explosion for after the subsequent election exacerbating the ultimate cost to the tax payer.  This plan wasn't thought through at all.

Even the initial cheerleaders in the media for the scheme seem to have turned against it.  Remember when D McWilliams and the Dept of Finance were unofficially bickering about who should get the credit for this masterpiece?  Well now even McWilliams is saying it's misguided.  Reading the Sunday papers, the nationalistic hubris and enthusiasm which dominated the media in the week after the plan was announced has been replaced by a more intelligent - and as a result more negative - appraisal of the plan.

The banks' share prices are less than half of what the were subsequent to the announcement of plan.  I don't like saying "I told you so" but I stated clearly in my earlier posts that the plan would do nothing for share prices and that they would continue to slide as the fundamental problem was a balance sheet issue.

I read today that Anglo is planning to raise 3 billion in a bond issue by wrapping their dodgy loans in our/the government's guarantee.  In the mean time, Moody's are downgrading some Anglo-Irish debt despite the guarantee.

Neary has taken a lot of stick and rightly so in my opinion.  He must think we are stupid to believe that the banks have 36 billion of equity when the markets are saying it's 6 billion.


----------



## podgerodge

darag said:


> I read today that Anglo is planning to raise 3 billion in a bond issue[/URL] by wrapping their dodgy loans in our/the government's guarantee.  In the mean time, Moody's are downgrading some Anglo-Irish debt despite the guarantee.
> 
> Neary has taken a lot of stick and rightly so in my opinion.  He must think we are stupid to believe that the banks have 36 billion of equity when the markets are saying it's 6 billion.



Is there no limit to how much they can issue so - I thought the guarantee was there to help them out if needed but not to allow them issue more dodgy stuff?


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## Duke of Marmalade

Yes, _Sean_, this is another U-turn by the Government. But as I stated in an earlier post, the Anglo boss' claim on the MF show that the banks would all have to go to the wall before the taxpayer stepped in just didn't make sense.

In essence the Government are leaving all possibilities open, including taking a stake in a stricken bank before attempting to get the other covered banks to bail it out. This is the UK model and it would be foolish to make that the last resort.

But I agree it is as disingenuous to claim that there has been no change to the original proposal as it is to claim there has ben no climb down on the medi card thing.


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