# criticism of Irish Banks



## dewdrop (13 Oct 2008)

I sometimes wonder if this is a bit over the top as banks all over the we orld now are in trouble. I agree the big salaries are obscene like the soccer players and the large lending to the property sector was very ill advised. however all banks seem to have gone down this route and it seems strange that the top people in the irish banks did not forsee the problem. after all some of the best brains in the country are at the top of some of the irish banks. maybe the ordinary punter would have seen the problems ahead


----------



## rmelly (13 Oct 2008)

dewdrop said:


> after all some of the best brains in the country are at the top of some of the irish banks.


 
I think that's where you're going wrong. I've seen nothing to suggest this is true. In particular in relation to the bank economists.


----------



## becky (13 Oct 2008)

dewdrop said:


> after all some of the best brains in the country are at the top of some of the irish banks. maybe the ordinary punter would have seen the problems ahead


 
I have no doubt that many of them saw this problem coming but were not listened to, if they voiced thier concerns at all.


----------



## The_Banker (13 Oct 2008)

As with any bull market the herd mentality takes over. People who voice concern are quickly shouted down as merchants of doom.


----------



## gillarosa (13 Oct 2008)

dewdrop said:


> I agree the big salaries are obscene like the soccer players


 
Though we get to see what the Soccer Players are up to performance wise on a regular basis, its still speculation about whom and at at what risk large loans have been given over the past few years, for which the Government have felt bound to back up with our tax Euro.


----------



## Brendan Burgess (13 Oct 2008)

It's a tough one and very difficult to be balanced about. 

If only one bank had problems, then it would be fairly clear that someone in that bank should be accountable.  But when all the banks have problems, then it's more difficult to allocate blame. 

What has caused the problem? Many were predicting a sharp drop in Irish property prices. Some were predicting a soft drop. Others were predicting continued rises. 

No one predicted the credit crunch which has dramatically exacerbated the problems. Without the credit crunch, things would have fallen a lot less. 

AIB and Bank of Ireland sold off significant property assets at the top of the market. As a shareholder in AIB, I am very grateful to the company for doing so. 

It is very difficult to withstand the stampede of the herd. Had AIB announced that it was concerned about house prices and that it was limiting its loans to 80% of value and 3 times annual salary, they would have sold very few mortgages. They would be looking very smart now, but I suspect that the people who would have made those decisions would have lost their job due to the collapse in market share and profitability. 

I think it was permanent tsb who started the widespread availability of 100% mortgages in Ireland. I argued with its chief executive, Denis Casey on the Matt Cooper Show that this was not a good idea. I likened it to the lending to South American governments in the 80's and he got very annoyed saying that I was talking nonsense. He couldn't understand what lending to South American countries had to do with mortgages in Ireland today. My point was about the herd mentality and that few banks or bankers had the conviction to withstand the stampede. 

I think that the Irish Nationwide was the only bank not to provide 100% home loans.  I am sure that the members will congratulate him for this at the next AGM.

The main cause of this problem is irresponsible sub-prime lending in America and their onward sale to other financial institutions. No Irish bank engaged in this lending and no Irish bank bought any of the securitised products based on them. It may have been because they were making too much money at home.

Brendan


----------



## dewdrop (13 Oct 2008)

Thanks Brendan for your very reasoned response. Maybe when things calm down the property write offs may not be as bad as predicted. I suspect some of these people must have amassed fortunes during the boom years


----------



## smiley (13 Oct 2008)

very good and well balanced points Brendan.

I also remember a few years back when aib announced their sale and property lease-back, and thinking to myself that this was a very clever move. At least they knew well that a property bubble was well underway.

Ok, the banks will have impairments but personally i dont think they will be as bad as some are making out. 

Slightly off topic but i was very happy to see Sir Fred from RBS getting the chop today.
Now there is somebody who really did create an almighty problem. Buying abn-amro at the height of the boom and massive amounts of cdos, sivs and all sorts of strange sounding financial instuments galore.

irish banks thank god had very little exposure there.


----------



## NorthDrum (14 Oct 2008)

Don't some say that criminals are a product of neglect by society, the outcasts (was that Batman that said that?). 

Is anybody familiar with the story of the scorpion and the frog? I love the ending where the scorpion says "It’s in my nature". Kind of explains the whole story in a nutshell.

Well on a different level the Banks are also a product of society and they could simply justify their actions by saying "It’s in our nature ".

Considering the banks obvious unhealthy power in economies is it any surprise that they take advantage of what some people would consider an industry lacking in proper regulating.

Prevention is better then cure, the herd mentality mentioned by Brendan is very true, and it’s a reason why Banks have acted in the manner that they did, but still doesn’t justify the decision to let them do it.

The government are all too quick to protect Joe Public from themselves when it comes to PR friendly situations/topics like trying to reduce Alcohol or smoke abuse. 

But when it comes to borrowing ridiculously large sums of money they allowed the banks to decide the criteria. 

Sure why not let the tobacco or alcohol companies decide what age you can drink or let the pubs decide what time to close at?

We all helped build society into what it is today. I would love to see some people hang for some of the crimes that have been committed in the financial markets worldwide, but the truth is that its easy to have a big bad wolf to blame. Society needs to be less reactive and more proactive.

So who is to blame? The Banks, The government, the financial regulator, the public for voting these people into power?

All that said, maybe I’m just a plain old cynic that assumes the worst of anybody in power . . . .


----------



## Bronte (14 Oct 2008)

Brendan said:


> The main cause of this problem is irresponsible sub-prime lending in America and their onward sale to other financial institutions. No Irish bank engaged in this lending and no Irish bank bought any of the securitised products based on them.


How do we know they did not purchase these 'securitised products?  In any case if they did not they didn't need to because they created their own equivelent with massive loans to developers for overpriced landbanks.


----------



## Brendan Burgess (14 Oct 2008)

Folks

Please read the heading and stay on topic. It is very wasteful of Moderators' time to have to read and delete off-topic posts.

This is a very important issue. Stay on topic. Open a new thread if you want to discuss some other issue.

Brendan


----------



## whathome (14 Oct 2008)

Brendan said:


> What has caused the problem? Many were predicting a sharp drop in Irish property prices. Some were predicting a soft drop. Others were predicting continued rises.
> 
> No one predicted the credit crunch which has dramatically exacerbated the problems. Without the credit crunch, things would have fallen a lot less.


 
Hi Brendan, 
Much of this was predicted in the infamous "public sentiment" thread on askaboutmoney.  The credit crunch was predicted by a number of posters, including Duplex here in September 2006.

http://www.askaboutmoney.com/showpost.php?p=286303&postcount=5060



> Low inflation Japanese style i.e. deflation a possibility in the US as the velocity of money is hampered by recession, a consumer retreat from unsustainable indebtedness and a credit crunch.


----------



## Brendan Burgess (14 Oct 2008)

Hi Whathome

People did predict a credit crunch which would have been interpreted as a withholding of funds to the consumer market. 

No one predicted the extent of the credit crunch and the freeze on interbank lending. 

Brendan


----------



## JohnBoy (14 Oct 2008)

Brendan said:


> The main cause of this problem is irresponsible sub-prime lending in America and their onward sale to other financial institutions. No Irish bank engaged in this lending and no Irish bank bought any of the securitised products based on them. It may have been because they were making too much money at home.
> 
> Brendan


 
I have to disagree with this point as I believe that it, in part, exonerates the Irish banks. Irish banks did not buy any of these dodgy securities, but in many ways their lending standards became just as lax as those of the subprime lenders in the US. Bear in mind that levels of private indebtedness in Ireland approach 200% of GDP (or 240% of GNP) - this is actually higher than any of our European peers. 

There is a widespread belief that this crisis is a US problem. It is true to say that the crisis first broke in the US but irresponsible lending was a global problem. The subprime crisis illustrated how poor lending standards had become in theUS, but Irish, Spanish, Australia and UK banks all showed woeful lapses in judgement.


----------



## ubiquitous (14 Oct 2008)

JohnBoy said:


> irresponsible lending was a global problem.



Exactly, just as the illusory property boom mania was a global problem. The real reason why nobody predicted the scale of this disaster was the modern manifestation of the fable of the Emperor's New Clothes. The emperor's attire was admired so deeply by so many people that faith in it became something akin to a religion, and anyone who doubted the wisdom and sanity of the new religion were ridiculed, shouted down and ultimately had their voices suppressed.


----------



## whathome (14 Oct 2008)

Brendan said:


> No one predicted the extent of the credit crunch and the freeze on interbank lending.


 
Hi Brendan,
I disagree. Duplex left me in no doubt as to the extent of the credit crunch he expected. Even in March 2006 he was spot on.

http://www.askaboutmoney.com/showpost.php?p=189706&postcount=2

From March 2006 on this site:


> I still anticipate a credit crunch (to follow the present global debt bubble), caused by rising defaults and a widespread (global) property market reversal.


----------



## JohnBoy (14 Oct 2008)

dewdrop said:


> I sometimes wonder if this is a bit over the top as banks all over the we orld now are in trouble. I agree the big salaries are obscene like the soccer players and the large lending to the property sector was very ill advised. however all banks seem to have gone down this route and it seems strange that the top people in the irish banks did not forsee the problem. after all some of the best brains in the country are at the top of some of the irish banks. maybe the ordinary punter would have seen the problems ahead


 
The OP's point here is important. No Irish bank will emerge from this with its reputation intact. What concerns me is that there is no 'strong' Irish bank that does not require state help. In the US, the UK and Spain, there are banks that have (so far) emerged from this mess with stronger than ever businesses (HSBC, Barclays at a push, Santander, Wells Fargo, JP Morgan etc). Whereas, the Irish banks all looks like fools. The best Irish bank has a loan/despoit ratio of 150% and has too many property loans on its books. Were there no contrarian thinkers at senior levels in the Irish banks?


----------



## sfag (14 Oct 2008)

Yes - banks all move in a herd. 
Where there is expecation to contantly increase profits year on year they have to. For example Ulster bank were fairly slow to get generous with the money. Their  profits were down after the dot com crash whilst compeditors were up. That sends one message to the top brass - get in on the others act fast. 
Cant see how that will ever change with out preventative legislation. Hold on - even the legislators move in a herd - They all failed to do their job collectively. 

Not sure I agree with Brendan when he says the current crisis begun in America as Investors had the Irish Banks marked down long before the sub prime thing blew up. Surely the liquidity crisis would have come our way regardless of events in America.


----------



## Brendan Burgess (14 Oct 2008)

> Surely the liquidity crisis would have come our way regardless of events in America.


 
Why? Is the liquidity crisis not primarily due to banks just not lending to each other because they don't trust each other's balance sheets? 

Irish shares were marked down, but not to the extent that they are today. The mark-down did not anticipate that the international money markets would freeze.

Brendan


----------



## Raskolnikov (14 Oct 2008)

Brendan said:


> The main cause of this problem is irresponsible sub-prime lending in America and their onward sale to other financial institutions. No Irish bank engaged in this lending and no Irish bank bought any of the securitised products based on them. It may have been because they were making too much money at home.


I think that our banks have engaged in a different kind of irresponsible lending. It is this lending to property developers have has plunged our banks into the crises that they are facing today.

Exhibit A. Sean Dunne was of course the high profile case, but everything else was caught in the mania of this uplift back in 2006.


----------



## Duke of Marmalade (14 Oct 2008)

It has been suggested that banking, like the electricity supply, is too important to be trusted to the private sector and the short term profit motive. Imagine that our banking system had always been an arm of the public service. I very much doubt that we would have had 100% mortgages, massive inter bank borrowing from abroad to fund foreign property investment, lending to developers to pay massive land prices, unemployed and low income people with multiple credit cards etc. etc.

What would we have lost? The Celtic Tiger would have been more tame. Some people who now own their own homes would have been restricted to rental accomodation. Some people would have been denied a good time which they couldn't afford. Though come to think of it, I don't think we would really have lost that much and we would be sitting in clover now.


----------



## JohnBoy (14 Oct 2008)

Duke of Marmalade said:


> It has been suggested that banking, like the electricity supply, is too important to be trusted to the private sector and the short term profit motive. Imagine that our banking system had always been an arm of the public service. I very much doubt that we would have had 100% mortgages, massive inter bank borrowing from abroad to fund foreign property investment, lending to developers to pay massive land prices, unemployed and low income people with multiple credit cards etc. etc.
> 
> What would we have lost? The Celtic Tiger would have been more tame. Some people who now own their own homes would have been restricted to rental accomodation. Some people would have been denied a good time which they couldn't afford. Though come to think of it, I don't think we would really have lost that much and we would be sitting in clover now.


 
It is difficult to argue against your post given that the private sector management of the banking system has proven to be a great way to destabilise the economy. However, neither the government, the central bank nor the regulator appear to have been up to their jobs either so I doubt that any of these people could run a bank either.


----------



## sfag (15 Oct 2008)

Brendan said:


> Why? Is the liquidity crisis not primarily due to banks just not lending to each other because they don't trust each other's balance sheets?
> 
> Irish shares were marked down, but not to the extent that they are today. The mark-down did not anticipate that the international money markets would freeze.
> 
> Brendan


 
The international banks would have been too afraid to lend to Irish Banks once they realised the true values of the impending asset write down which is surely coming. Would that not have created a liquidity crisis.


----------



## sfag (15 Oct 2008)

Regarding 100% mortgages - surely individuals were getting 100% mortgages long before they were offered as a product. You simply got a personal loan from one or two lenders and a 90% mortgage from another lender. 
None of the lenders seems to be down on that despite having access to centralised client borrowing history data revealing the total of clients borrowings.


----------



## Perplexed (15 Oct 2008)

Well done Brendan, you're making some very valid points.

I must say upfront that I'm a banker though very much on the lower levels.

I doubt if Irish banks would ever have gotten into 100% mortgages if it hadn't been to keep up with some of the foreign competition. In fact, we were  constantly being lambasted for being too strict on the guidelines. People do not like being told that they cannot afford repayments !

The normal high street banks were quite responsible and to date there isn't much evidence of repossessions or even people falling behind with repayments. It's the bigger boys who did the bigger lending that have gotten us into trouble as well as the top nobs with their wonderful bonuses.

Subprime should never have been let into this country. Common sense would tell you if you have a bad credit history and are finding it difficult to get loans, then perhaps you shouldn't be looking for one till your finances improve.

As for keeping quiet on the extent of bad debts. It honestly isn't clear yet. Some staff have been selected to visit customers in trouble to try to work out something. If people aren't given the chance to try to bail themselves out, the situation will be much worse.  Something may be salvaged this way whereas if you just foreclose there will be nothing to gain by the bank owning property/land that in the present climate is not worth much. That would just exacerbate the problem.

We'll all just have to have a little patience. People tend to forget that the banks do have a great deal of  assets. The main crisis here is one of confidence.


----------



## JohnBoy (16 Oct 2008)

The problems of the Irish banks stem from more than just subprime lending to a small section of the population. Repeating the mantra that all the Irish banks are facing is a crisis of confidence ignores the real problem. The Irish banks have advanced far too much money (200% of GDP) and are far too exposed to a single asset class (albeit with some geographic spread). What continues to amaze me is that even as property prices fall and the economy heads rapidly south a lot of people believe that there is nothing fundamentally wrong with the assets sitting on the books of the Irish banks. If the Irish banks were to face the same level of loan losses as the UK banks took in the early 1990s recession then they need to stop paying dividends and think about how to go about raising capital.


----------



## dewdrop (16 Oct 2008)

I anticipate that following whats happening in England we will shortly hear criticism that Irish Banks are not lending enough here. Will not this be ironic in view of the growing recession and lending in such a climate can only lead to more bad debts


----------



## Bronte (16 Oct 2008)

I heard the Germans are making their bankers take a pay cut to 500K salary.  What would be the equivelent salary for Irish top bankers?


----------

