Estimating the taxpayers' exposure. Is it really €400 billion

[Brendan Burgess]

The €400 billion is misleading.

The assets of the banks are €480 billion.

So if all the banks went bust that would just mean that the assets were worth only €380 billion, they won't be worth nothing.

So the exposure is around €20 billion. And that exposure can be managed.

 

[darag]

Re: Just supposing the very worst happened...

So the exposure is around €20 billion. And that exposure can be managed.

How Brendan? What sort of tools are available to manage it? Also I'm curious as to how you came up with the 20 billion figure?

Given that most of a bank's assets is tied up it their loan book and that we've been hearing that one of the bank's loan book is 80% in property, then how exactly can such deteriorating balance sheets be managed?

The futures index in residential property in the UK is predicting a 35% drop in value over the next 3 years. It's not impossible that our market could behave in the same way and the value of commercial property has already been acknowledged to be in free fall.

Even if the government wanted to get into micro managing the banks, it would require a miracle to make up this gaping hole that that one or two of the banks have blown through their balance sheets. Sorry for being a skeptic but I don't believe bank execs or politicians are capable of performing miracles.

 

[Duke of Marmalade]

Re: Just supposing the very worst happened...

The average LTVs quoted by Irish banks is about 70% so even a 35% fall would not leave them over exposed. And always remember we are only talking about the collateral here, the vast majority of people who have found themselves in "negative" equity have continued to honour their legal comitments on the mortgage. This is not like the US were "jingle-mail" is legal.

 

[darag]

Re: Just supposing the very worst happened...

That's a non-sequiter Duke. The figures being bandied about are firstly vague and secondly are collective. We all know that one or two of the banks are in an awful state while there are a couple which are perfectly sound. Quoting an "average" LTV is an smokescreen.

Also it actually doesn't matter that we don't have our own currency all that much since the effect of devaluation is broadly similar to rising yields on government bonds (they've already jumped on news of this deal - the 4% government 2010 bond has dropped in value by about 2%). This wouldn't be a big deal if the government was running a surplus (i.e. hadn't done a George Bush on it during the last five years) as it only really affects new debt. The problem is that we are borrowing (5 billion this year, more next year?) and will be for the forseeable future and the cost of the borrowing starts getting more and more expensive. Anyone who can remember the 80s knows where this leads; the interest alone on government debt starts swallowing up a huge proportion of government expenditure. Default is effectively not an option for a number of reasons so the result would be a massive constriction on spending; i.e. close hospitals, fire teachers/guards/street cleaners/etc., raise taxes, slash welfare, let all our new motorways crumble away from lack of funds to maintain them, etc.

That's the doomsday scenario. I don't belive (or hope) it will pan out like that but unless we are given real figures which accurately describe our banks' financial position regarding capital, it's impossible to be confident one way or the other.

 

[iPoker]

Re: Just supposing the very worst happened...

The €400 billion is misleading.

The assets of the banks are €480 billion.

So if all the banks went bust that would just mean that the assets were worth only €380 billion, they won't be worth nothing.

So the exposure is around €20 billion. And that exposure can be managed.

can we put this, or something similar, on the front of all newspapers until it finally gets into the stupid heads of the idiots in this country? Also, presume to some extent the assets and liabilities are between AIB/BOI/EBS, etc., so lets net this stupid 400b figure down. its meaningless, and stupid.

 

[Kemo_Sabe]

Re: Just supposing the very worst happened...

a figure of 100b lent to property speculators\developers was quoted on Primetime last night - I think this is the real key sector to watch regarding writedowns, not personal mortgages.

 

[Brendan Burgess]

darag - you are right.

I am trying to show that the exposure is not €400 billion.

In reality, the government has given 6 separate guarantees.

So if AIB and Bank of Ireland have a massive surplus, but the Irish Nationwide has a €5 billion deficit, then the taxpayers will have to stump up €5 billion.

But if a small bank does go, the other banks will have to replenish the €100k guarantee scheme, so they are not really separate.

It's very hard to work out, but I think that the €20 billion is about right. It is certainly not €400 billion.

 

[Sunny]

I think €20 billion is probably the best guess but that's all it is. A guess. Still one hell of alot of money if things go wrong!

 

[Towger]

I think €20 billion is probably the best guess but that's all it is. A guess. Still one hell of alot of money if things go wrong!

If I did not get a dp in the wrong place. It is just under 4.5k per head of population, over double the US $700B bailout.

There are stories that one developer along owes 1 billion to the banks.

 

[Sunny]

There are stories that one developer along owes 1 billion to the banks.

Thats actually one thing I would like to know. Each banks top 5 exposures and what percentage of the loan book they represent

 

[tiger]

Re: Just supposing the very worst happened...

a figure of 100b lent to property speculators\developers was quoted on Primetime last night - I think this is the real key sector to watch regarding writedowns, not personal mortgages.

I have to say following the prime time program last night & the performances of Manseragh & the Financial regulator, I was not filled with confidence that the authorities have a good handle on what is going on with the banks.

 

[Kemo_Sabe]

Re: Just supposing the very worst happened...

I have to say following the prime time program last night & the performances of Manseragh & the Financial regulator, I was not filled with confidence that the authorities have a good handle on what is going on with the banks.

lol, Mansergh is the suicide squad of the government - wheeled out to face the music when none of the rest of them have the guts to do so

as for Neary.....

 

[iPoker]

darag - you are right.

I am trying to show that the exposure is not €400 billion.

In reality, the government has given 6 separate guarantees.

So if AIB and Bank of Ireland have a massive surplus, but the Irish Nationwide has a €5 billion deficit, then the taxpayers will have to stump up €5 billion.

But if a small bank does go, the other banks will have to replenish the €100k guarantee scheme, so they are not really separate.

It's very hard to work out, but I think that the €20 billion is about right. It is certainly not €400 billion.

I would view €20 billion as a reasonable estimate of the worst case scenario. I personally think losses will be €5-10 billion, and will be taken over the next couple years. Is it much money? no. wasn't the banks' combined profits €5 billion last year? Ok, a few bad years to be had, however, they're coming off the back of unprecedented growth. The negative is that from 2010 onwards, I don't expect any return to the heady days of crazy profit taking. More than likely lead to consolidation.

I would imagine the T&C of any deals with the banks will include provision such that if one bank goes, with a deficit of, as suggested, €5 billion, this is funded with the help of the other banks, so I wouldn't expect (but agree we don't know for sure) that the taxpayer would not be on the hook for it all. (at least directly; maybe indirectly sooner or later).