Using National Pension Fund to recapitalise Irish Banks

All I have heard from various parties such as the Minister of Finance, the Financial Regulator, Head Of the Central Bank, Bank CEO's etc that the current crisis facing Irish banks is purely a liquidity issue and the banks remain well capitalised and are not facing solvency issues. Yet seeing the market reaction and from talking to foreign investors it is clear that the market does not share that view.

The guarantee should deal with the liquidity issue but there is no doubt the solvency and confidence issue still has to be dealt with.

If the first group of people are right (and they have access to information that we don't) why don't they put their money where their mouth is and instruct the National Pension Fund to bring home funds from abroad and invest in the Irish Banks to build up capital levels and therefore confidence in the sector. The fund could buy preference shares and get warrants to buy common stock like Warren Buffett has done with Goldman Sachs. Holding the preference shares means that they are still protected if all these people are so sure about their analysis and future losses. The big question is how sure are they?

By the way this came to me while standing on a packed train this morning so the idea could be down to lack of oxygen so feel free to tear it apart. (I know its more taxpayers on the line but I think we will end nationalising a couple of banks anyway). I don't necessarily think it is a good idea because I think banks are going to face larger losses than people think but our powers-to-be certainly seem sure about their analysis and also the cost to the banks could be prohibative.

I think that the National Pension Reserve Fund was deliberately set up in such a way that the politicians do not get any say in the specifics of how it is invested.

From the politicians' perspective, there seems to be near-universal acceptance that they should keep away from the management of this fund.

This is probably a good idea. Otherwise, there would always be yet another 'exceptional case' which would justify raiding this particular piggy bank.

Yeah I know what you mean and I agree with you say but its not really raiding it per se. It is just changing the investment strategy!!

I see the British are now thinking about using taxpayers money to recapitalise British banks. The same thing will have to happen here in my opinion. I just think we are better off using the pension fund rather than current revenue or increased borrowings to do it.

I put in on another thread that retail bank bonds should also be sold through the NTMA/An Post to individual investors to assist in this recapitalisation. I agree with Sunny that the banks are going to have to be recapitalised (once they've written down their assets to market levels) and if you believe that, the question becomes: where is the money for this going to come from?

yoganmahew said:

I put in on another thread that retail bank bonds should also be sold through the NTMA/An Post to individual investors to assist in this recapitalisation. I agree with Sunny that the banks are going to have to be recapitalised (once they've written down their assets to market levels) and if you believe that, the question becomes: where is the money for this going to come from?

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That could work as well but I would be interested to see how they structure it. After Eircom fiasco, I think alot of Irish people are reluctant to take part in any investment scheme that the Goverment is pushing!!

Yeah I know what you mean and I agree with you say but its not really raiding it per se. It is just changing the investment strategy!!

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The NTMA are operating under the instructions that they try to get the best possible return for the money invested. If they thought that recapitalising banks gave the best return, then they'd do it in a heartbeat. Obviously they dont think so.

This is all pension money that the State is committed to paying in future decades. After making the effort to start the fund, I'd hate to see the benefits eroded by bad politicially influenced investments.

csirl said:

The NTMA are operating under the instructions that they try to get the best possible return for the money invested. If they thought that recapitalising banks gave the best return, then they'd do it in a heartbeat. Obviously they dont think so.

This is all pension money that the State is committed to paying in future decades. After making the effort to start the fund, I'd hate to see the benefits eroded by bad politicially influenced investments.

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But there is every chance we are going to have to invest taxpayers money into the banks anyway. As someone said above, the question then becomes where do we get the money from? My argument is whats the point of borrowing it. Also I am not just talking about the straight buying of common stock. I am suggesting something similar to what Warren Buffet does where there is significant upside potential and limited downside. (Thats assuming as I said above that all the people saying Irish Banks are prefectly fine are correct.)

Another thing that occurs to me about involving the NTMA - they are (at leats in theory) financial professionals. They should know how to cost and value, so they are probably in a better position than the Dept. of Finance to get a return on any investment made.

Looking at share prices today, something may have to be done quiet soon!

yoganmahew said:

I put in on another thread that retail bank bonds should also be sold through the NTMA/An Post to individual investors to assist in this recapitalisation. I agree with Sunny that the banks are going to have to be recapitalised (once they've written down their assets to market levels) and if you believe that, the question becomes: where is the money for this going to come from?

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I don't see how a bank borrowing more helps with its balance sheet? The only way is through an equity injection, surely.

Also why sell bonds when the current range of term deposit products provide the same thing and have a significant tax advantages?

What would you do with Anglo Irish Bank shares now? Would you sell them and cut your losses for fear of losing everything?

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