Property developers owe over €100bn to banks

gurramok

Property developers owe €100bn to banks, story in todays Irish Times http://www.ireland.com/newspaper/frontpage/2008/0222/1203619239456.html

Alot of dosh tied up in property, no wonder they talk up the market, its their money on the line!

I.T. wrote:

Irish property developers now owe more than €100 billion to the country's banks, new figures show. Barry O'Halloran and Paul Tansey report.

Private-sector credit figures released by the Irish Central Bank yesterday showed that by the end of last year, the total amount that banks had lent for real estate dealing and property development had hit €105.8 billion.

In the course of last year, bank lending to these two property-based sectors grew by €22.5 billion, or 27 per cent. This equated to 80 per cent of the money lent by the banks to business last year.

In total the loans advanced by the banks to business or the "productive sectors" increased by €28.2 billion.

The news came as international credit watchdog Fitch Ratings warned that the amount of money Irish banks have tied up in property leaves them vulnerable if there is a severe downturn in the market.

AIB, the country's largest bank, said this week said that it had scrutinised some €700 million worth of loans to property developers. The total amount of money owed by Irish people and businesses to the banks grew to €392 billion from €329 billion, an increase of 19.1 per cent.

All property-related lending, including money advanced to developers and people buying homes, climbed €39 billion last year to reach €246 billion, which meant that property-related lending accounted for 62 per cent of all private sector credit growth in the Irish economy last year.

The Central Bank's figures show that growth in property-related lending slowed sharply to €10 billion or just 4.2 per cent between September and December last year.

At the same time yesterday, Fitch Ratings, an international agency that measures organisations' and corporations' ability to repay their debts, warned that Irish banks are heavily exposed to mortgage lending, even while the housing market is slowing. The agency said that in the case of a "soft landing" for the Irish economy, the banks' large mortgage books should not be a cause for concern.

However, the agency's report argued that if the downturn were more severe than expected, then "this overall large exposure of Irish banks to residential borrowing and to commercial real estate constitutes a weakness".

It added that good profits, conservative risk management and reasonable capital may not be enough to protect the banks against the fallout from such a downturn.

Basing its figures on their 2006 balance sheets, the agency said that the three banks most exposed to residential mortgage lending were EBS, IIB and the Irish Life & Permanent

faceman

gurramok wrote: »

Property developers owe €100bn to banks, story in todays Irish Times http://www.ireland.com/newspaper/frontpage/2008/0222/1203619239456.html

Alot of dosh tied up in property, no wonder they talk up the market, its their money on the line!

this is the most worrying fact these days. I would be keen to find out how much the banks hold on deposit vs the amount owed by developers. Developers are limited companies, so if they go belly up or the directors decide to walk away, there is little comeback to the banks if the loans aren't secured against an assett.

An industry insider told me that the amount owed is on par with what is held on deposit....

iguana

faceman wrote: »

An industry insider told me that the amount owed is on par with what is held on deposit....

It is according to a UCD paper referenced in this thread from last October;

http://www.boards.ie/vbulletin/showthread.php?t=2055162526&referrerid=59211

faceman

time to put our money under the matress i reckon!

confuzed

faceman wrote: »

time to put our money under the matress i reckon!

like Bertie and boys did

Dakeyras

faceman wrote: »

this is the most worrying fact these days. I would be keen to find out how much the banks hold on deposit vs the amount owed by developers. Developers are limited companies, so if they go belly up or the directors decide to walk away, there is little comeback to the banks if the loans aren't secured against an assett.

An industry insider told me that the amount owed is on par with what is held on deposit....

while you are quite right that a limited company is only liable for its assests and the managing directors can legally 'walk away' they still have a responsibility and legal obligation to answer for that company and what happened with that company. directors cant just walk away and go 'it's fine, over. dont wanna know'

now thats that out of the way
obviously developers have borrowed heavely, but they have a lot of land based on those loans. at the end of the day its not developers and builders that are most likely to feel the pinch but the common man.

correct me if im wrong though

http://boards.ie/vbulletin/showthread.php?t=2055162526

oh there's were it is

faceman

Dakeyras wrote: »

while you are quite right that a limited company is only liable for its assests and the managing directors can legally 'walk away' they still have a responsibility and legal obligation to answer for that company and what happened with that company. directors cant just walk away and go 'it's fine, over. dont wanna know'

Well actually they can. All they have to say (and do say) is that they made poor business decisions and they thought things would get better. I see it all the time. Of all the creditors meetings over the years and of any i have attended i have never seen a director charged for wreckless trading even when there wa some evidence of same.

Its just too difficult to prove. Since the 60's i think there has only been about 10 successful cases of wreckless trading in ireland brought before the courts.

I even attended a meeting where one of the directors wore a cowboy hat!!

aphex™

faceman wrote: »

Well actually they can. All they have to say (and do say) is that they made poor business decisions and they thought things would get better. I see it all the time. Of all the creditors meetings over the years and of any i have attended i have never seen a director charged for wreckless trading even when there wa some evidence of same.

Its just too difficult to prove. Since the 60's i think there has only been about 10 successful cases of wreckless trading in ireland brought before the courts.

I even attended a meeting where one of the directors wore a cowboy hat!!

They can be struck off. The auditor takes the proceedings. Sometimes the auditor doesn't even think it's warented but legally, he has to take proceedings to the court.

Think this is slightly different to the thing you're talking about (reckless trading) but certainly nowadays there should be automatic sanctions.

johnnyskeleton

faceman wrote: »

Well actually they can. All they have to say (and do say) is that they made poor business decisions and they thought things would get better. I see it all the time. Of all the creditors meetings over the years and of any i have attended i have never seen a director charged for wreckless trading even when there wa some evidence of same.

Its just too difficult to prove. Since the 60's i think there has only been about 10 successful cases of wreckless trading in ireland brought before the courts.

I even attended a meeting where one of the directors wore a cowboy hat!!

If a company trades while insolvent, then the company's directors can be personally liable for debts incurred.

faceman

aphex™ wrote: »

They can be struck off. The auditor takes the proceedings. Sometimes the auditor doesn't even think it's warented but legally, he has to take proceedings to the court.

Think this is slightly different to the thing you're talking about (reckless trading) but certainly nowadays there should be automatic sanctions.

Not sure what you mean by auditor?

Directors are not permitted to be a director for 2 years in the event of liquidation. However that penalty in some cases is not severe enough.

johnnyskeleton wrote: »

If a company trades while insolvent, then the company's directors can be personally liable for debts incurred.

Not if its a limited company.

Pa ElGrande

Credit crunch squeezes banks dry
24 February 2008 By Ian Kehoe

‘‘The hallmark of Irish banks used to be that they would provide a fast response to an application. This has changed. The banks are looking at credit. They are assessing everything at credit committees. They are looking for some serious assets before they will authorise a loan. It is all very sensible stuff.”

The country’s largest banks are now holding credit committee meetings on a weekly basis, while lending managers are being asked to provide up-to-date data on individual cases on a daily basis. Site visits by bankers, once a rare phenomenon, are now becoming increasingly common.

ACC Bank and Anglo Irish Bank are known to be assessing certain construction projects where they are heavily exposed, and re-trying to offload sizable portions of their debt. A number of risk reviews have already been ordered. In particular, they are concerned about small developers who do not have enough cash or assets to survive a downturn.

Anglo, for example, has put together a specialised team to deal with problem cases in the construction sector. The main focus of the team is to spot problems before they emerge and to deal with them quickly and quietly. In certain cases, this has resulted in Anglo staff taking direct responsibility for developments, in an effort to get the job done and minimise the bank’s exposure.

‘‘If necessary, we will take the developer’s chequebook and start calling the shots,” said one senior Anglo executive, who spoke on the basis of anonymity. ‘‘You can either close your eyes and cross your fingers, or you can take control of the situation.”

Other institutions are following suit. Bank of Scotland (Ireland) has drafted in a number of accountants to work through its property loan book and weed out any problem cases. A number of other banks have initiated similar moves in an effort to minimise their exposure.

The results from those risk assessments are likely to lead to a significant increase in the number of receivers being appointed by banks, according to senior insolvency sources.

What is being admitted is that Irish banks threw money abound like confetti in the boom, now the bankers are panicing and pulling down the shutters, there is less money available on credit.

SimpleSam06

gurramok wrote: »

Property developers owe €100bn to banks, story in todays Irish Times

Wow. Thats approximately equal to the value of all final goods and services produced in Ireland in 2006, plus the sum of value added at every stage of production of all final goods and services in the country. The GDP, in other words.

Pa ElGrande

SimpleSam06 wrote: »

Wow. Thats approximately equal to the value of all final goods and services produced in Ireland in 2006, plus the sum of value added at every stage of production of all final goods and services in the country. The GDP, in other words.

Even more frightening of you read the Irish Times article there is a very explicit warning from Fitch Ratings

At the same time yesterday, Fitch Ratings, an international agency that measures organisations' and corporations' ability to repay their debts, warned that Irish banks are heavily exposed to mortgage lending, even while the housing market is slowing. The agency said that in the case of a "soft landing" for the Irish economy, the banks' large mortgage books should not be a cause for concern.
However, the agency's report argued that if the downturn were more severe than expected, then "this overall large exposure of Irish banks to residential borrowing and to commercial real estate constitutes a weakness".
It added that good profits, conservative risk management and reasonable capital may not be enough to protect the banks against the fallout from such a downturn.
Basing its figures on their 2006 balance sheets, the agency said that the three banks most exposed to residential mortgage lending were EBS, IIB and the Irish Life & Permanent.

Hands up who believes in a soft landing? Now if you know there is going to be no soft landing what is Fitch really saying?

mastermind2005

Irish property developers now owe more than €100 billion to the country's banks, new figures show. Barry O'Halloran and Paul Tansey report.

Private-sector credit figures released by the Irish Central Bank yesterday showed that by the end of last year, the total amount that banks had lent for real estate dealing and property development had hit €105.8 billion.

In the course of last year, bank lending to these two property-based sectors grew by €22.5 billion, or 27 per cent. This equated to 80 per cent of the money lent by the banks to business last year.

In total the loans advanced by the banks to business or the "productive sectors" increased by €28.2 billion.

The news came as international credit watchdog Fitch Ratings warned that the amount of money Irish banks have tied up in property leaves them vulnerable if there is a severe downturn in the market.

AIB, the country's largest bank, said this week said that it had scrutinised some €700 million worth of loans to property developers. The total amount of money owed by Irish people and businesses to the banks grew to €392 billion from €329 billion, an increase of 19.1 per cent.

All property-related lending, including money advanced to developers and people buying homes, climbed €39 billion last year to reach €246 billion, which meant that property-related lending accounted for 62 per cent of all private sector credit growth in the Irish economy last year.

The Central Bank's figures show that growth in property-related lending slowed sharply to €10 billion or just 4.2 per cent between September and December last year.

At the same time yesterday, Fitch Ratings, an international agency that measures organisations' and corporations' ability to repay their debts, warned that Irish banks are heavily exposed to mortgage lending, even while the housing market is slowing. The agency said that in the case of a "soft landing" for the Irish economy, the banks' large mortgage books should not be a cause for concern.

However, the agency's report argued that if the downturn were more severe than expected, then "this overall large exposure of Irish banks to residential borrowing and to commercial real estate constitutes a weakness".

It added that good profits, conservative risk management and reasonable capital may not be enough to protect the banks against the fallout from such a downturn.

Basing its figures on their 2006 balance sheets, the agency said that the three banks most exposed to residential mortgage lending were EBS, IIB and the Irish Life & Permanent.

© 2008 The Irish Times

http://www.ireland.com/newspaper/frontpage/2008/0222/1203619239456.html

Pa ElGrande

Already covered here - http://boards.ie/vbulletin/showthread.php?p=55203674#post55203674

indiewindy

faceman wrote: »

Not sure what you mean by auditor?

Directors are not permitted to be a director for 2 years in the event of liquidation. However that penalty in some cases is not severe enough.



Not if its a limited company.

You are wrong, trading while insolvent is considered reckless trading and you can be held personally repsonsible, limited liability doesnt cover you if you trade while insolvent

mastermind2005

deserves its own thread

Victor

Posts moved.

faceman

indiewindy wrote: »

You are wrong, trading while insolvent is considered reckless trading and you can be held personally repsonsible, limited liability doesnt cover you if you trade while insolvent

Maybe thats what the text books tell you but as i said previously, there have been only about 10 cases successfully brought before court on reckless trading charges since the 60's.

I attended one creditors meetings where it seemed obvious that the director was dodgy. He wound up the company and even had the balls to say he was personally owed money! He had "leased" the property personally to the business at premium rates. Also they had debts outstanding on the books for worldwide travel agencies. (He had a business that only traded in ireland with no overseas business and by his own admission, no need to trade abroad) His explanation for those debts was "i cant remember". that was just the tip of the iceberg.

What you may be talking about is fraud, which is a different kettle of fish altogether.

SimpleSam06

Pa ElGrande wrote: »

Even more frightening of you read the Irish Times article there is a very explicit warning from Fitch Ratings

Well lets put it further in context. Basically they need to sell 200,000 properties at half a million euros each...

... just to break even on their debts.

Victor

SimpleSam06 wrote: »

Well lets put it further in context. Basically they need to sell 200,000 properties at half a million euros each... ... just to break even on their debts.

But over what period of time? Add commercial property also.

faceman wrote: »

I attended one creditors meetings where it seemed obvious that the director was dodgy. He wound up the company and even had the balls to say he was personally owed money! He had "leased" the property personally to the business at premium rates.

A common tactic, even by PLCs.

Please see Salomon v. Salomon & Co.

http://en.wikipedia.org/wiki/Salomon_v._Salomon_&_Co.

JupiterKid

I think the full extent of the madness and sheer greed of the past decade is now beginning to be revealed. I predict that many, many small developers will go bust later this year as they can't sell any houses and can't stave off their creditors indefinitely.

That is just the beginning of the real problem - when one or two of the big developers gets into serious trouble - possibly as early as the end of this year but perhaps in '09, then it will be a bloodbath for the banks. Watch this space.

faceman

Victor wrote: »

A common tactic, even by PLCs.

Please see Salomon v. Salomon & Co.

http://en.wikipedia.org/wiki/Salomon_v._Salomon_&_Co.

Not up on that one victor and the link brought me to the message below. But yes you are right, its common because they can get away with it unfortunately.

Wikipedia does not have an article with this exact name

Victor

Fixed. VB mis-parsed the last full stop in the link.

SimpleSam06

Victor wrote: »

But over what period of time?

Unless they are not paying interest on those loans, I'd say just about as fast as they can manage it.