Banking sector- The trouble with Tribbles

Dob74

Blackjack wrote: »

Do you happen to have any savings, or even an account with any of the banks?. Just wondering how you would manage if your bank went down the tubes and you could not access any cash, pay any bills or the like for a few weeks/months/years until the liquidators sort that out for you, while in the meantime ensuring that the Taxman is first to get paid and yourself afterwards?.

Apply that on a wider scale (i.e. - not just for you but any company or individual who depends on a collapsed bank for their day to day requirements), let me know what you come back with. Waterford Crystal weren't in the process of funding loans, making payments on behalf of anyone who needed payments to be made, providing mortgages or car loans to those who needed them. Unfortunately for Waterford Crystal's employees and shareholders, their company is a bit more expendable than the banks, by virtue of the fact that Glass Ashtrays and expensive wine glasses aren't vitally important to how money moves about the financial system.

Of course I have a bank account. But have taken money out of the bank that has been to forefront in lending to developers and is just a commercial bank.
The financial system is in need of deep reforms and these reforms are not going to happen unless one of them goes wallop. In 85 AIB went under and the government bailed them out. It looks like nothing has changed since than. The gov did not get anything in return for stepping in. Senior management has not admited to any wrong doing, which I think is a serious mistake. They have not written down there assets. This would solve alot of the problems, as investor confidence would return. At the moment the economy is dying the death of a thousand cuts and it will years for it be corrected.
If AIB or BOI were going to go under then yes the gov should step in. They are too big and would affect the whole country. Its a sad reflection that this is probably the most rounded debate I have seen on this issue. For something that happened 10 weeks ago. The idiots who lead this country are doing enough to save the economy.

Dob74

Danimalito wrote: »

With the irish state guaranteeing to honour the banks debts during the next 2 years, it's going to be extremely costly for the taxpayer to allow any of them to go under. Ireland could very well end up in IMF-bailout territory.

Longtime it may profitable to takeover the debts and resell the assets at a later date. Short term it would be painful

The_Conductor

Blackjack wrote: »

Would allowing one of the banks to fail have been cheaper do you think?.

Given the difficulties the NTMA are suggesting we are going to have in selling ~25 billion in government bonds in '09- hell yes, Anglo Irish and a few other lesser candidates should have been allowed go up the wall. The current situation is to dilute the risk among all the institutions and the exchequer. Its unlikely- but possible that the implications of this could be far worse than anyone anticipates.......

Blackjack

Dob74 wrote: »

Of course I have a bank account. But have taken money out of the bank that has been to forefront in lending to developers and is just a commercial bank.
The financial system is in need of deep reforms and these reforms are not going to happen unless one of them goes wallop. In 85 AIB went under and the government bailed them out. It looks like nothing has changed since than. The gov did not get anything in return for stepping in. Senior management has not admited to any wrong doing, which I think is a serious mistake. They have not written down there assets. This would solve alot of the problems, as investor confidence would return. At the moment the economy is dying the death of a thousand cuts and it will years for it be corrected.
If AIB or BOI were going to go under then yes the gov should step in. They are too big and would affect the whole country. Its a sad reflection that this is probably the most rounded debate I have seen on this issue. For something that happened 10 weeks ago. The idiots who lead this country are doing enough to save the economy.

I'm sure there's more than you have savings and depend on the bank you have taken your money out of.
This is the scale I'm referring to, there are plenty of any banks customers who would be affected.

Dob74 wrote: »

Given the difficulties the NTMA are suggesting we are going to have in selling ~25 billion in government bonds in '09- hell yes, Anglo Irish and a few other lesser candidates should have been allowed go up the wall. The current situation is to dilute the risk among all the institutions and the exchequer. Its unlikely- but possible that the implications of this could be far worse than anyone anticipates.......

We're not going to have to sell that 25 Billion in Bonds as a result of any Bank Guarantee.
That 25 Billion is just to keep the Government in the money it has budgeted to spend.

Seriously - what do you estimate the costs to the economy to be in allowing a bank failure?.

The_Conductor

Blackjack wrote: »

We're not going to have to sell that 25 Billion in Bonds as a result of any Bank Guarantee. That 25 Billion is just to keep the Government in the money it has budgeted to spend.

Seriously - what do you estimate the costs to the economy to be in allowing a bank failure?.

In the first instance- the additional cost associated with the 25billion as a result of the government guarantee is an immediate additional cost of 250 million, probably higher- depending on whether the spread with the other Euro bonds increases beyond the 1.1% its currently at.

I do not believe that there would be any cost to the Irish economy in allowing a bit player such as Anglo Irish go up the wall. 91% of depositors in that institution would have availed of full protection under the deposit protection scheme, and thats even before the increase in the scheme. Its acknowledged that Anglo Irish are toxic- none of the larger institutions are interested in taking them over- unless their loan book can be totally ringfenced, and any losses guaranteed by the government (the government is guaranteeing loans and deposits- not historic loan books). The cost of doing this could well be an additional 18-20 billion (depending on what the eventual realisable value of those assets are).

We've had US, UK, French, German, Swiss and Italian bank failures. The sky hasn't fallen in- why would removing such an atrocious overhang of toxic debt from the Irish market not be a good thing (other than the associated cost to the taxpayer if it was forced to merge with another entity). Allowing it to go whallop, would wipe out the shareholders- certainly. But by the same hand- a 94% reduction in Bank of Ireland's share price has caused shocking hardships for a lot of people- and you do not hear any mutterings of the problems their hardships are causing the economy- or indeed any suggestion that they be bailed out.

What do you think the economic implications of allowing Anglo Irish to go up the wall would be (I am not suggesting allowing AIB or BOI fail.......)

S.

Blackjack

smccarrick wrote: »

In the first instance- the additional cost associated with the 25billion as a result of the government guarantee is an immediate additional cost of 250 million, probably higher- depending on whether the spread with the other Euro bonds increases beyond the 1.1% its currently at.

I do not believe that there would be any cost to the Irish economy in allowing a bit player such as Anglo Irish go up the wall. 91% of depositors in that institution would have availed of full protection under the deposit protection scheme, and thats even before the increase in the scheme. Its acknowledged that Anglo Irish are toxic- none of the larger institutions are interested in taking them over- unless their loan book can be totally ringfenced, and any losses guaranteed by the government (the government is guaranteeing loans and deposits- not historic loan books). The cost of doing this could well be an additional 18-20 billion (depending on what the eventual realisable value of those assets are).

We've had US, UK, French, German, Swiss and Italian bank failures. The sky hasn't fallen in- why would removing such an atrocious overhang of toxic debt from the Irish market not be a good thing (other than the associated cost to the taxpayer if it was forced to merge with another entity). Allowing it to go whallop, would wipe out the shareholders- certainly. But by the same hand- a 94% reduction in Bank of Ireland's share price has caused shocking hardships for a lot of people- and you do not hear any mutterings of the problems their hardships are causing the economy- or indeed any suggestion that they be bailed out.

What do you think the economic implications of allowing Anglo Irish to go up the wall would be (I am not suggesting allowing AIB or BOI fail.......)

S.

There is a difference between allowing a bank failure (ah la Lehmans) and Nationalisation which is what's happened in the UK and other countries).

There is a distinct difference between the 2.

As regards the economic implications of allowing one of the banks to fail - considerable. Even if it were one of the bit players as you put it, picture the below scenario:

People who have funds with said bank not being able to access them in the event of the insolvency. You're not going to have instant access regardless of any government guarantee. This has the effect of freezing up available funds to individuals and businesses - if you can't access your cash, you can't pay for stuff.

Any payments that anyone would be due that may flow via said bank, would either be cancelled or frozen. Anyone depending on these funds, would be without them until the whole mess was sorted out.

Thousands of people unemployed overnight - no matter which of the banks this were to happen to - the figure would be significant. Add to the economy the Social Welfare cost and reduced tax take that in itself would create havoc with our significantly weakened economy.

Add to that, the outflow of funds from all the other banks as people lose confidence in the Irish banking system. This would be quite significant, as investors and individuals alike adopt a flight to quality.

Like it or not, allowing any one of the banks to go to the wall would cause a run on the banks here and that would be a far more serious problem.

Sorry - I just don't think it's a good idea to allow one to go to the wall, just to "teach the banks a lesson".

The_Conductor

I'm not suggesting allowing Anglo Irish go to the wall "to teach them a lesson". The perception is that there is a very large amount of toxic debt on the books of Irish banking institutions- but given their understandable reticence in quantifying this debt, its an unknown factor. The extent of to what extent this is known or unknown, is measured by the relative difficulties the different institutions had in accessing funds on the interbank market, prior to the government guarantee. Anglo Irish had to pay over 26% on the interbank market- recognition that internation financial institutions saw it as a hazard to kept well away from- unless they were paid sufficiently as a gamble. Neither AIB nor BOI were anything near this high (however they would still have considered the premium they were paying as crippling).

None of the Irish institutions have any interest in merging with Anglo Irish- unless the government underwrites their loan book in perpetuity.

The ILP/EBS/FN group- is seen as positioning itself to the best of its limited abilities- so they are not subsumed into AIB or (less likely) BOI on unfavourable terms. At least ILP has the pension fund on which to rely for cashflow- a source of income the others are plainly envious of.

Anglo Irish is a particular anomaly- which should have been reigned in a long time ago. They bet big on property. For a long time they were the darlings of the stock exchange- they couldn't do any wrong. However the inevitable, when it did come to pass, has meant they are a terminal basket case on life support. Who would suffer were they allowed to be liquidated- primarily the shareholders- but also the taxpayer, because of the government guarantee schemes (loan and deposits). Would the economy as a whole suffer- hell no. It might be the impetus needed for the other institutions to get their houses in order. Is there any reason for BOI or AIB to trade at 25-27 times earnings- hell no, there isn't....... What would be a reasonable multiple- perhaps 12 to 14? Given the collapse in EPS- this would indicate even current depressed share prices are not necessarily good value- unless there is confidence in bad debts- which there isn't........

Suggesting letting Anglo Irish go up the wall "to teach them a lesson"- would be vindictive. I'm stating that they no longer have a viable business- and their continued existence is a drag on the solid fundamentals that exist in other Irish institutions.

Given the $50billion ponzi (pyramid) scheme which was uncovered in the US over the weekend- I'm not sure that the appalling mess in the Irish financial sector is necessarily a result of bad regulation in the Irish financial sector. There was totally irrational exuberance, fed in no small part by the media. People were afraid of missing the boat- whatever that meant to them- every second person wanted their property empire. In a market of stratospheric property price rises- it was seen as a sure bet to continue to shovel money into the market. Was it a pyramid scheme- hell, sure it was. Was it any worse than the $50billion fraudulent scheme uncovered at the weekend- in essence, no it wasn't.

Sometimes we have to take short term hurt in order to establish longterm sound fundamentals.

DJDC

I'm not suggesting allowing Anglo Irish go to the wall "to teach them a lesson". The perception is that there is a very large amount of toxic debt on the books of Irish banking institutions- but given their understandable reticence in quantifying this debt, its an unknown factor. The extent of to what extent this is known or unknown, is measured by the relative difficulties the different institutions had in accessing funds on the interbank market, prior to the government guarantee. Anglo Irish had to pay over 26% on the interbank market- recognition that internation financial institutions saw it as a hazard to kept well away from- unless they were paid sufficiently as a gamble. Neither AIB nor BOI were anything near this high (however they would still have considered the premium they were paying as crippling).

None of the Irish institutions have any interest in merging with Anglo Irish- unless the government underwrites their loan book in perpetuity.

The ILP/EBS/FN group- is seen as positioning itself to the best of its limited abilities- so they are not subsumed into AIB or (less likely) BOI on unfavourable terms. At least ILP has the pension fund on which to rely for cashflow- a source of income the others are plainly envious of.

Anglo Irish is a particular anomaly- which should have been reigned in a long time ago. They bet big on property. For a long time they were the darlings of the stock exchange- they couldn't do any wrong. However the inevitable, when it did come to pass, has meant they are a terminal basket case on life support. Who would suffer were they allowed to be liquidated- primarily the shareholders- but also the taxpayer, because of the government guarantee schemes (loan and deposits). Would the economy as a whole suffer- hell no. It might be the impetus needed for the other institutions to get their houses in order. Is there any reason for BOI or AIB to trade at 25-27 times earnings- hell no, there isn't....... What would be a reasonable multiple- perhaps 12 to 14? Given the collapse in EPS- this would indicate even current depressed share prices are not necessarily good value- unless there is confidence in bad debts- which there isn't........

Suggesting letting Anglo Irish go up the wall "to teach them a lesson"- would be vindictive. I'm stating that they no longer have a viable business- and their continued existence is a drag on the solid fundamentals that exist in other Irish institutions.

Given the $50billion ponzi (pyramid) scheme which was uncovered in the US over the weekend- I'm not sure that the appalling mess in the Irish financial sector is necessarily a result of bad regulation in the Irish financial sector. There was totally irrational exuberance, fed in no small part by the media. People were afraid of missing the boat- whatever that meant to them- every second person wanted their property empire. In a market of stratospheric property price rises- it was seen as a sure bet to continue to shovel money into the market. Was it a pyramid scheme- hell, sure it was. Was it any worse than the $50billion fraudulent scheme uncovered at the weekend- in essence, no it wasn't.

Sometimes we have to take short term hurt in order to establish longterm sound fundamentals.

Nice post. Anyone who still thinks Anglo have a viable future in their present form is a donkey.

johnnyskeleton

smccarrick wrote: »

Given the difficulties the NTMA are suggesting we are going to have in selling ~25 billion in government bonds in '09- hell yes, Anglo Irish and a few other lesser candidates should have been allowed go up the wall. The current situation is to dilute the risk among all the institutions and the exchequer. Its unlikely- but possible that the implications of this could be far worse than anyone anticipates.......

Hopefully though, the government will use Anglo as a "bad bank" like the Sweeds did i.e. put all the bad loans into it, thus freeing up other banks to have sensible lending policies and good loan books, and also freeing Anglo to be ruthless in pursuing the developers and multi BTLers.

Blackjack

smccarrick wrote: »

I'm not suggesting allowing Anglo Irish go to the wall "to teach them a lesson".

Unfortunately there was such a suggestion earlier in this tread. I believe the expression used was:
"If you want to separate the men from the boys we should let the banks crash."
Personally it's that attitude to be rather irritating and irrational (I know it wasn't you by the way).

smccarrick wrote: »

The perception is that there is a very large amount of toxic debt on the books of Irish banking institutions- but given their understandable reticence in quantifying this debt, its an unknown factor. The extent of to what extent this is known or unknown, is measured by the relative difficulties the different institutions had in accessing funds on the interbank market, prior to the government guarantee. Anglo Irish had to pay over 26% on the interbank market- recognition that internation financial institutions saw it as a hazard to kept well away from- unless they were paid sufficiently as a gamble. Neither AIB nor BOI were anything near this high (however they would still have considered the premium they were paying as crippling).

None of the Irish institutions have any interest in merging with Anglo Irish- unless the government underwrites their loan book in perpetuity.

Agreed that the books are probably a bit scary. I don't have a lot of the detail on specifically Anglo's loan book but they appeared to be funding a lot of Commercial Property purchases that did not make a whole lot of sense, and pushing prices up.

smccarrick wrote: »

The ILP/EBS/FN group- is seen as positioning itself to the best of its limited abilities- so they are not subsumed into AIB or (less likely) BOI on unfavourable terms. At least ILP has the pension fund on which to rely for cashflow- a source of income the others are plainly envious of.

ILP and EBS seems to be the one that's most likely to come through and makes what seems to be the most sense as regards a merger - whether others join the fray remains to be seen. Personally I can't see FN holding out independantly through this, but it seems that as per Simon Carswell in todays Irish times that the government is keen to have one mutual left after all of this, for reasons I don't quite understand.

AIB is the strongest of all at the moment. BOI have to be a bit shaky if they have to talk to JC Flowers.

smccarrick wrote: »

Anglo Irish is a particular anomaly- which should have been reigned in a long time ago. They bet big on property. For a long time they were the darlings of the stock exchange- they couldn't do any wrong. However the inevitable, when it did come to pass, has meant they are a terminal basket case on life support. Who would suffer were they allowed to be liquidated- primarily the shareholders- but also the taxpayer, because of the government guarantee schemes (loan and deposits). Would the economy as a whole suffer- hell no. It might be the impetus needed for the other institutions to get their houses in order. Is there any reason for BOI or AIB to trade at 25-27 times earnings- hell no, there isn't....... What would be a reasonable multiple- perhaps 12 to 14? Given the collapse in EPS- this would indicate even current depressed share prices are not necessarily good value- unless there is confidence in bad debts- which there isn't........

The "Borrow short/Lend Long" model is clearly of the bygone day. Unfortunately, I suspect that a lot of the borrowing done by Anglo was lent by some of the Irish banks. Had they been let go to the wall, then I suspect that we would not have had a situation of the rest of the institutions getting their house in order, but nursing losses. All depositors running to take their cash and no one willing to touch an Irish bank if Anglo were the one that were to be allowed to fail prior to the guarantee. If that were the case, then, well, welcome to Iceland.

smccarrick wrote: »

Suggesting letting Anglo Irish go up the wall "to teach them a lesson"- would be vindictive. I'm stating that they no longer have a viable business- and their continued existence is a drag on the solid fundamentals that exist in other Irish institutions.

Given the $50billion ponzi (pyramid) scheme which was uncovered in the US over the weekend- I'm not sure that the appalling mess in the Irish financial sector is necessarily a result of bad regulation in the Irish financial sector. There was totally irrational exuberance, fed in no small part by the media. People were afraid of missing the boat- whatever that meant to them- every second person wanted their property empire. In a market of stratospheric property price rises- it was seen as a sure bet to continue to shovel money into the market. Was it a pyramid scheme- hell, sure it was. Was it any worse than the $50billion fraudulent scheme uncovered at the weekend- in essence, no it wasn't.

Sometimes we have to take short term hurt in order to establish longterm sound fundamentals.

I would agree that there has to be changes at Anglo in order for it to survive. I note another poster has suggested it be deemed as the "bad bank". Not a bad idea in theory, and I certainly hope that the Government are exploring all these options. I don't have the confidence in them to do so however.
Not knowing what Anglo's Loan book looks like, apart from not pretty, I can only imagine that this is the only solution for them.

As regards the Madoff Scandal, it's remarkable in this day and age that such a thing went unnoticed. Even more remarkable is the list of Investors caught up in this and how this wasn't spotted by the Regulators. I'd hazard a guess the Appointed auditors of this company were complicit also. If not they were certainly incompetent.

As regards the irrational exuberance as regards property in this country, I've quoted a poster in my sig which I believe was posted in April 2006 (not by me). Seems quite apt now, thats for sure.
Waiting for the bottom of that curve myself.

spockety

methinks the mod should split off the last few posts into a new banking thread. Keep clicking on the latest posts here expecting to find info on "prices down 40%"...

The_Conductor

spockety wrote: »

methinks the mod should split off the last few posts into a new banking thread. Keep clicking on the latest posts here expecting to find info on "prices down 40%"...

Me bad.....
Will do when I get a spare minute here....

Shane

The_Conductor

Originally in the accommodation & property forum- more happily at home elsewhere?