|
by Frank Schnittger
I had a conversation last night with a banker who is doing the preparatory work for handing his bank's loan portfolio over to Nama (the National Asset Management Agency). He argued that the total book value of the properties which will be handed over to Nama is c. €120 Billion and not the €90 Billion in the popular media which is in fact the value of the loans secured on those assets. Thus, if the Government were to pay c. €60 Billion for those assets, they would be acquiring them at a 50% discount on their book value.
He further argued that many of the debts being handed over were not in fact distressed at all, and that some of the assets - e.g. well located commercial properties - had not lost all that much in market value to date. Thus he felt that, depending on the price being paid, the taxpayer could end up doing quite well out of the deal. He countered my suggestion that the Government was likely to fall over the Nama legislation and that Nama would never therefore happen with the view that, ultimately, the opposition parties would drop their opposition to the legislation as there was no alternative to Nama possible within the time frame for a bank rescue package that had to be achieved. The government had to take the uncertainty hanging over the banks away before they could start lending to businesses again and the economy could recover. The Banks are certainly losing no time in upping the ante for the Government by a wholesale withdrawal of overdraft facilities from small businesses which is threatening the survival of even sound businesses who require an ongoing overdraft facility to meet day to day cash flow requirements. He had no comment to make on my suggestion that there might be a political motivation behind the bank's moves to withdraw essential credit facilities from huge numbers of businesses which have gained much media prominence in recent days.
Front-paged by afew
I argued that the Greens were unlikely to achieve grass roots approval for the legislation at their forthcoming national conference on the issue and he conceded that, as an ethically based party, they might well reject the measure, even if, as he thought likely, they would be decimated in any election arising. However he felt that Fine Gael, the main opposition party, would ultimately fold its tent and row in behind a perhaps modified version of the Nama proposals because no party would want to inherit the mess that would be created if Nama failed.
I conceded that my faith in Fine Gael, as a conservative opposition party, was wafer thin, but that they had, for once, shown some backbone in articulating an alternative "good bank" proposal. This focuses on retrieving a functioning banking system from the remains of essentially bankrupt banks, not on buying up their toxic debt. Under this scenario the risk and the losses would not be shared by the taxpayer as ownership of the bad debt/assets would remain with the administrators of the bankrupt banks. He argued that if the state allowed the banks to go bankrupt then Ireland would never again be able to find foreign creditors willing to fund our national debt (and widening Government deficit) and that the government had, in any case, already guaranteed most of the bondholders of bank paper. I argued that international investors were used to writing off bad investments and would quickly move on to consider new tenders for funds to meet Ireland's credit requirements in an objective and unsentimental way. There was simply no precedent for a Government bailing out bondholders and shareholders to the extent proposed, and that international investors did not even expect this. My banker friend begged to differ on this point, and argued that shareholders had already lost 90% of their investment and that many of these were either Irish pensioners and small investors who would make life very uncomfortable for the Government, or the national pension fund. So any money the Government saved at one end, it would lose at the other. I had to concede that the banks had an incredible stranglehold on Irish commercial and political life and noted my incredulity that, other than losing a Chief Executive or Director or two, there had been no focus on improving the management and cost efficiency of the banks themselves. He noted that he had personally lost 90% of the value of his bank shares and 30/40% of his earnings which he used to get in the form of bonuses, but conceded that the banks had a huge number of incredibly well paid executives who had made incredibly bad decisions. Reforms would come in due course, he opined, without sounding entirely convinced or convincing about it. Meanwhile, today, in the real world, the Irish Times has published the third part of its opinion poll results - on the subject of Nama - and they do not make comforting reading for either the banks or the Government: Just 26% of voters show support for setting up Nama - The Irish Times - Sat, Sep 05, 2009
For the record, the Labour Party is proposing a nationalisation of the banks as this would avoid the need to put any price on the toxic assets at all. Taxpayers would essentially inherit both the bank's bad assets and ongoing business and thus stood to gain if business recovered without shelling out c. €60 Billion on assets which - if Japan is any guide - may never recover that level of value again. Shareholders and some bondholders could be largely wiped out under this proposal, depending on the price paid for the nationalised banks. The Government (and Fine Gael) is opposed to the nationalisation proposal I suspect largely on commercial grounds: So much of the banks "profits" are dependent on screwing customers on bank charges, threatening foreclosure on their homes, and being very hard-nosed about refusing credit to businesses they think might be a credit risk, that a publicly owned bank could never behave in that way. Ireland is a very small banking market and there is relatively little choice and competition between banks. Any prospect of unreformed banks recovering after writing down their bad debts depends on it remaining that way. So will Nama happen, and what will happen if it does? My guess is that the Greens will oppose Nama but that the Government may reach an accommodation with Fine Gael whereby there will be some "risk sharing" between bondholders and taxpayers. Now is not exactly a great time for Fine Gael to return to Government. But unfortunately, I also don't see Nama working as advertised. Having put c. €60 Billion at risk in the form of an investment in highly speculative assets - an investment my banker friend stressed would be "off-balance sheet" as if this made it somehow less real - the taxpayer will then be asked to stump up c. €10 Billion in investment in the banks themselves to restore their capital adequacy and "get credit flowing to industry again". Having done so, the taxpayer will then discover that the bankers are paying themselves huge bonuses again, and that credit is still not flowing to industry as required to underpin an economic recovery. In the meantime Ireland is saddled with a huge public debt (both on and off balance sheet), ever greater dependence on foreign "investors", and an asset cost and tax base still far too inflated to allow competitiveness to be restored any time soon. How to undo all the positive aspects of the Celtic Tiger in one easy lesson... In any case the financial and political elites will have preserved their position and the incremental 10% of the workforce who have lost their jobs, thousands of pensioners who have lost their investments and medical benefits, and the great unwashed who will suffer the €5 Billion p.a. cuts in public services identified by the McCarthy report will simply be the victims of a global recession. The Irish elite had nothing to do with it. Honest guv... |
Menu
. Home
. About . Contact . New User Guide . FAQ . ET Editorial Guidelines . Search . Search (Google) Login
|
||
|
Banks holding Ireland to Ransom? | 9 comments (9 topical, 0 editorial, 0 hidden)
Banks holding Ireland to Ransom? | 9 comments (9 topical, 0 editorial, 0 hidden)
| ||||
| ||||
