How much is the debt exposure of the banks?

B

Bob Nellies

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8 billion euros for anyone who knows the answer!

i find it terrifying that the Gov is prepared to take on such a high risk of UNKNOWN proportions...surely the Gov has to give the taxpayers a sound rational basis for this? Knee jerk panic reactions just aren't good enough.

If the shoe was on the other foot, the banks wouldn't hesitate in telling the taxpayer to hop it...


Iceland v Ireland - practically twins!
 
Can understand your view ....

My personal view (not speaking with my BM hat on) ....

a) Not convinced that some TD's and Media understand what re-capitalisation means - i.e. money is placed in say preference shares - which must stay on the balance sheet of the banks - therefore I remain to be convinced as to what this will achieve in terms of liquidity in the market ...

b) A root (not the only one) of our problems is 'land' and specifically the cost thereof ...

c) Many developers (large and small) have bought same at inflated prices, with the notion of developing same - building either residential or commercial units on same and making a quick kill - bank's stuck in the middle of this transaction by financing same .. so now we have developer and bank's with an exposure - and uncertainty as to how to resolve ...

d) Rather than just re-capitalise Bank's - I suggest the following as an approach ...

e) Developers - Bank's - and Team of Government appointed experts, systematically go through each 'problem’ case - this will crystallise the issue of exposure once and for all ...

then, Government appointees purchase back the development land for an agreed sum - (still leaving an identified exposure for both developers and bank's to deal with - but by Government buying the land, things will have crystallised). Government will have got (i) fair value on the land (ii) will now have an asset for their E7/8bn and (iii) will now have control of large tracts of development land - for either residential/commercial development - road development - government infrastructure development (e.g. schools, hospitals, fire stations, etc etc), on the basis that the government can/will hold this land and release in to the market on a phased basis they should make a return on it.

The financial markets wont see the bank's recapitalised - but will see this action as a) Government taking firm control of the situation b) crystallising and indeed minimising the bad debt exposure to bank's from this sector and c) allows the developers some breathing space and a smaller (but still difficult mountain to climb).

The taxpayer (and that includes me remember) would gain certainty in the short term as to what we get for our E7/8bn and with the likelihood of a more decent return in to Government coffers over time.

From a share price point of view (and yes I have a vested interest here) but so do most reading this post in terms of pension performance etc - has a better chance of attracting international investors when a) they realise bad debt issue has been largely crstallised and b) the banks don't have to pay a preference dividend to the government for years to come, thus keeping international fund managers away.

Finally, with Government controlling lands, I believe if they started to develop same (even at a small scale) it would introduce some confidence back in to the market - which would be a positive for everyone....

Now there's my 'tuppence worth....

Regards,


BM
 
Government appointees purchase back the development land for an agreed sum
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Interesting idea. Sounds better than the bank recapitalisation scheme. However, I wouldn't trust the government to do that. Far too much scope for corruption there.
Maybe some other (foreign?) third party could sort it out?
 
I agree with most of the above. From what I can see the main banks are still lending, the only difference is they are enforcing the (old traditional)rules the central bank has been telling them to use for years. If that means that Mr and Miss average can’t get a mortgage for 300k then so be it.

On RTE 1 this morning, it was stated that the EBS has allocated 13% for bad developer related debts. The EBS is not big into commercial loans, so a figure of 20% would be closer to the mark for the big two. So, were does that leave our 8B? I just hope it won’t be lost. Another thought that hit me today is that the government is going to get a 8%?? on it's (our) money. While it is a good return at the moment, it may not be in future, especially if we enter a period of high/hyper inflation. If I was running the country I would link it to the EUROBAR. Kind of like a subprime tracker mortgage for the banks!

BM, the problem with buying the land is how to value it. On RTE 1 this evening :), we learned that the Dublin Docklands Development Authority were in trouble over their loan for the Irish Glass Bottle site. It was stated that the value of the land had dropped by 20%, yet they did not mention that Davy has already written of 60% of this site’s value. So, how do we set a sites value?
 
Bank Manager said:
Government appointees purchase back the development land for an agreed sum - (still leaving an identified exposure for both developers and bank's to deal with - but by Government buying the land, things will have crystallised).
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Interesting idea Bank Manager. The fact that nearly all potential bad loans in Ireland are construction related means that this just might actually work. If done the right way, 8 Bn would go a long way to cleaning out the bad stuff on the Irish banks books and should encourage confidence in the Irish system.

As a way of keeping it transparent, the government could offer a two month window, only available for those individuals and companies that have outstanding loans on property or development sites, to make a submission for the scheme. All they would need to do is provide a price per acre that they are willing to sell at. The government should take the lowest ppa values until they have accumlated purchases totalling the 8 Bn. The highest price per acre cut off point should then be published, so those that applied, but failed to make it on the scheme will be able to see why they were not successful. It would be in the interest of seriously distressed landowners to keep the price low so they make it on the scheme. Arguably these would be the very same debtors that would have ended up causing bad debts to the banks.
 
BM, that is probably the best idea I have heard so far. Is there anyone on here who would have any means of suggesting this to anyone in government. I know that sounds a bit radical, but hey, it's worth a shot.
 
Interesting idea alright and worth considering but I can't see it working because of the scale of the problem. The rot in the banks isn't just in the loans for development land. For example, commercial property values are down nearly 40% from the peak. So the all the large property backed loan are potentially under strain. I don't have a figure handy for this total but given that Anglo's loan book is 70 billion odd most of which is property backed, I'd imagine that 8 billion would hardly make a dint in the total of the property backed loans held by the Irish banks.
 
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This only makes sense if the Govt. pays ABOVE MARKET prices for the land. So how much above market prices and why should the taxpayer bailout the developer/banks anyway?
 
tyoung said:
This only makes sense if the Govt. pays ABOVE MARKET prices for the land. So how much above market prices and why should the taxpayer bailout the developer/banks anyway?
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The thing is, we are already bailing them out without getting any tanglible asset in return.
 
It's all academic now - they've made their decisions - so this idea with countless others may be consigned to the bin ....


BM
 
Is this idea not a version of what Sweden did when it set up the holding company that took the bad assets back in the early 90s?

If the Irish Government wants to avoid nationalising all or most of what's left of the banking system they need to:

1. give loads of money to the banks which they will never get back - not politically feasible

2. Guarantee the maximum losses that will be incurred by the banks as this is what markets demand currently

As far as I can see this current recapitalisation is only buying some time until another solution is thought of/implemented

At this stage some form of European coordinated action is the best chance of avoiding complete nationalisation of the banking system in Ireland

A number of papers articles that I have come across on the Swedish Crisis all concur that what helped them sort things out was:

1. Polictical parties coming together - I am no supporter of Fianna Fail (never voted for them and highly unlikely that I ever would) but I won't be voting for FG or Labour given their tatics... don't want go down the 'don't talk things down' road but the financial crisis is now a national security issue for other countries so I think the politicos here should get with the program

2. Transparency - we are as far away as ever here... Brian L saying the same thing about banks being well capitalised as lots other were recently (regulator, central bank etc) is hardly going to satisfy this requirement. As a taxpayer I hope he's right (most likely just wishful thinking on my part) but I don't see new money being attracted to Ireland on this basis and as a debtor nation we need other people's money
 
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