In the land of the blind, the one-eyed man is king.” So said Erasmus – and who are we to argue with the great man? Erasmus spent his life following his own independent path, eschewing the easy life of the tenured academic herd. Instead, he constantly questioned his own Church at a time when questioning the Church was a very dangerous thing to do.
Sometimes it feels like Ireland is the land of the blind, particularly when it comes to finance – although it has been a long time since questioning the finance industry was a dangerous thing to do. It is worth scrutinising the banks, particularly as they are being drip-fed huge quantities of cash by the ECB, yet precious little is reaching the real economy.
One of the pieces of accepted wisdom in Ireland these days is that, because Bank of Ireland is the least worst bank in Ireland, it is therefore the best.
Last week, it announced atrocious results, but the spin – accepted by the main media organs (from what I heard, but I am open to being corrected) – was that these were the smallest losses in a few years and therefore they were good results. Quite the leap, don’t you think?
The really useful thing about a bank report is that it gives you a snapshot of where we are. Let’s have a look at what they didn’t tell us in the press release.
Over 55 per cent of Bank of Ireland’s total mortgages are in negative equity. Instead of using the term billions, let’s describe the amount in millions of euro. Bank of Ireland’s mortgage lending book is €27 thousand million. This means that Bank of Ireland has lent out €27 thousand million to people to buy houses.
Of this figure, €15,384 million euro of loans are in negative equity. Take that in for a second.
It’s also revealing to examine the loan-to-value ratio of each mortgage. If, for example, the loan-to-value is less than 50 per cent, that is good. It means that the loan outstanding is less than 50 per cent. So if a house is worth €200,000, the loan is under €100,000.
The report shows that only 14 per cent of Bank of Ireland’s total owner-occupier mortgage book is in such a healthy situation. When we examine its buy-to-let portfolio, we see that only 6 per cent of these mortgages are in such a healthy situation. In total, 12 per cent of mortgage holders have a ratio of less than 50 per cent.
In all, just half of the Bank of Ireland’s residential owner-occupier mortgages are solvent. By solvent, I mean that the equity in the house covers the loans.
When you look at its buy-to-let book, only 31 per cent are solvent. So, taken together, if Bank of Ireland were to sell this stuff today, only 45 per cent of its total loan book or €12,470 million of loans, would be solvent.
Now, let’s look at the huge number of mortgages in negative equity. According to these results, 50 per cent of all houses are in negative equity – some worse than others.
For example, 11 per cent of all of the Bank of Ireland’s owner-occupied homes are worth less than half what people paid for them.
When it comes to buy-to-let, one in five properties are worth less than half what their “investors” paid for them. In total, just shy of 70 per cent of all buy-to-let mortgages are under water. This is extraordinary. This bank is insolvent. Yet its share price has trebled in the past few months.
If its share price has gone up, then the conclusion must be that, bad and all as the situation is, the bank must have made ample provisions to cover all these losses just in case.
After all, isn’t that why they were recapitalised with our money?
Then tucked away at the back of the report, hidden behind all the glossy bits, are the really scary details about just how exposed the bank is.
The table shows the provisions that the bank’s management has made against these huge potential losses on their mortgage book – half of which is technically insolvent.
The management of Bank of Ireland has set aside €1,000 million on a loan book where €15,384 million of the loans are in negative equity. The bank’s management must be working on the basis of a gradual fall in the number of people in arrears and a quick and dramatic rise in the price of houses.
But the opposite is the case.
The latest data on arrears shows an increasing number of people falling behind in their payments.
We also know that the pace of house price falls accelerated in the last few months of 2011. So if we stand back, we have the bank, which is being touted as the best of a bad lot, presiding over a loan book where 55 per cent of all mortgages are under water and it believes that only one in 15, or 6 per cent, of all of these will actually default. And this is the best of them.
The land of the blind indeed.
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The Irish – IMF-EU-ECB Placeholder’s – Government’s ‘Pathways to Work’ Policy from 23/02/2012 – Applied Neo Feudalism The Irish government shows a total disconnect from the people of this nation, they do not represent their best interest but that of banksters, plutonomists and their international mafia organizations. Four signatures grace the document that signifies a major turning point for the future of Ireland, Enda Kenny, Eamon Gilmore, Joan Burton and Ruairi Quinn. The signatures are very interesting from the aspect of being a psychological calling card. If you want, you can look it up for yourself here: http://www.welfare.ie/en/Schemes/JobseekerSupports/Documents/PathwaysToWork.pdf The signature… Read more »
Re David’s article
http://www.bankofireland.com/fs/doc/publications/investor-relations/boi-preliminary-statement-2012-web.pdf
Stratfor’s use of insiders for intelligence soon turned into a money-making scheme of questionable legality. The emails show that in 2009 then-Goldman Sachs Managing Director Shea Morenz and Stratfor CEO George Friedman hatched an idea to “utilise the intelligence” it was pulling in from its insider network to start up a captive strategic investment fund. CEO George Friedman explained in a confidential August 2011 document, marked DO NOT SHARE OR DISCUSS : “What StratCap will do is use our Stratfor’s intelligence and analysis to trade in a range of geopolitical instruments, particularly government bonds, currencies and the like”. The emails… Read more »
Bonkers. We brought on a lot of our own problems.
The New Profits! The banks are far from blind – They left the cut and thrust of real commerce way back. They no longer need to work; Here’s a question……. What’s the difference between a bank that’s profitable through lending/making interest and a Bank that’s secured an endless supply of public money? Or Person A starts a business from scratch and grows it to a point where their labour is well rewarded. Person B unexpectedly inherits a multi-million sum and now runs a similar little business just to occupy their time. What do you think the cultural difference between the… Read more »
So now the Irish Government is going to commercialise the unemployed, make them sign a legally binding contract whereby if they don’t engage with Dept of Soc protection and find a job (of which there are none!) the average Joe will be completely cut off over time thereby saving the Gov millions which they can then pass on to the Bankers in the name of servicing the national debt(which was private bank debt first, socialised) and also beat their chests about lowering the cost of the Dept of Soc Protection and bleating that the Austerity measures are working. The average… Read more »
David IMO the boost in BOI’s share price is correlated with (but not intrinsicly caused by)the bellweather of European Bank share price sentiment – The 10 Year Italian bond. Once the yield went below 6.25% this signalled a broad movement upwards in European financials. (Fear sentiment has died away). We all know now that the banks are addicted to the LTRO (what happens when the 3 year buzz is up rollover?) once the cracks appear again and the 10 year moves above the 6.25% mark (Fear sentiment is back!) – money can be made on the other side of the… Read more »
Irish Constitution Article 45, Subsection 2, part 4 4. That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole. THE WELFARE OF THE PEOPLE AS A WHOLE! How can the Socialization of private bank gambling debts be justified when it is in clear contravention of the above section of our Constitution?, why is this ignored in Ireland? The Banks are controlling credit to the detriment of the Irish people! The last Government committed Treason by guaranteeing the Banks, the current Government is an accessory after the… Read more »
Hi David,
Fully agree, BOI Retail are in big trouble.
However, the whole BOI Group have total assests of 155 billion (page 7 of their preliminary statement 2012) – therefore, doesn’t this mean that they are still solvent as a group? I’m just asking because I’m a complete novice about balance sheets! Thank you.
@MIT, solvency = ability to pay short term debt. The 155 Billion in assets is moot as you would have to assess the income generating capacity of those assets to pay for the short term debts.
The other point is how the 155 Billion figure is arrived at – four years on from the bailout & Nama/scama there isn’t any true price discovery going on at all.
Bank share price is all sentiment, the most basic of human emotions – Fear & Greed as David has pointed out in other articles.
One Giant casino, how much LTRO crack-cocaine is left?
The central bank will offer banks the chance to grab another tranche of the ultra-cheap, 3-year money on Wednesday. The median expectation in a Reuters poll of 60 economists showed that the ECB will allot 492 billion euros at 1 percent. Forecasts ranged from 200 billion to 1 trillion euros. It remains to be seen whether the second injection of ECB 3-year loans will open up lending channels to companies again. NOT A CHANCE! this next tranche will be used to but up more toxic Government bonds within the Eurozone thus ensuring it follows the last tranche straight down the… Read more »
[…] David McWilliams is out of the blocks describing the latest report from Bank of Ireland in less than stellar terms: The report shows that only 14 per cent of Bank of Ireland’s total owner-occupier mortgage book is in such a healthy situation. When we examine its buy-to-let portfolio, we see that only 6 per cent of these mortgages are in such a healthy situation. In total, 12 per cent of mortgage holders have a ratio of less than 50 per cent. Seamus Coffey has a longer study of the report. From his piece: In total, the loan-to-value of BOI’s… Read more »
Good straight talking article! I posted this below two weeks ago but its of interest here so I’ll post it again ’cause its of more direct relevance; …Namawinelake’s got a good little analysis piece on that 9% of all mortgage in more than 90 days of arrears statistic in the papers at the moment. http://namawinelake.wordpress.com/ Theres avery interesting comparision with UK figures there too. I did my own tables ( for a project I was engaged in ) on mortgage info here a few years ago and what figures I came up with suggested that it was speculative mortgages, not… Read more »
Jasus I’m nearly falling off my chair laughing at that David, excellent bit of analysis, love the last bit: “And this is the best of them?!?” Says it all really about where we are at, and today we hear that there is a new “entrepreneur creation” scheme being launched, as if you can’t be an entrepreneur unless you go on a government training program. I can’t imagine anything less likely to turn out an entrepreneur than anything backed by the Irish civil service & it’s governing minnions, it’s an awful pity Dermot Morgan isn’t around to do proper justice to… Read more »
Bank staff are playing musical chairs . A leaves bank x and joins bank y. B leaves y and joins x. Restructuring Irish style !
David, what about the ‘watch this space’ pillock bank AIB? What’s the skinny on that one? D
Morning All BOI is now a shameless front Company for Organised crime.Their persecution of citizens of this State for monies owed while the same people have suffered the most austere cuts in history is shameful.What is more shameful is the fact that a Large Financial Corporation like BOI can benefit from a criminal bailout and yet the citizens get nothing. BOI and Mr Boucher state that they are only interested in loaning / supporting business that is viable while their own Company is in shreds and being run in to the ground Is a Banking corporation worth more than a… Read more »
I said it before and sure I’ll say it again. What this country needs is for a few good people to set the wheels in motion for a brand new local banking network that will have only one mandate: to support new & existing Irish small businesses. Where will the money come from??? Small deposits from Irish people! Like a credit union for small businesses, up and down the country, imagine if you could invest in a new small business by buying shares in your local enterprise bank branch and taking say 50 or 100 Euro out of your AIB… Read more »
Yes yes yes…banks are in trouble, all loans are under water, there are no jobs, no wealth generation etc etc so we are in an economic spiral. We can keep issuing more cash for trash and still have an even bigger huge gap between what is set aside and what in reality will be paid back. We hear you David. And…Yes, yes yes… more and more people are unemployable and the value of their labours are less than what is was before becasue there are Indians and Brazilians and Chinese who are doing it for buttons and the tax take… Read more »
From my previous understanding of the term, the phrase “In the land of the blind, the one-eyed man is king” is actually an ancient Irish proverb that is older than Erasmus.
One thing is becoming clearer folks with every passing week in this country: We are at absolutely f*ck all as a country for as long as we are relying on the BOI’s and the AIB’s of this world to support job creation. Same can be said for the head wrecking spin that is presented to us every week about enterpreneuship programs (you’ll be a “qualified entrepreneur” in 6 months time or so it seems if you go on this new course!!!), we really need to start taking ownership of this problem ourselves & look at setting up a bank that… Read more »
There was a massive divergence between the results of RBOS, Llyods, Rabobank/ACC and NIB on the one hand – and the state owned Irish banks on the other.
It defies belief. And the bailed out banks are all expecting NAMA to save them, and their careers.
Great article David.
I wish you would cover Bank of Ireland staff salaries and conditions next time. We haven’t seen a 50% haircut in staff salaries yet, nor a 50% cut in the numbers working there. At least if that happened, we’d know they were attempting to start to look serious about their situation.
But delusion continues to be the fashion these days.
Looks like an 85% fall in house prices is on its way. The question will be ‘why would you want to buy a house and live in Ireland anyway?’
[
One of the pieces of accepted wisdom in Ireland these days is that, because Bank of Ireland is the least worst bank in Ireland, it is therefore the best.
]
That’s the job of the media in this country – helping the people to find a way to trust the establishment, after every time that the establishment has scelped them.
They get away with it, because the people trust them, every time.
Excellent article.
I reckon Permo are in even worse shape, thanks to ther position as number 1 mortgage provider in the leafy suburbs, and in suburban Dublin. (where the price excess was at it’s most extreme, and where people believed the media hype most convincingly).
And the we have AIB. Does anybody know what is going on inside the AIB mortgage book these days ? Will anybody tell us ?
It makes me very suspicious.
I have to admit that I am puzzled by the curiously modest provision of only Eur 1 billion for mortgage debt defualt. I don’t know the methodogy applied by the Bank of Ireland in arriving at this somewat “blue sky” assessment. A few aspects spring immediately to mind. First, has our esteemed regulator, the CBI, satisfied itself that this is an adequate provision? I expect that the CBI, in due exercise of its prudential role, will have throughly scrutinised this figure and satisfied itself that such an apparently optimistic figure is responsibly justified. Secondly, I assume that the auditors, acting… Read more »
If we took DarraghD idea to the extreme, 1 single euro from every citizen, formed a community bank, leveraged the LTRO at 1% and bought out failing Home mortgages from the Dummy banks at a discount, refinanced the homeowners at 2% does anybody follow me… or am I mad?
If I am mad I therefore must be a natural Banker!!
Profits earmarked for community projects, or better still small business lending or both…
I looked at their preliminary results and noted that their total provisions on asset write downs amounts to €6400 million. This is a high provision in banking terms as it equates to over 4% of assets. As well, these are preliminary numbers and are not yet audited so things could change. That said, I agree with the DMW thesis of de facto insolvency. However, let us remember that Mario Draghi will not allow one bank to bankrupt itself on his watch. The banks know this and act accordingly. Bank of Ireland, despite it’s numbers, is safe as a house on… Read more »
@piombo, That’s a more dimensioned and broader view than mine. I think that we are not in disagreement on the fundamentals. Timing wise, when will the peak of personal loan default impact? I suppose that debt default will not all hit or accrue this year or even by next year. It’s a specualtive view but it may take three years or so before this default problem peaks. There may be a timing asepct in all of this. As you rightly point out these are not audited Financial Statements. Hopefully, the auditor will rigorously scrutinise the basis of bad debt provisioning… Read more »
Look guys, we know the banking system is broken. But looking for writedown of salaries of “elites” be they bankers, politicians etc is pointless and really does little to fix the problem. That very salient point about the lack of coverage for bad debt at the end of the article says it all. It smells of absolute fear – and it is everywhere thro’out the system. Also, If you want to start your own bank you will still need finciaers and networkers that will cost high 6 figure salaries to make them useful. It is a skill very much in… Read more »
The advise the government is taking in regard to the Banking issue is from vested interests who are making a lot of money in managing the pillar banks and others. Ernst and Young are getting 500 euros an hour for one partner to run Newbridge Credit Union. That is 910,000 per year twice the cap of a bank ceo to run one credit union branch. Who would want to fix that lucrative mess quickly?
The Banks cannot provision anymore for fear of eroding their capital bases again. The government will then have to stump up again which will hurt them in regard to justifying their flawed banking strategy. So the result will be drip fed provisioning and loan book management.
C’mon lads it’s not all bad……… I gazed into the mirror this morning and realised – “There’s the BOI and the AIB and they employed the so called elite, best of the best, private schooled, biggest brained, smartest, cleverest D4 people imaginable just to run them. Whatsmore they had to pay the most decadent salaries just to hold on to them!” …..And you Moriarty – You did it you oul devil. After all these years you finally did it! You are actually worth more than the AIB and BOI put together! Lads my ancestors would be so proud! (Particularly the… Read more »
David, Firstly, isn’t 101 with banks that their lending is completely separate to their deposits. The banks work of these two pools separately and these two pools never overlap. So banks lending is completely separate to deposits irrespective of ratios and BASEL II / III accords etc. My point. The banks lending is simply technically debt manufacture. So, the banks, technically are not making a loss of any kind because the money loaning out to customers is in fact debt manufactured money. So, the banks are merely playing a charade to the public that they are in the red like… Read more »
This analysis by DMcW seems to show Morgan Kelly’s nightmare scenario is on schedule:
http://www.guardian.co.uk/business/2010/nov/08/ireland-toxic-mortgages-country-ruin-economist
It is fascinating to read “real thinking” on this site. It’s refreshing that people are thinking hard, originally and laterally. Possible solutions are starting to emerge. We are not all required to think as our Banking Lords and Political Masters require us to or would like us to. Incidentally, as an example of lateral thinking, go back to Solon the Law Giver of Archaic Athens. He introduced the shaking off of the burden of debt. Until 2008, I had not realised how infirm our international financial system is but I do realise that a period of mad expansion must be… Read more »
A short comment this time! There is a very interesting book “Zombie Banks (How Broken Banks and Debtor Nations are crippling the Global Economy)” – by a highly respected and experienced financial journalist named Valman Onaraan, published 2012 by Bloomberg Press. In Chapter 5 of this Book is an insightful analysis on Ireland “Irish Zombies bring the House Down”. There is a rumour and I have to be highly responsible, because I can’t authenticate it, that one of the “covered institutions” will shortly report, at the next due date, a dire personal debt default situation and a marked, even dramatic,… Read more »
Monetary Law
This is the Law that determines how much your home mortgage is worth after default and if it is converted into the new national currency .In other words does default devalue your home mortgage given to you by an Irish bank for your Irish home signed in Ireland .And the answer is ‘Yes’ , you win , your loan is devalued .
Here is something interesting to read :
http://econstories.tv/2010/06/22/fear-the-boom-and-bust/
We are instructed to be financially blind, as well as being blind in all the important ways.
And we are instructed to know the trivial minutae about stuff that does not matter. We are driven to destroy our minds in mindless escapism, and to never endure the pain of staying true.
http://www.marketoracle.co.uk/Article33340.html
I found the above link to be very relevant to what the West has become.
It’s official. Bloomberg says: Wealthy More Likely To Lie, Cheat: Researchers “Maybe, as the novelist F. Scott Fitzgerald suggested, the rich really are different. They’re more likely to behave badly, according to seven experiments that weighed the ethics of hundreds of people. The “upper class,” as defined by the study, were more likely to break the law while driving, take candy from children, lie in negotiation, cheat to increase their odds of winning a prize and endorse unethical behavior at work, researchers reported today in the Proceedings of the National Academy of Sciences. Taken together, the experiments suggest at least… Read more »
This is an example of the vision and leadership which we woefully lack in Ireland and Europe today;
“The dogmas of the quiet past, are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise — with the occasion. As our case is new, so we must think anew, and act anew. We must disenthrall ourselves, and then we shall save our country.”
–Abraham Lincoln, Annual message to Congress, Dec. 1, 1862
Yes Deco, and this has been orchestrated by a secret elite ‘cabal’ for 300+ years controlling every aspect of society: education, ‘big’ healthcare, food, media, energy, pharma, entertainment, marketing, government, military/industrial complex, WHO & UN. Just follow the money…check out http://www.thrive.com We destroy our health with heavily advertised, processed junk food and then take pharmaceutical chemicals to try restore it! We give babies ‘healthy weaning’ yoghurts containing 5 teaspoons of sugar/fructose syrup- equivalent to 50teasps to a 10 st adult then wonder why we’re all addicted to sugary junk/alcohol/drugs by our teens!! 98% of Europeans have thankfully wised up to… Read more »
Good Morning
The 3.23 Billion euro payment we are receiving from the IMF this week……is that a new bail out or an old bail out continued…………….or is it a reward payment for austerity ?……….or is a new bail out spun as a old bail out,maybe its the final payment of the old bailout and we do not need a new bail out as stated by our dear leader.Wonder will the state “invest” any of this old/new/young.special/part-payment bailout in BOI.?
All this talk of bail outs……maybe we should all get the fcuk out.!!!!!
S&P puts Greece in Selective default overnight..FT
ECB temporarily suspends Greek collateral……….FT
Will Greece even make it to the end of March……………..?
@ Deco, excellent link you gave there from Sheldon Wolin. We are indeed an open society…open and answerable to Europe and Global whims. No wonder our so called leaders just shrug their shoulders and say it’s not their fault…but they’ll help us cope with the perscribed way we should live our lives by enforcement and managing a media to keep our minds of the “little things” that matter. My only hope is that this comes to a head very very soon so we have a wake up call. We are in dire need of a catastrophic blowout that brings the… Read more »
S&P this evening declared Greece’s long-term credit rating to “selective default” from CC, thus making Greece the first Eurozone member to be officially declared in default.
Who’s next?
Vincent O’Toole quotes TS Eliot in today’s Irish Times Humankind cannot bear very much reality. – T. S. Eliot Going back to David’s thesis, is it a case that the Banks, the Regulator, the permanent government, the elected Government, the experts and most of the media are unable or unwilling to confront the full reality of our predicament? I think that it is a reality that the personal debt default crisis will submerge the Irsh banks , the “covered instututions” unless we can effect a radical silution to get the monkey of personal debt, the yoke of bonded servitude off… Read more »
This is off-message but on the penalty system for people supposedly refusing offers of employment, I noticed on Frontline the absence of the following estimates or even guesstimates: 1. The percentage of unemployed people who have declined real offers of employment. 2. The basis for refusal of offers of employment. Theere may be valid reasons. 3. What is the annual cost to the Exchequer caused by people who are voluntatarily and unncessarily unemployed? 4. Overall, what is the true scale of the problem? It’s just a guess on my part but I suspect that the real problem is involuntary unemployment.… Read more »