Which one of the two big banks will be nationalised first? This sounds fanciful, but events in the last few days suggest that the perception of the Irish banks has changed profoundly – for the worse – and nationalisation is on the cards. This means we now face the possibility that we will have the guarantee, Nama and the nationalisation of one of the big two banks all at once.
In a sense, to use EU parlance, we will have a triple-lock tying the Irish people to the Irish banks for years to come. We run the risk that Ireland will come to be regarded – for future students of finance and economics – as a text-book case of how not to do things in a crisis. I hope this does not turn out to be the case, but the recent signs from our close neighbours and the reaction of the markets are not good.
The dramatic change in outlook for the banks has been triggered by the EU. The European Commission is rightly worried about the abuse of its competition rules, which occurred last year when governments around Europe injected money into banks. For the single market to work properly, the EU has to make sure that national banks don’t get an unfair advantage over foreign banks. If national banks were favoured by national governments, this would be an unfair advantage over foreign competitors and would constitute an abuse of the single market.
This means that, if Bank of Ireland (BoI) and AIB are getting Irish government money to stay afloat, while the likes of, let’s say, Rabobank (to take just an example),which trades in Ireland, is not getting Irish government help, then EU competition laws rightly suggest that this is an abuse of the level playing field of competition.
Until recently, the EU was prepared to take a softly, softly approach because of the depth of the financial crisis, but all that has changed. Since April, bank shares across Europe have rallied and the EU has now decided that it is time for the banks to pay back the money they owe to their governments. So far, national governments have been reluctant to force their banks to act, so the EU has decided to do the governments’ job for them.
In short, the EU doesn’t trust the banks to act, nor does it trust the national governments to force them. If the EU loses this battle, it loses Europe’s internal market, which it has been creating since 1992.The stakes are huge.
Neelie Kroes, the EU’s competition commissioner, moved first against the Dutch bank ING. The Commission has instructed ING to sell assets to get the cash to pay back the government. The EU instructed ING to break itself up, separate the bank from the life assurance subsidiary that it owned, sell the life assurance part and give the cash back.
This move caused bank shares around Europe to fall, as the implication is that the banks will no longer get subsidies. This means that we can’t stay in the ‘half-way house’ of part private/part public banks that emerged in the crisis. The Commission has decreed that either the banks are private companies, in which case they have to pay the money back, or they are fully nationalised. The ramifications of this move – which was always going to come – are enormous.
Last week, the EU focused on the British banks, with Kroes turning on the wounded giant RBS (Royal Bank of Scotland).The British government, realising that RBS would not be able to raise new capital on the market, increased its stake in RBS from 70 per cent to 84 per cent. When a government owns 84 per cent of a bank, it might as well own the lot. No one in the private sector is prepared to invest in RBS, so that the government has become ‘‘the owner of last resort’’ in forced nationalisation.
What will happen when Kroes turns her attention to Ireland? She will look at Nama as a huge state aid – which it is. She will look at the government’s minority stakes in the banks as state aids -which they are – and she will ask, what are we going to do next? How are our banks going to pay back the money so that Ireland does not abuse the EU’s free and fair competition laws?
During the summer, and even up to mid October, there was a chance that the banks, protected by Nama, could have gone out to the markets and raised equity.
But now that window seems to be shut. The markets are closed.
It didn’t help that management of the banks suggested that Nama was a bad deal for them, because by doing this, they looked out of touch. Even though the dogs in the street realise that Nama will overpay for assets, the banks suggested that the property assets on their balance sheets were worth more than the government was prepared to pay. This reaction signalled to the markets that bank managements – more or less the same guys who got the banks into the mess – have not woken up to the severity of the slump. Obviously, their shares fell dramatically as a result.
As the equity of the banks diminishes, the big question is: where will the Irish banks get money to ensure that their crucial capital adequacy ratios do not get breached again?With loans-to-deposit ratios still over 150 per cent,with the economy stalling and precious few new loans made, the banks can’t generate any profits. If you doubt this, just look at Bank of Ireland’s reported loss of nearly €1 billion this week.
So where will the money come from? The EU will now instruct AIB to sell its non-core assets, such as the banks in Poland and the US. Likewise Bank of Ireland, in order to pay back the government. But the banks will need more cash and, if they can’t raise it on the markets, the government will have to inject money into them. Unlike last year, the EU will not be keen to allow the states to inject capital without full nationalisation because this is simply trying to pull the wool over the Commissioner’s eyes. So where does that leave us?
It leaves us facing the nationalisation of one or both of the big banks. The government is set against this, but the iron laws of the market dictate that, when the banks need new money and no one else is prepared to give it, the government takes up the slack.
If I were a betting man, I’d say one of the big banks will be fully nationalised early next year. This would mean that, rather than the guarantee – which, on its own, was intended to be used to deal with the creditors in an orderly fashion and sell one of the big banks for a song to an international bank – we will get the triple lock. The triple lock is the guarantee, Nama and nationalisation. This is probably the worse combination of all.
But that’s what you get for dithering for over a year while the rest of the world gets on with sorting out their mess.
Good solid analysis, David.
The management of the ‘Big Four’ banks in Australia seem to believe that our stimulus package here has precluded the popping of the real estate bubble.
As our bubble was even bigger than Ireland’s, I expect we’re simply behind the curve and that our banking Canutes will shortlu experience much the same shock as yours.
Either that, or maybe our bankers are correct that little ol’ Oz is about to lead the world out of this depression. :)
David: Thankfully, we can put last week behind us and get on with your well reasoned triple lock analysis. As you have illuminated, you helped initiate the bank guarantee and other major economies eventually followed that lead, so it was the right solution in the circumstances and bought us some time. Unfortunately Cowen has wasted half that time prevaricating about what to do next. Instead of taking the bull by the horns and nationalizing the six banks, he footered about while the DoF devised this absurd Nama mechanism. It is becoming obvious that the end of the Irish guarantee period… Read more »
Excellent article that leaves my poor little head spinning. I see the inevitability of nationalisation alright. But with the guarantee and NAMA, we wind up with a state which owns a bank, whose deposits and debts are guaranteed and whose bad debt management has been outsourced to a 3rd party with a majority share holding in case we defacto nationalise the banks and suppress their ability to get money on the open market….is someone taking the p1$$ here?
I’ve said it here before, but really, it’s dangerous when the lines are blurred between opinion and journalism on the one hand, and focused and considered economic analysis on the other. – It is worse than dangerous to come up with solutions and analyses that are not carefully considered and weighed up with a full weight of responsibility assumed. The case in point is the guarantee scheme. – What is becoming apparent now is that is a considered analysis had been done, only a prospective guarantee would have been offered. Rather than a retrospective and a prospective guarantee. As per… Read more »
Yep, bit of a ‘District 9’ post last week but solid enough here (…set up management companies to purchase, secure, maintain the vacant urban estates. Sell to the Irish diaspora at knock down prices, tax/tourism revenues will rocket. ). There are many ways to deal with the ‘triple lock’. Some might be: Bring on nationalisation, end the guarantee at appropriate time, renegotiate with bondholders, end NAMA. Leave the banks to sort out their own toxic mess, but fire/demote all their senior management, end bonuses/cut pay. Don’t believe brains will flee. There’s plenty who will stay around who can be rewarded… Read more »
So I take it, it’s time to sell me shares in BoI?
The real problem here is that the government leapt in with immediate effect with the guarantee and Anglo nationalization, but everything that happened since has been snails pace. The market doesn’t trust Ireland, that confidence is hard to justify right now. It would appear to any investor with half a brain that last September’s rapid response was basically protecting the mighty, and no doubt, the interests of both Oireachteas members and the neo-fascist oligarchy which masquerades as FF and their financial backers.
Nice to see you laughing at yourself on the Panel, but your right side panelists are way out of their depth and uneasy. Delamere babbles on and Maxwell shows some insight. This article is back on the beam, and it is totally astounding that the hysterical delusion and denial in this country has persisted for more than a year, but sure the etiology of this collective cultural dysfuntion derive from the gene stream of those who could not find a way off the island, and held on, held on, in the demented hope things could not get worse. Well, welcome… Read more »
Hi David, Back to our regular topic, the banking providers in Ireland. David McW> The Commission has decreed that either the banks are private companies, in which case they have to pay the money back, or they are fully nationalised. The ramifications of this move — which was always going to come — are enormous. But was this move always going to come and is it going to come??? The fact that the EC has turned a blind eye to its rules, that the ERM rules are being flaunted left right and centre, is a statement that the system, even… Read more »
David. The ‘private banks’ which is a central banking system brought into existence in 1694 in the ‘City of London’ has a sector of our society ‘locked in a prison of suffering’. The ‘triple lock’ is a ‘tightening’ of this CBanking prison system, a turning of the screw, squeezing further the gut’s out of the labour’s of the serfdom class. Now the ECB is a lynchpin of the CBanking prison system and I for one remain very suspicious on any ‘supposed’ reform. I find it also intriguing as to why it is Ireland is under a ‘triple lock’ and no… Read more »
{ But that’s what you get for dithering for over a year while the rest of the world gets on with sorting out their mess. } That just about sums all that has come from Merrion Square/Kildare Street over the las 15 months. There is an awful lot of denial of responsibility with respect to fixing the problem. Everybody seems to think it was caused by somebody else. Except those who cannot avoid being tied up with the mess. And they are telling us that it can all be resolved with a massive Keynesian economic stimulus package. Lies fed the… Read more »
Yes-We are all responsible to some degree or another for the mess.
Let’s all deal with that. Ireland is stuck in a state of denial. The arrogance that comes with that is not something that we should be “proud of” !!!
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“Everyone, for your own and your family’s sake, have a look at this and stay on top of the gold story. Gold is not a hedge against inflation. Its a hedge against government stupidity and wanton funny money printing. Which has been done with gusto, my boys. “And it’s why India recently purchased 200 metric tons of gold from the International Monetary Fund (IMF) for $6.7 billion. ……That’s more than 7.054 million ounces of gold, now worth over $7.37 billion.” http://www.uncommonwisdomdaily.com/two-must-own-investments-7393 In the early 1990’s, Gordon Brown famously sold most of the UK Treasury’s gold holdings, at a time when… Read more »
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“Everyone, for your own and your family’s sake, have a look at this and stay on top of the gold story. Gold is not a hedge against inflation. Its a hedge against government stupidity and wanton funny money printing. Which has been done with gusto, my boys. “And it’s why India recently purchased 200 metric tons of gold from the International Monetary Fund (IMF) for $6.7 billion. ……That’s more than 7.054 million ounces of gold, now worth over $7.37 billion.” http://www.uncommonwisdomdaily.com/two-must-own-investments-7393 In the early 1990’s, Gordon Brown famously sold most of the UK Treasury’s gold holdings, at a time when… Read more »
Hello, I am Irish and I have a problem. I do not realise how important and significant I am. Instead of being confident and choosing a course and following it with resolve and long term outlook, my low sense of self esteem means I spend too long believing other countries over-hyping of themselves and pulling strokes instead hard work (Plagiarized from a friend of mine – who I am trying to get to blog here cos he’s wonderfully disagreeable)
To those who have read the above and are thinking that RBoS does not affect us – it does.
RBoS is the parent/owner of the Ulster Bank. UB happens to be heavily involved in the speculator financing ponzi scheme. Just look at the results from the Zoe Developments case. UB is also covered by the bank gaurantee scheme (and it should not have been). I bet that it is looking for a “digout” from NAMA as well.
The great efforts being made to preserve a corrupt, and unworkable system….
[…] to sell your bank shares (if you've any left!)… Worst-case scenario looms | David McWilliams .. Which one of the two big banks will be nationalised first? __________________ "WAKE UP! […]
Ok I understand that the government are slow and generally useless . But from my financial education over the last year I understand that if you are to rescue a bank or a banking system you have to do it early . I think that they are dithering because the banks problems are much worse than anybody expected . Maybe Anglo could bankrupt the State on its own . A couple of weeks ago Lenihan ( nice man ) said that NAMA could be further delayed if the President sent it to The Supreme Court to be tested . That… Read more »
If you guys like my NAMA hit movie pass the link on..ta!
http://www.youtube.com/watch?v=R2wihEZ1Q40
The banking fiasco in Ireland is on a scale which is unparalleled anywhere in the Anglo-Saxon world. In the past I have done rough mental calculations which would suggest the Irish taxpayer is being forced to assume twice the level of banking debt per capita as his British counterpart and at least three times that of the US taxpayer. However, the figures keep changing and perhaps there is someone out there with a more up-to-date and accurate evaluation of the situation. What guidelines were the banking “Lords of the Universe” supposed to be following, if any? On the assumption that… Read more »
Hi folks,
I know this is completely not the forum for this (apologies) but thought if anyone can offer insightful advice, it’s here. I never withdrew my SSIA after its end date and actually bought into the market deal for the further 3 years (awful move). Anyhow, it seems they’ve seen a 20% jump over last 6 months and am now wondering whether to cut and run. Any advice greatly appreciated.
David, You’re back on top form with this article. Deco, Its been about 6 years now since I last felt proud to be Irish. One day at a time as the old saying goes. I remember the day I stopped feeling proud very well. I had a packet of Walkers crisps (bought in Tesco) opened, and was enjoying them, I offerred some to my colleagues, when one of them told me those Tan crisps are crap and that Tayto were the best. So, I was intrigued, and later that day I bought Tayto crisps, sampled them, and admitted to myself… Read more »
Just watched Pat Kenny The Front line…. Brilliant Live Television . Yellow Shirt Man , asks Pat why he earns €600000 for eleven hours a week work ?……. Brilliant David now has to ( well for this week ) deal with This On The Panel ??
Brian Linehan is Minister for Finance now, but lets pretend for a moment that FF lost the last Election and we now had Minister Bloggs running the show. Minister Bloggs would have been caught out by the Credit crunch just like Linehan. Why.??? Bloggs would have received the same assurances from the Regulator about the Banks been well capitalised and able to accept shocks. Merril Lynch et al would have said the same about the fundamentals etc.etc. The Regulator would have allowed the Banks to help each other ala Anglo/Il&P to get over the wholesale money market freeze i.e. “good… Read more »
There is a piece of waste land down in Ringsend which was bought for 400 million Euros from some lucky wheeler dealer. It is now valued at 60 million. that is 15% approx of its purchase price.Assuming that virtually all of the capital used for these loans was cross guaranteed on other inflated property assets what proportion of all toxic loans is land.? Mr Lenehan values all assets at 70% of the original book value. Does this refer to the amount of money loaned to the developers. if so we can presume they expected to make a profit of -say… Read more »
What is stopping an Irish company from borrowing from a German bank? What is stopping depositors from banking with a German bank? Why can’t I set up my company in Germany/ Belgium, Netherlands etc…ACME GmBH, or Sprl or whatever and work my business from there? What is stopping me from operating in Ireland while using banking services in other countries?
Posters. The vendor’s who profited most in the property POnzi bubble are first in line to pay for the aftermath. NOT the ordinary worker / taxpayer. The vendor’s who raided the banks credit bubble must be first in line tp pay up for POnzi property bubble aftermath. The vendor’s salted away POnzi profits must be first funds used to pay up for the new economic realities. NOT the average worker / taxpayer. The average taxpayer / worker is been slowly ever calculatingly sidled up the line in the ‘who foot’s the PONZI aftermath’ bill first list. It’s underway. Hanafin on… Read more »
I was driving to work this morning, and I saw to men by the side of the road holding up a placard asking for a job. It gave me a chill, as I have not seen people standing on the side of the road looking for jobs since I was in London in the 80’s.
Just been listening to Max Keiser , turns out for less than 11 trillion dollars every mortage and credit card in the USA could have been paid off instead they have now given over even more to the Bankers to go out speculating again.
We are now reaching THE Worst Case Scenario ..
Going to be a fun winter , of discontent , Bring On The Yellow Shirts
Malcolm –
Reply at 28 very sobering indeed.
My posting is more bent on putting into perspective the unfolding realities concerning who foot’s the bill and who, in an ideal world, a world according too the principles and law we are told every day we live under, bears the burden of the cost.
In the light of D’s article above the ‘sorting out of the mess’ may lead us all down interesting pathway’s that quite possibly lead to denouements with a satisfactory ending as opposed to endings the ‘vested interests’ smugly thing are inevitable.
Posters.
We ought to keep our eye’s peeled on the tricks and the new scam’s the power elites rule the law over us the doublespeak domesticating us all into paying off their gambling bill’s and taking the cut’s and new taxes too get their two tier mercantilist central banking system kicking over again into the next new cycle.
Which appears to be the introduction of the green industrial revolution the bankers and industrial magnates are gearing up for for the next bubble idea.
Folks, just look at this:
http://twentymajor.net/2009/11/10/the-rte-frontline-shouty-bloke/
…not for the clip (which, I’m sure, most of you have seen), but for the comments that follow underneath the clip.
The entirety is very enlightening about where our people are heading, I think.
…. and its not to a good place……
Hi All , today I think we may have seen a chink in The Banks walls, they have all come out and are looking to work with mortgage holders !! While we may have different laws here regarding debt , in America for example you go into default and give back the property you don’t owe the out standing where as here , the banks can still go after us. But here is the delima for the Bankers , now we have thousands around the country going into arrears and they do not want to take back these houses as… Read more »
Folks, sooner or later, we are going to have to deal with the fact that the majority of people are not weel-off in Ireland; that the majority listened to the like of Mary Harney, saying “The country is awash with money”, “We are all very wealthy in Ireland”, etc….., looked around, realised that they weren’t wealthy, saw cheap credit and decided to use it, just to “keep-up with the Joneses”. I saw people, without a seat-in-their-trousers, buying new cars (people on €28k pa and less!) and laughing at me, with my ’97 (before black-ice and “that tree! and now, my… Read more »
Folks, see if this “feeds-in” to what we need:
http://www.guardian.co.uk/commentisfree/belief/2009/nov/10/charter-for-compassion-our-ignorance
Philip, Deco, Liam, wills, Furrylugs, John ALLEN, MK1 and going-home, et al?
Lorcan, where are you?
See if Mary Harney can Hypnotise you, here:
http://www.gifbin.com/982019
BrendanW, I was aiming at (but may have missed the “bulls-eye”) the micro-loans that poor people were offered and took – how much is that?
People, getting letters from banks, every month, offering: “You have been pre-approved for a loan of €15,000”, etc.
So many people accepted this “pre-approval” stuff, BrendanW, that I think, it will become a huge problem for us, after we stop looking (only) at the macro-economic problem.
Here’s a link to David’s jewish friends ,…why can’t we do this .
We could give the start ups FREE Commercial space ( say any property not rented in last three years ) and let them have also one of our many empty houses and tax free for first year and let their new employee’s keep social payments for this year , if they have been unemployed with a Degree for a year …..
http://edition.cnn.com/2009/OPINION/11/09/israel.startup.nation/index.html
I also like to know when is David bringing out The Farmleigh Business Plan , must be five weeks gone since this event ?
Here is what My Korean Friends are now doing ..
http://www.fez.go.kr/_html/fez_eng/plush_living.jsp#go5
BrendanW , glad to see you “dipping-in” here, more often, now.
Whyso?
Is there a chance that some of us might meet you, if we manage to set it up, with wills and Adamabyss?
In the media at the moment the banking situation seems to be dropping down the list of priorities. Yesterday a Red top newspaper gave us a headline concerning Cowen’s endorsement of two brash kids in a Pop Idol type teeny bopper competition. The other Red Tops were on a similar line. The Irish times brings us once again the more positive spin of events. The IT tells us that the Irish government is getting increasingly optimistic because the latest forecast is that the economy will drop by only 1-2% next year. Things are not as bad as we thought we… Read more »
David, An interesting article. I have a feeling that such warnings however will make not a jot of difference it seems. I had the opportunity to witness first-hand the latest Leviathan. Political cabaret indeed. Pure theatre. I was watching from the gallery (with a head already out of kilter from jet-lag) at an exposition of the surreal during the panel ‘discussion’. Initially I was impressed that Boyle and Fahy showed up at all, though I’m not sure which side of courage (bravery or utter stupidity) they were on. What I took away from the meeting is relevant to the article… Read more »
Here is a good post from IrishEconomy by Philip Lane: http://www.irisheconomy.ie/index.php/2009/11/03/mis-diagnosis/ This is pretty much the same analysis given by Alan Ahearne on Prime Time earlier in the year, and what Biffo & Brian are now quoting. Ahearne hasn’t gone to the dark side btw. There’s only one omission in the analysis ; mathematically, some private sector payrises – in MNC for example – are desirable, providing they don’t end up becoming uncompetitive in the process (which at current global pay rates, they would). Dilly, what’s the endgame for your buddy with the 9 houses? Without NAMA, he’d rightly be… Read more »
There you go David et al………. John Perkins calls himself a former economic hit man. He has seen the signs of today’s financial meltdown before. The subprime mortgage fiasco, the collapse of the banking industry, the rising unemployment rate–these are all familiar to him. Perkins was on the front lines of monitoring and helping create these very events that were once just confined to the third world. From ’71 to 1981, he worked for the international consulting firm Chas T. Main, where he was a self-described “economic hit man.” It was based in Boston. He’s the author of the New… Read more »
Heres a mad idea to generate jobs. Instead of standing around like Meerkats in a Flamingo Factory while we see outsourcing send jobs off to India, why don’t we concentrate on Off-shoring? The IDA or Enterprise Ireland sets up a whole new company, staffed with suitable people targetted to cause savings among MNC’s they already deal with. Instead of tax breaks, the State takes the hit of the risks associated with new start-ups (since the aforesaided NGO’s are experts at lecturing us about sime risks. Once up and running in “shadow” mode, the new “company” is simply sold to an… Read more »
From the Economist. Apologies for the full post but the old Puter is playing up today. Economists argue that offshoring is a win-win phenomenon Oct 28th 2009 Offshoring–the wholesale shifting of corporate functions and jobs (particularly those of back-office workers in it and accounting-type roles) to overseas territories–is what gave outsourcing a bad name. It is important, however, to note a crucial distinction between the two: – Outsourcing need not necessarily result in job losses in a particular territory or country. A job can simply be handed over to another organisation of the same nationality and geographical location where (the… Read more »
Folks, It seems Senators Mullen, O’Toole and Harris have voted against an amendment on NAMA that would have allowed Freedom of Information requests about it.
More skulduggery from these three oh-so-media-darlings.
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