BBC BLOGS - Peston's Picks
IN ASSOCIATION WITH
« Previous | Main | Next »

Ireland: the £20bn price of fixing its banks

Robert Peston | 18:03 UK time, Tuesday, 30 March 2010

A year and half after what many see as the world's worst ever banking crisis, banks are still being mended.

In Ireland, the government - which has already gone a long way to fixing its finances with massive spending cuts - has announced what it hopes will be the last phase of the reconstruction of its banks.

Some £72bn of property loans that have gone bad are being transferred from the banks to a new state institution, the National Asset Management Agency.

In that sense, these lamentable loans are being nationalised.

The loan transfers agreed so far will be at a painful discount of 47 per cent to face value so the banks will incur big losses on the deals - which will deplete banks' capital, the buffer against future losses.

The banks are also being forced to hold more capital in general. They'll have to raise £20bn in total.

Where from?

Well with investor confidence still weak, much of it may be contributed by the Irish taxpayer.

The state will end up with control of two building societies - the Irish Nationwide and the EBS - one bank, Anglo Irish, and possibly also Allied Irish.

Only Bank of Ireland should be able to raise the new capital it needs from the private sector.

It's a steep price for the Irish state, but the government's conviction is that recovery can only follow a frank admission of the banks' past sins.

Comments

  • Comment number 1.

    Would it be right in saying the house prices in Ireland have crashed by 47% so far.

    And more to come.

    UK banking sector is hiding it's losses currently due to change in accountancy laws and cheap money funded by Tax payers and also charging excess for lending the same.

    Wait for the UK crash, it will arrive sooner than you think.

  • Comment number 2.

    At least the Irish have started to make some headway into their massive budget deficits with public spending cuts. According to Labour they are being foolhardy. As are the Greeks. But should they be doing what Labour says and 'hoping for something to turn up'.

    And what happens if there is little or not growth this year. What happens next year? Do we borrow even more? When is the penny going to drop? When will the axe fall?

    Hopefully these wreckers will not have to worry about it after May 6th.

  • Comment number 3.

    The US Gov bought $1.25 trillion worth of Mortgage Backed Securities on it's books to briefly help out situation, (which it will sell back now)

  • Comment number 4.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 5.

    By the way, I see the might Quinn fell today, that won't help matters

    http://www.independent.ie/business/irish/the-rise-and-fall-of-fearless-entrepreneur-quinn-2117810.html

  • Comment number 6.

    What has just happened in Ireland will happen in the UK.
    Once the state aid runs out and the banks have to stand on there own again they will come cap in hand to the tax payer again!
    The size of the debts being transfered into this state controlled body is huge, moving toxic debt out of the banks and into the taxpayers hands again!
    And they then think the Irish consumers will start spending again, how dumb are these guys? The debt is still there the taxpayers have to pay that before they can start spending again. Its just smoke and mirrors with the debt we move it around to con everybody its gone away everything is rosy.

  • Comment number 7.

    I still do not understand how someone can afford to take out a mortgage which is in excess of four times their salary. All is needed is for interest rates to increase and a lot of people will be in trouble.
    The Irish Government is trying to tackle the issue, but there must be more worms waiting to come out of the woodwork with negative equity.

  • Comment number 8.

    dudeHangingon said "In a country so reliant on the public sector". I would just like to point out that Ireland has a very small public sector when compared to countries of a similar size so this comment is mis-informed.

  • Comment number 9.

    Are we seeing a reverse takeover of the Irish State by the Irish Banks?

  • Comment number 10.

    The extraordinary thing is that the Irish seem to just take this and the punitive attack on the public sector. It will be interesting to see if going cold turkey will breath life back in the green tiger!

  • Comment number 11.

    dudeHangingon said "In a country so reliant on the public sector". I would just like to point out that Ireland has a very small public sector when compared to countries of a similar size so this comment is mis-informed

    Can't comment on the size of the sector re other countries maybe you have some figures but the size of the benefits esp pensions is well out of kilter with the amount it takes in receipts.

  • Comment number 12.

    I suspect there were even more people on the fiddle in the Irish banking sector than there were in the British banking sector. But I'm sure they'll all mostly get away with it by blaming their "reckless" customers instead of their own greed and incompetence. Caledonian Comment

  • Comment number 13.

    # 10. At 8:24pm on 30 Mar 2010, watriler wrote:

    Hi Watriler,

    The majority of people here in Ireland accept a correction of this type is possibly appropriate. What galls greatly is that until very recently thus most culpable for the mess seem to have escaped sanction, and were publicly enormously arrogant.

    Now however, it seems the axe will fall savagely and personally on those responsible, with charges possible. The financial whizz-kids and mover/shakers are not a lot less arrogant, and a lot less sure of them selves.

    Nothing cheers the public mood more than righteous and in this case much deserved schadenfreude!

    Mickalus

  • Comment number 14.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 15.

    Ireland is part of Alex Salmond's - 'Arc of Prosperity' !!!!
    Oh Dear!!! Say no more..................A few more years of the bubble and Scotland may well have been 'fooled' into thinking it could 'float' on debt supported false prosperity!
    However, I don't see Union with Gordon Brown's Westminster as much of a liferaft!

  • Comment number 16.

    Morning Robert,
    I find the title to this piece a little confusing.
    First of all, the State is buying the Banks assets (loan book) at 47% of its value. So the Banks lose 33Billion. Don't forget that these assets are not being sold on the open market, they are only being valued fancifully.
    Then the State is asking the Banks to increase their Tier1 capital by another 20 Billion, so I make that 53Billion ,not counting the assistance which the Irish banks have had so far.
    Would you comment,Robert, on the difference in approach by the State with reference to the Irish situation cf the British banks and their payment protection insurance? Would you also advise if this will affect our Post Office and their banking system?

  • Comment number 17.

    Ireland had no choice other than to create NAMA in order to prevent the collapse of their entire banking sector and other financial institutions, Ireland is a small country, it depents entirely on international investors and depositors to keep the economy going, had the Irish banks gone bust with investors and depositors paying the price then the Irish economy would be be in a freezing state for a decades.
    Yes, the current conditions for the taxpayers are harsh, but when the recovery comes matters will improve, the value of the toxic loans will raise, NAMA will then begin to sell those current toxic entities and the taxpayer will benefit from the increased value and the government can then use the profits to the benefit of the Irish people as a whole, it has not been easy for the Irish government, but it had no other choice.

  • Comment number 18.

    Early this year a relative left England to work near Dublin. She rented an appartment close to the city for 2/3rds of what the rent would have been last year and the landlord owns 2 other appartments which remain empty and are worth at least 30% less than he paid for them.

    However, from talking to such locals and reading the Irish press, it seems to me that the Irish population have grasped the nettle and taken a far more realistic view of their predicament than has been the case in the UK.



  • Comment number 19.

    I am 43 years old. Twice divorced and in 2008 was made bankrupt. I have lost 2 houses and my business. Time is running out for me to get my life back on track and to leave something for my children. I assume that there are many in my situation.
    I am finding it harder and harder to believe that the government of my country is going to do everything in it's power (which is very little) and is going to wait until bits of paper are worth once again what the super rich think they should be worth. The money that has been pumped into the system so far would have been enough to set up another banking system. One which would have lent money to the good businesses. One which would have lent money to the first time buyers because it wouldn't have the sword of damocles hanging over it. Are we seriously expected to wait while governments buy each others debt with thin air. while quant traders from the big 5 banks take it in turns to pump up the markets, buying off each other at the end of each days trading.

    The simple answer is OUR government is waiting for people not as important as the super rich to get into the market so they can all lose their money.

    How long is this perversion going to last? When is any main stream media organisation at least going to look at any of this? Or am I just hoping against hope?

    Mr Peston, for 99.9% of the world, ask the right questions please. You may earn a good living being spoon-fed by politicians, but you are part of the perversion that keeps me where I am and I don't like it.

  • Comment number 20.

    Thank you for this helpful update Robert on the state of the Irish banking sector and let's face it state is the operative word in many respects. I have also been reading on this subject and the implications for the UK's banking and property sectors on the notayesmanseconomics web blog. When he spelt out how much of the Irish lending took place in the UK it seemed a large sum to me with many implications.Also it will probably have to be sold...
    Do you have any analysis on this Robert?

  • Comment number 21.

    Post 5 you don't know the half of it!

    http://www.insurancetimes.co.uk/story.asp?sectioncode=13&storycode=383653&c=2

    There is much more to come on this story.

  • Comment number 22.

    Bertie's Fiannna Fail Builder and Banker mates are laughing today. What do you expect from a country who's economic policies for the last decade, came from the inside of a Galway Race tent. Another generation of Irish have to emigrate while Bertie gets his pension of over €100k on top of his over €100k salary.
    http://www.independent.ie/national-news/ahern-pockets-hefty-8364111235-pension-on-top-of-his-td-pay-1648374.html

    Pity the Nation.

  • Comment number 23.

    zardos, you are right you are one of many who feels there is no hope.We have all been part of a giant global ponzi scheme and to those struggling with debt i say dont worry just default because the assets you are trying to protect will be almost worthless when the pyramid collapses.

  • Comment number 24.

    1)Banks globally still have problems and my view is we will end up like Japan. Stagflation will be the norm in most western economies with nobody borrowing or lending money.Because nobody can afford to borrow its that simple,people have enough debts to clear as it is!
    2) But even now they are talking about raising interest rates every where. How insane is that?, if they want to create a double dip slump then go ahead raise interest rates.
    3)The big problem for governments every where in the west is how else are they going to claw back the billions of pounds of state bail out money?
    4) It makes you wonder wether we have all been conned in one big giant scam, I don`t think they want the average Joe to have any wealth at all they want us all in hock all the time to keep the system going.
    Tax rises across every member state in Europe and the USA, they will get the cash back some how.

  • Comment number 25.

    KeithRodgers wrote:

    "2) But even now they are talking about raising interest rates every where. How insane is that?, if they want to create a double dip slump then go ahead raise interest rates."

    So house prices crash and the very few people who became rich on the back of this(e.g. Tony & Cherie Bliar) can build large property portfolios on the cheap while the previous owners spend the rest of their lives paying the bankruptcy off.

    "4) It makes you wonder wether we have all been conned in one big giant scam, I don`t think they want the average Joe to have any wealth at all they want us all in hock all the time to keep the system going."

    Yup, that sounds about right.

  • Comment number 26.

  • Comment number 27.

    26 Buck-Turgidson
    I watched that link its superb !
    Found another one that sums up the banking crisis to a tee and how ordinary folk have been well and truely conned.
    Take a look its amazing !http://www.michaelmoore.com/books-films/capitalism-love-story/press/dvd-extras#extra-2

  • Comment number 28.

    24 Keith Rodgers
    25 Allen365
    4) It makes you wonder wether we have all been conned in one big giant scam, I don`t think they want the average Joe to have any wealth at all they want us all in hock all the time to keep the system going
    It was ever thus. That’s Capitalism. Did you vote for it?

  • Comment number 29.

    Sorry click on the 2nd link down on the left titled how wall street got away with murder.

  • Comment number 30.

    Why the mania to own an overpriced box of timber and cement? I find it hard to believe people in this country are still feeding this hungry monster.
    I worry my bank deposits are still feeding this instead of real productive enterprises.

    The money borrowed to fund this boom and bust hasn't disappeared, it's only in different hands. A retrospective windfall tax to recover it??? That would be interesting!

  • Comment number 31.


    19. At 10:47am on 31 Mar 2010, zardoz3006 wrote:
    I am 43 years old. Twice divorced and in 2008 was made bankrupt. I have lost 2 houses and my business. Time is running out for me to get my life back on track and to leave something for my children. I assume that there are many in my situation.
    I am finding it harder and harder to believe that the government of my country is going to do everything in it's power (which is very little) and is going to wait until bits of paper are worth once again what the super rich think they should be worth. The money that has been pumped into the system so far would have been enough to set up another banking system. One which would have lent money to the good businesses. One which would have lent money to the first time buyers because it wouldn't have the sword of damocles hanging over it. Are we seriously expected to wait while governments buy each others debt with thin air. while quant traders from the big 5 banks take it in turns to pump up the markets, buying off each other at the end of each days trading.

    The simple answer is OUR government is waiting for people not as important as the super rich to get into the market so they can all lose their money.

    How long is this perversion going to last? When is any main stream media organisation at least going to look at any of this? Or am I just hoping against hope?

    Mr Peston, for 99.9% of the world, ask the right questions please. You may earn a good living being spoon-fed by politicians, but you are part of the perversion that keeps me where I am and I don't like it.

    My Situation.
    I am in the same boat as you lost my job last year June 2009, ex wife has left and yes my house will be going soon I guess.How many more people are in the same boat been prudent and played by the rules only to be set up and screwed by a system that looks after a select few people.
    I can see this situation creating social tension and yes civil unrest.
    Not saying thats right but ordinary people having been used and thrown away like a discarded fag packet.

  • Comment number 32.

    KeithRodgers wrote:
    I watched that link its superb !

    The full film is very good and well worth downlaoding, from a legal source, obviously ;-)

  • Comment number 33.

    The fact that those total £20bn for capital are given by taxpayers does not surprise me. We are paying for every raise, every rate, fluctuation and financial mistake, so why not to pay instead of banks? At least the Irish government has made some steps towards stability and recovery by transferring the £72bn of property loans to the National Asset Management Agency. This drop of 47% due to the loan transfer causes great losses to banks, which normally causes great loss to taxpayers. Although the major and damaging debts are being moved out from the banks taxpayers will continuously suffer from them, which will result in further loan applications and debts to repay, not changing the situation at all.

    See: http://www.finfacts.ie/irishfinancenews/article_1019141.shtml
    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 34.

    Stop putting these big numbers in our heads that means nothing. It goes in one ear and out the other,.

 

BBC iD

Sign in

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.