FT: Lex Column on Irish Banks - 16/01/09

bodyofevidence · January 17, 2009, 11:17am

good ole lex…this will really inspire confidence in the markets. Expect to see AIB and BOI gone month end

Irish banks
Published: January 16 2009 09:16 | Last updated: January 16 2009 16:27

Anglo Irish Bank, Ireland’s most reckless commercial property lender, has at last been committed to the safety of an institution: the Irish government. Dublin procrastinated as Anglo Irish gasped its last, the chairman resigned over governance lapses and risks grew of a dangerous run on the bank. Full nationalisation fast became the only option to avert a collapse of the Irish banking system.

Ireland’s banks got carried away in the heady years of a property and consumer spending boom that is now a sickening memory. The economy could contract 4.5 per cent this year, unemployment is headed for 10 per cent and with the government deficit zooming towards 10 per cent of GDP, there is even talk of a rescue by the International Monetary Fund. The government has been flat-footed from the outset. In September, it tried to steal a march on other countries, by guaranteeing all bank deposits and funding, but did nothing to bolster its banks’ capital position, leaving them looking light when, shortly afterwards, the UK government sharply raised capital requirements for HBOS, Lloyds TSB and Royal Bank of Scotland.

Dublin then fatefully procrastinated until December, when it launched a €5.5bn bank recapitalisation plan. Bank of Ireland and Allied Irish Banks were offered €2bn a piece, and told to raise €1bn each in rights issues. Anglo Irish was in line to receive €1.5bn, in exchange for 75 per cent voting control, but the **run on deposits **has now intervened.

**Bank of Ireland and Allied Irish Banks *may ***be marginally safer bets now that the government has removed the sector’s main systemic risk. Time, then, for **Ireland’s cosy coterie of bankers and politicians **to resume discussion of their golf handicaps in the club bars. But not for too long: neither bank has a price/earnings ratio of more than one, which speaks volumes about investor confidence in the sector’s prospects

specials.ft.com/vtf_pdf/170109_BACK1_ASI.pdf

shanieboy01 · January 17, 2009, 12:30pm

Is this not a rumour. This is a dangerour thread to start and should not continue.

bodyofevidence · January 17, 2009, 12:38pm

Are you Lenihan? “a dangerous line of questioning”…Its a reporting of what the major financial newspaper in the world says. Feel free to keep yur head in the sand if you wish.

random_punter · January 17, 2009, 12:48pm

So your hunch that the big two will go is the result of reading tealeaves then

I love the solid analysis on this site sometimes.

shanieboy01 · January 17, 2009, 12:58pm

SORRY BUT I thought bank run rumour threads used to be banned. The publication of this rumour wont enlighten us by telling what we already know. but the general public are not as well informed and may cause a run

ixus · January 17, 2009, 12:59pm

What are you talking about? Bodyofevidence is posting an article from a global paper, Lex no less, which is widely read and respected.

Choking on tealeaves would be more appropriate here bud.

All the banks are worth 0 until we see transparent writedowns and a model for how they will earn in the future.
If you can tell me how they will earn, I will invest. I’m pretty sure that’s the line the big movers are taking with Irish banks and the Lex column is merely stating that.

ixus · January 17, 2009, 1:02pm

You see, that’s the head in the sand part.

There were major deposits removed from Anglo, every broadsheet is reporting that. Lenihan admitted it. There was a run by the big deposits, probably not your retail. Knowledge is power and all that…

CaveCanem · January 17, 2009, 1:08pm

If you’ve a problem with it, take it up with the FT. The Pin isn’t exactly in the same league.

There is massive system risk. I’d rate it 50:50 that the other banks get nationalised, followed by the state being unable to issue debt by conventional means*. There is a growing fear about the collapse in government tax receipts. In turn its ability to honour the bank guarantee comes into question. Institutional deposits could flow from Ireland.

(*possible that ecb could play a financial guarantor role for euro sovereigns. However this in not in place and the German would, quite rightly, have a mickey-fit.)

kerrynorth · January 17, 2009, 1:17pm

I think it is absolutely fair enough to carry this on the Pin. It is an article in a leading reputable paper and Lex is a leading analyst of the financial world. This is not carrying “rumours” as some posters suggest - this is out there in the mainstream media. Whether you agree or not with the sentiments expressed in the article is a totally different issue upon which you can legitmately express a view, however, it is not an excuse to shoot the messanger (i.e. the OP poster) just because you do not like the message.

Arthur_Daley · January 17, 2009, 1:20pm

The big UK banks are in the same boat as those here, as are most in the US, it’s worth bearing in mind.

I know Irish property prices are ridiculous vis a vis the UK and US and Dublin banking is an contemptable incestous old Rugby/golf/sailing boys club, but we need a sense of perspective about what is happening around us.

Plus the UK doesn’t have the ECB back up.

yoganmahew · January 17, 2009, 2:38pm

The UK doesn’t need it, to large degree, as it has its own currency. Where they may end up in trouble is if they have big foreign exchange liabilities that need to be discharged. The ECB and the Fed might come into play here by providing swap lines. You’ll notice that the UK were in no hurry to defend their currency when it came under attack over the new year and do not seem overly concerned that it is trading at a discount.

yoganmahew · January 17, 2009, 2:44pm

I do not see that this is a rumour - it provides information that is known:

Anglo has been nationalised
it was nationalised in a panic with the Taoiseach out of the country and the night before the EGM on its recapitalisation
all Irish banks have lent recklessly for property speculation
some have lent more recklessly than others
the Irish consumer is amongst the most indebted in the world
the markets think the other Irish banks are likely to have large losses for the next number of years
Irish banking capital ratios are low by new international standards

So, the conclusion that is being drawn, which is an opinion, is that the Irish banks will be nationalised.

Whether nationalised, in need of nationalisation or about to be nationalised, the government’s deposit guarantee is as secure as it has ever been.

edit: if you do have concerns about a post, use the report post button (the red exclamation mark) and the moderators will discuss it further.

shanieboy01 · January 17, 2009, 2:52pm

I thought the ban on discussing bank runs was still in force but I could not find it. Thats fine I knew there was a run going on in Anglo and did not post. Who in their right minds have their spare cash in AIB and BOI anyway. The ony dealings I personally have in Ireland is in TSB and I owe them more money than they have of mine.

Dreaded_Estate · January 17, 2009, 2:53pm

Although the UK banks are in a terrible state they aren’t nearly as weak as the Irish banks. The Irish banks bet heavily on developers and they have lost big time.

Calina · January 17, 2009, 2:54pm

Probably because past experience has taught them not to bother; the markets will just take them to the cleaners like they did the last time they tried to prop it up under attack.

As for the rest of this thread; it’s speculation, pure and simple. I don’t agree with it for a number of reasons; the point remains we were not the first to have to go rescuing bits of our banking sector, the UK were first out of the blocks in Europe on that, and France, NL, Belgium, and Germany all had a go before us. I do, however, hear voices suggesting that Anglo Irish should be let go to the wall.

I think there’s an element of sensationalist television about this, you know, when some disaster hits somewhere and you’re speculating just how many people get killed, and you’re waiting for the numnbers because at some level, it’s the scale that matters, not the victims. The point is, by international standards, neither of our two big banks are big banks. They are not important in the grand scheme of things.

There’s a tendency in this country, sometimes, to aim for extremes. Last year we were the wealthiest. Now we have the most rotten banking sector, the biggest economic problems.

We need to get over ourselves. We’re nothing very special and until we get to grips with that reality, we’ll continue to take pieces like the above too much to heart.

shanieboy01 · January 17, 2009, 2:56pm

Yep they are fuc&ed. Bankers are in trouble. Unions will be broken. public servants will get a big pay cut. welcome to the new world and this time “it is different”

the_edge · January 17, 2009, 3:01pm

Calina:

yoganmahew:

Arthur Daley:

Plus the UK doesn’t have the ECB back up.

The UK doesn’t need it, to large degree, as it has its own currency. Where they may end up in trouble is if they have big foreign exchange liabilities that need to be discharged. The ECB and the Fed might come into play here by providing swap lines. You’ll notice that the UK were in no hurry to defend their currency when it came under attack over the new year and do not seem overly concerned that it is trading at a discount.

Probably because past experience has taught them not to bother; the markets will just take them to the cleaners like they did the last time they tried to prop it up under attack.

As for the rest of this thread; it’s speculation, pure and simple. I don’t agree with it for a number of reasons; the point remains we were not the first to have to go rescuing bits of our banking sector, the UK were first out of the blocks in Europe on that, and France, NL, Belgium, and Germany all had a go before us. I do, however, hear voices suggesting that Anglo Irish should be let go to the wall.

I think there’s an element of sensationalist television about this, you know, when some disaster hits somewhere and you’re speculating just how many people get killed, and you’re waiting for the numnbers because at some level, it’s the scale that matters, not the victims. The point is, by international standards, neither of our two big banks are big banks. They are not important in the grand scheme of things.

There’s a tendency in this country, sometimes, to aim for extremes. Last year we were the wealthiest. Now we have the most rotten banking sector, the biggest economic problems.

We need to get over ourselves. We’re nothing very special and until we get to grips with that reality, we’ll continue to take pieces like the above too much to heart.

Good, nuanced post. Of course, you’ll duly be accused of being a ‘ZanuFF’ sympathiser by the extreme element on here.

yoganmahew · January 17, 2009, 3:06pm

You are right on that - the ban on run reports is in force. But the Lex piece is about nationalisation and not failure. To my mind, there is a difference.

Care to expand on the nature of the run that was taking place? We’ve heard from the minister that there was “absolutely no run taking place”, yet ‘sources’ within the finance department have said that institutional investors had lost confidence and withdrawn their deposits.

yoganmahew · January 17, 2009, 3:10pm

The point is not who started it and who did most of it, the point is how much more is to come. This is significant for those who might consider buying shares in the banks, which is what the Lex column is aimed at - it is an investment column - it is saying that it sees the likelihood of nationalisation of the remaining Irish banks which makes their shares, despite the low P/E, a risky investment.

In the week that Germany, Austria and the US part nationalised more of their banking system is it any surprise that there might be more trouble for Irish bank investors? No. Is it even news? Probably not.

CaveCanem · January 17, 2009, 3:11pm

Smart arse! I’ll use an equally dodgy source to rebut. This week Rating Agencies placed Ireland on negative outlook. Therefore the guarantee ain’t what it used to be