I don’t have an article from a publication to back up my point - but if you look around at all the houses that are for sale and note that not one significant developer has gone bust, you can only conclude that the banks know that they are dealing with a very dangerous situation. They know that they can not get anymore for a house than a developer can, and they don’t want the job of disposing of houses via a liquidation. So for now they are treating the developers with kid gloves.
I work in the construction business and know of a concrete and block supplier who is owed alot of cash by quite a few house builders. Suppliers such as they are the only ones that can force the situation. Other than that the real decline in house prices will come about when voluntary liqudations start.
I agree. And I strongly agree with the part I have underlined. However I see aday coming when the banks will have to force the issue and if the developers cant come up with the money they are gone. I believe abank can take a serious hit if they take over a large development and sell for whatever they can get. At least that will get them some cash should the need arise and maybe stimulte the market alittle.
There is still a market for houses BUT not at the rates the dev’s are looking for. So it may well be taken out of their hands. Surely the banks owe others who may not be so understanding about hanging around when all about them are falling a part. They ask for their money and banks will ask for theirs.
Morgan Kelly was on the Last Word yesterday discussing this issue. Story is:
Developers borrow from banks on the basis that they pay back loans when their developments sell. Interest is rolled up until this happens. There is no deadline on this as it has never posed a problem. Until now.
The properties won’t sell and even if they did, there’s not enough money to cover the loan and the massive amounts of interest accrued.
Here’s where it’ll break down. The banks’ auditors are required to provide a statement which is a true reflection of the banks’ balance sheets. They can no longer value the assets at the required levels and the banks are in trouble. If the auditors lie, then we are in another Enron/Andersen situation which they won’t allow. The auditors will let the cat out of the bag. They are the catalyst.
Of course the banks needn’t worry because they’ll get taxpayers’ money to solve the problem. This will be announced in the budget. It’s to be done as an excuse to help the poor beleaguered FTBs and blamed on the Greens if it goes wrong.
Tip to journalists:
Ask IIB homeloans about subprime. (see courts.ie)
Ask about the banks exposure to buy to let (residential investment mortgages) in a market where rents are declining (see daft report)
Ask how much of banks capital is tied up in construction development (see Morgan Kelly report)
Ask UK/US fund managers what price Irish bank shares should be?
Ask foreign bank analysts what the likely outcome is for Irish banks (mergers, bankruptcy etc)
What is the real reason Irish bank shares are being short sold? (sharks smell blood in the water)
You are wasting your time asking the central bank, IFSRA, the government, bank PR people who use the job title economist, or Irish analysts (unless you get a few pints in off the record) the answer will always be the same - “Irish banks have no exposure to US subprime and have well managed funding (i.e. Digout from the ECB)”.
Reality is that banks know that if they foreclose on developers, they will have to realistically value the assets on foreclosure. This will trigger a write off.
I know that** all **banks in Ireland have beefed up the Business Recovery Management Units (each has their own name for the unit), and the objective is not to foreclose, but to manage out, if they can. It’s only the hopeless cases that will be foreclosed. Every loan is been rated, on a scale 1-10, and the principles (ie borrowers) interviewed, business plans forensically examined etc. If you are rated a 10 you are so bust its unbelievable, and nobody is getting a 1.