Valuation Vacuum

As an accountant dealing with a broad range of clients I only can only see fear driven by the uncertainty that nobody knows what anything is worth any more. The thrift driven by this uncertainty is causing carnage across every sector I deal with.

Banks are shuffling around, looking at the debts wondering how the heck they can offload the security with minimal cost to them. I was at a few meetings recently where banks are trying to find suckers to buy into unrealistic business plans (so 2006) with a corresponding unrealistic capital value.

Talk to bankers privately and the arrears problems are across the board – every cash based business is suffering. Talk to them about values and realistic potential declines and I have been met with muttering, topic changing and long silences.

Fact is though, their unwillingness to actually crystallise losses is only furthering the decline is asset values. The 2008 logic was “well what’s the point in taking security as there is no market for assets”. Made sense but in truth, there was money there but it was the general unwillingness to accept the scale of the problems was the real reason.

It is unrealistic to think that people who have capital are going to overpay for assets as they are the ones who ignored the excesses.

The other thing that strikes me is that, based on my sample of clients (pretty broad) it is clear who is fucked and who should survive. Those who wont are really just financial zombies – no access to capital, are certain not to trade (or rent) their way out of their problems.

I believe the failure of the banks to deal with the problem cases is putting in danger those who should survive because of the thrift caused by the uncertainty that as there are basically no transactions in commercial property or businesses there is no clear value to anything.

What really depressed me about the recap was the failure to deal with the problem assets. They are considered:

ntma.ie/Publications/2009/Go … _recap.pdf

I don’t understand what the fuck the second half means. I don’t understand the comments in relation to international developments, the ECB and the EU (are they doing the regulation now? Is the post Lisbon bailout being devised and subject to DD on the bank assets?). But essentially, no firm action in dealing with the problem loans.

So we will go on with a valuation vacuum. Householders don’t know what their house is worth or what they will likely earn, so wont spend. Sound businesses don’t know where they stand and wont invest and just cut costs. It’s a small circle.

I love the sentiment chart. I think of it like the tube map, the direction is right but the scale is wrong. I know we are closer to the bottom (hello beans gold and guns brigade). Fact is though, it wont get better till we hit the bottom and the sooner the better.

A lot of people will get financially crucified by finally dealing with the lending problems but their fate is already sealed. The only outcome is a transfer of wealth from those who overstretched themselves to those who didn’t. It has to be done before those who didn’t have nothing to invest.

Everyone is searching for painless quick solutions to the mess. There are none. Time to accept the problems The banks will all the nationalised eventually. We will all have to pay for it over a long time. Its all very unfair to penalise those who didn’t cause the problems but those who did will pay a far heavier financial price.