Ireland: me too

So how’s Ireland been coping? Something like the same roller coaster effect, with bank shares recovering as in London after a similar move against short sellers and a likely similar Irish casualty to HBos. While Ireland doesn’t have the same exposure, John Murray Brown who has the Irish beat for the Financial Times explains “the Irish bind”

“Ireland’s banks are caught in a bind. The property developers they lent to cannot service their loans as they are unable to sell enough houses. And those customers who want to buy a home are finding the banks’ mortgage departments reluctant to lend in the credit crunch.

No one currently foresees that Irish banks will have to go to shareholders for fresh equity to bolster their balance sheets. They have minimal exposure to the collateralised debt obligations and other assets linked to the US mortgage crisis. The Irish economy has been growing so strongly in recent years that banks did not need to search out the higher re-turns promised by such products.

Yet international investors, who now own 70 per cent of Irish equities, have lost confidence in what the banks are telling them.”

Will there be a reaction against the property tycoons? In Britain, recriminations are well under way and there’s a big Scottish angle from the Times in its little England rant against alleged favouritism for Scottish staff in the Lloyd’s-HBos takeover. I’d be sceptical about that. Think of the huge dent in Scottish pride as that proud Bank of Scotland headquarters up on the Mound is relegated to a branch office!. Another ill wind that ‘s a political gift to Alex Salmond.

PS. Required reading is the blog of the man who keeps getting the scoops, Robert Peston of the BBC. Extracts:
” (The last US $180 billion bale-out) treats only a symptom, not the cause….
(US Treasury Sec is now planning ) the mother of all bailouts. It would certainly involve the deployment of hundreds of billions of US taxpayers’ money, possibly more than a trillion dollars……..surely it would be more rational for the Chinese to own the American financial system itself.”

  • Skintown Lad

    “with bank shares recovering as in London after a similar move against short sellers”

    i think we’ll find that short selling is an excuse; a scapegoat for a rotten market. we’ll find out on tuesday when the funds declare their positions. today’s jump in the market apparently has more to do with the US’ proposed intervention on toxic debts

  • Wilde Rover

    From the Irish Times piece,

    “The agencies have told debt investors in the three main banks – AIB, Bank of Ireland and Anglo Irish Bank – that in the event of a collapse, the Government is likely to step in to prevent a systemic risk to the Irish financial system.”

    Privatize the profits, socialize the losses.

    And, as usual, the plebs are left to cover the tab.

  • It was Sammy Mc Nally what done it

    Irish Banks.

    If Irish property prices continue to fall – which they are then foreign investors in Irish banks know that Irish banks will have serious debts – they are therfore very sensible to bale out.

    Scottish Banks.

    “Another ill wind that ‘s a political gift to Alex Salmond. ”

    Anything that suggests the Scottish economy is not robust enough to go it alone, and BOS disappearing into an ‘English’ bank is just that, is bad for Alex’s long term plan of independence.

    As against that, Britain’s over relieance on the City for what used to be termed ‘wealth creation’ to generate revenue for the country will mean the Celtic fringe may be encourged to be more financially independent.

    The term ‘invisibles’ which is used to describe e much of the City’s ‘wealth creation’ now looks to be be spot on.

  • smcgiff

    “Another ill wind that ‘s a political gift to Alex Salmond.“

    Sure, when Scotland is independent they can set up their own Bank of Scotland once more! 😉

  • Up tick rule

    The Efficient Market Hypothesis says that shares are perfectly valued at all times so short selling cannot lead to their price falling.

  • i think we’ll find that short selling is an excuse; a scapegoat for a rotten market. we’ll find out on tuesday when the funds declare their positions. today’s jump in the market apparently has more to do with the US’ proposed intervention on toxic debts

    Agreed. And Irish property is still enormously overvalued by any reasonable assessment.

  • smcgiff

    ‘The Efficient Market Hypothesis says that shares are perfectly valued at all times so short selling cannot lead to their price falling.’

    Key word being HYPOTHESIS!

  • Glencoppagagh

    It’s little wonder that Irish banks are so heavily exposed to property seeing as Irish people don’t seem to be interested in borrowing for any other purpose.
    It reminds me of the story of the Arab sheikh newly enriched by the first oil crisis. He was unable to comprehend the extent of his wealth so his advisers took him to a bank vault where they were only able to demonstate it by showing him how many gold bars he could acquire with it.
    Sometimes it seems the Irish can only appreciate their wealth when it is manifest in bricks and mortar.

  • Hugh Dubh Oneill

    Glencoppagagh
    Couldnt agree more.a section of my masters thesis covered this very area.although the irish are very good at construction we seem to have tunnel vision with regards to it.how much of our boom was squandered in apartments in leitrem,turkey and bulgaria.there has been irish people working for first rate mncs specialising in software and pharmaceuticals for 30 years but we,ve built up no indigenous base in these areas.one of the main reasons is undercapitalisation because irish people prefer to buy property rather than invest in irish companies (and in the longrun the future of the irish economy).compared to countries like israel the amount of irish companies being floated on the stock exchange is pathetic

  • Glencoppagagh

    Hugh Dubh
    Thanks for your endorsement.
    One thing I’ve also noticed is that these big-time proeprty syndicates are reported in the press to be investing on behalf of ‘professionals’ like barristers, doctors etc. Which suggests that they were the ones really coining it from the Celtic Tiger i.e. generating huge rewards from low-risk occupations. And they hadn’t even the decency to reinvest it in real indigenous businesses like the ones you identify. Far too much risk, of course.
    We can only hope that at least a few of them now get royally stuffed in their big bets on property.

  • Skintown Lad

    that’s a bit schadenfreude Glencoppagagh, no?

    property was seen as a safer bet than software equities after the dot.com boom. we slate the banks for playing it too risky and slate the irish for being risky enough!

  • Glencoppagagh

    Skintown
    The point I’m making is that the types I’ve alluded too would always have preferred property to any other asset class regardless. It’s a combination of risk aversion and lack of imagination. They’ll be back in property as soon as the dust has settled. It’s less complicated you see than things like IT and pharmaceuticals and you can always boast that the Black Sea hotel you have a stake in is bigger than anybody else’s. Nobody will be so impressed that the bio-tech start-up you’ve just invested in has had a successful trial for a rheumatism drug.

  • No one currently foresees that Irish banks will have to go to shareholders for fresh equity to bolster their balance sheets. They have minimal exposure to the collateralised debt obligations and other assets linked to the US mortgage crisis. The Irish economy has been growing so strongly in recent years that banks did not need to search out the higher re-turns promised by such products.

    Yet international investors, who now own 70 per cent of Irish equities, have lost confidence in what the banks are telling them.

    Phew! That’s all right then, isn’t it?

    Well, what about this:

    Bank of Ireland PLC denied Irish media reports Friday that it was in takeover discussions with Spanish giant Banco Santander SA or any other potential suitors.

    “Bank of Ireland notes recent media speculation and categorically confirms that it has not received an approach from, nor entered into discussions with, Banco Santander or any other party,” Ireland’s second-largest bank said in a statement.

    That “rumour” was enough to up BoI share’s by 40%.

    Or this one:

    Meanwhile Ireland’s fourth-largest bank, Anglo-Irish Bank Corp., declined to comment on a report Friday in the Irish Times newspaper that it was in talks to buy the Irish Nationwide Building Society, which is owned by its approximately 100,000 members.

    AIB went up 35% on that one.

    It looks to me as if some destabilisation is taking place over the Dublin market. And why not? In the smaller arena, any Joe Soap can be a Soros.

    If I were an investor, I’d be reading the entirety of the Simon Carswell article; and taking particular notice of how reassuringly often he emphasises “unlikely” and repeats the mantra of hypothetical State intervention to prevent disaster. Then I might reflect a similar orthodoxy applied to Lehmans — until the US Treasury pulled the plug.

  • FTB

    “The property developers they lent to cannot service their loans as they are unable to sell enough houses.”

    Because the average price is 8 times the average buyers salary. Drop the prices and houses will move.

    “And those customers who want to buy a home are finding the banks’ mortgage departments reluctant to lend in the credit crunch.”

    Wrong. The banks have money to lend. They will no longer lend ridiculous salary multiples. All that does is artificially inflate house prices. The more banks lend the higher prices go.

    – Prices have a long way to go before bottoming out.
    – Any FTBs buying in this market are saddling themselves with years of unneccesary debt.
    – It is highly irresponsible & immoral for the government to encourage young FTBs into a crashing marker with gimmick incentives.

    We don’t need easier credit, we need realistic house prices.

  • Come on lads, you should be talking about flags, the north’s soccer team, marches, these things are waaaaay more important to the people of the most loyal “province” in the world. The only good talk about the economy should be about the bricks and mortar needed to build a wall between loyal “Ulster” and the hated free state. Come on guys this debate is way too sane and reasonable.

  • Ulsters my homeland

    If you want excitment, go back to Dunclug, daithi.

  • Greenflag

    What is clear from this crisis is the extent to which Britain and Ireland because of their ‘house owning ‘ cultures have been just as easy a prey for the ‘deregulated’ financial institutions on Wall St and their ‘derivatives ‘ in London and Dublin as Americans.

    It looks as of now that President Bernanke and Vice President Paulson have come up with an ’emergency ‘ plan to stave off a worldwide meltdown . They have now informed Mr Bush Junior (titular acting USA President) and the leaders of both parties in the House and Senate what they will do and more importantly what the latter trio should be saying for the next few weeks until there is a new administration . Mr Cox of the SEC has now stopped short selling having already stopped ‘naked’ short selling earlier in the week .

    This has of course happened before in the 1980’s with the Savings & Loans debacle which again took place under a Republican administration and which again cost the American taxpayer the proverbial arm and leg i.e billions and now it’s deja vu again under this pathetic administration

    The lesson here is simple . While the free market works reasonably well as regards the production and distribution of goods and services it does not work efficiently with the supply of public goods such as education and health care.
    For every American who thought /believed that Bush’s ‘failed ‘ plan to ‘privatise ‘ Social Security ‘ was a winner, there’s now a thousand out there who now know that Bush’s ‘trust’ in the ‘free’ market of the Wall St was naive at best and criminal at worst !

    Time for a new American New Deal and time for Americans to look at how the French , Germans and Japanese manage to ensure that all their people get excellent health care at half the cost per capita of the USA.

    If it took some ‘socialism ‘ to fix Wall St and the Banking Sector maybe they should try it with Health Care and Education !

  • Dave

    Wrong as usual, Greenie: it was socialist doctrine entering the free market via federal regulation of it at the behest of Democrats in the US House of Representatives that created the current problems. Here are a few choice extracts from a speech by Alan Greenspan, Chairman of the US Federal Reserve, in 2005 in which proffers all of the fashionable socialist dogma, explaining how the Federal Reserve supports the proffering of cheap credit to the poor so that folks who couldn’t actually afford credit could gain access to it, and praising the failed “credit-scoring models are complex algorithms designed to predict risk” which somehow meant it was okay to give credit to the poor because a computer did a wee calculation that said it was okay. Three years on, we now know how misguided this form of socialist intervention in the free market is, don’t we?

    “… it is essential that policymakers, regulators, bankers, researchers, and consumer groups remain fully engaged in monitoring developments in the consumer finance market and continually seek to better understand the strengths and weaknesses of the financial services industry, including how well it serves lower-income and underserved consumers.”

    “A brief look back at the evolution of the consumer finance market reveals that the financial services industry has long been competitive, innovative, and resilient. Especially in the past decade, technological advances have resulted in increased efficiency and scale within the financial services industry. Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country.

    From colonial times through the early twentieth century, most people had quite limited access to credit, and even when credit was available, it was quite expensive. Only the affluent, such as prominent merchants or landowners, were able to obtain personal loans from commercial banks. Working-class people purchased goods with cash or through barter, since banks did not make consumer loans to the general public.”

    “As has every segment of our economy, the financial services sector has been dramatically transformed by technology. Technological advancements have significantly altered the delivery and processing of nearly every consumer financial transaction, from the most basic to the most complex. For example, information processing technology has enabled creditors to achieve significant efficiencies in collecting and assimilating the data necessary to evaluate risk and make corresponding decisions about credit pricing.

    With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.

    For some consumers, however, this reliance on technology has been disconcerting. Credit-scoring models are complex algorithms designed to predict risk. Consumer advocates have raised concerns about the transparency and completeness of the information fit to the algorithm, as well as the rigidity of the types of data used to render credit decisions. Consumer advocates contend that the lack of flexibility in the models can result in the exclusion of some consumers, such as those with little or no credit history, or misrepresentation of the risk that they pose.

  • Dave

    [b]Continued[/b]

    To address these concerns, some firms have worked to customize credit-scoring systems to include new data and to revalue the weight of the variables employed. Also, new organizations have emerged, developing new systems for collecting alternative data, such as rent payments and other recurring payments that will enable creditors to evaluate creditworthiness of consumers who lack experience with credit.

    Improved access to credit for consumers, and especially these more-recent developments, has had significant benefits.”

    “As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have.”

    “Access to credit has enabled families to purchase homes, deal with emergencies, and obtain goods and services. Home ownership is at a record high, and the number of home mortgage loans to low- and moderate-income and minority families has risen rapidly over the past five years. Credit cards and instalment loans are also available to the vast majority of households.”

    You can read the rest of the US Federal Reserve’s socialist manifesto here:

    http://www.federalreserve.gov/BoardDocs/speeches/2005/20050408/default.htm

  • runciter

    Dave,

    On what planet is the promotion of personal debt and private property ownership a “socialist manifesto”?

  • Greenflag

    Runciter ,

    ‘On what planet is the promotion of personal debt and private property ownership a “socialist manifesto”? ‘

    On Dave ‘s planet – the Planet Libertas – It’s an odd shaped lump of rock revolving around the Sun very far out. It’s universe is contained within that cross over area where the absolutist doctrinaire manifestos of free marketism , fascism , communism , and national socialism and globalisation all intersect for brief periods when it suits his purpose 🙁 Thus it is that the ultra right wing neo con nutters of Libertas , SF socialists and nationalists , and the virulently anti EU, British tabloid press can all be on the ‘same ‘ side.

    It’s an area populated by ‘fantasists’ such as those who believe that every american or european should be his/her own personal financial advisor and retirement investment expert as well as hisher own health care provider and medical treatment consultant . It’s a world where there is absolute access to all knowledge around the clock by everybody and where everybody makes the right decision based on their own objectively assessed and professionally psychoanalysed economic and political self interest. It’s a world where government intervention in the economy is ‘wrong ‘ if it contradicts with the pure ‘doctrine ‘ of the free markets .

    Humanity has been through the same kind of ‘shite ‘ before . We had it when the ‘pure’ doctrine of National Socialism allowed millions of european jews go to the gas chambers because ‘doctrine ‘ was more important than common humanity . We had when the ‘doctrine’ of Communism was glorified to the extent that tens of millions the ‘class ‘ enemies had to be ‘liquidated’ for the doctrine to succeed . We had it in the Middle Ages when absolute belief in Roman Catholicism was mandated on pain of an heretical death for those who thought otherwise .We’ve had it in many countries around the world including these islands -in one form or another.

    Dave’s ‘doctrine’ is past it’s sell by date .

  • Greenflag

    Dave ,

    There is nothing ‘socialist’ about Greenberg’s manifesto .

    Greenspan’s response to the ‘failure’ of the American economy to improve the living standards or more accurately to reduce the emisseration of middle and lower income Americans since the 1980’s was to make ‘credit ‘ easier . With the ‘unions ‘ destroyed and ‘communism ‘ defeated and Republicans on the make -he had’nt any alternative . Not unlike Comrade Mugabe printing more dollars for a non existent economy apart from the scale 🙁

    The ‘real ‘ issue which was not addressed by Republican administrations since 1980 and only in ‘passing ‘ by the Democrats 1992 -2000 ) is why have the American ‘middle and lower income ‘ groups lost out substantially to the minority of wealthy Americans in the period 1980 to the present . The brief ‘feel good’ era under the Clintons was just a blip on an otherwise down ward spiral of the past generation .

    Right across American society from education to health care to infrastructural repair and social investment there has been stagnation and stasis while minority of ‘free market’ ideologues grabbed political power and abused it for their own short term and misguided ends along with thier buddies on Wall Street and Fox TV land 🙁 .

    Along the way they have dragged the USA into unnecessary wars and have finally brought that country and the world to an almost financial full stop .

    And now this self serving degenerate bunch of thieves have to rely on the State to bail them out . In plain english these ‘thieves ‘ somehow believe they have a right to expect that those from whom they have stolen for a generation must now pay up . And as usual the ‘head thief ‘ Dubya will look into his heart and with one eye towards Peking and the other towards Tokyo will once again ‘screw ‘ the American taxpayer .

    The emisseration of the American middle and lower income groups has been accompanied by an increasing polarisation of politics across the united states . America has not been so ideologically divided since the 1920’s . Into this mix is dropped the usual scapegoat for American’s problems – the immigrants – the african americans -the welfare spongers – social security .

    The creation of the ‘monster’ which threatens to undermine american democracy is solely the creation of the inheritors of thatcherism to whom there is only one law -i.e the law of the jungle .

    We all know what happened in Germany in the 1930’s when ‘democracy ‘ was subverted by by the emisseration of the german middle and working class .

  • The Irish banks are heavily exposed to bad debts, despite the protestations to the contrary. It doesn’t really matter whether it’s indirectly to via CDS and SIVs, or directly to Irish properties via direct mortgages, the fact remains that Irish banks have lent huge amounts of money that they’ll never see again. A bad debt is a bad debt, whether it’s Irish or American.

    If, as happened all too often in recent years, you give somebody 300k euros to buy a house that’s only really worth about 100k, you won’t see much of that money again. The Irish banks are in for massive losses once they’re forced to publish an honest balance sheet, and will have to go bankrupt or be bailed out with billions of taxpayer’s euros.

  • Sam Smyth

    Well done to David MacWilliams for pointing out that crisis is no time for ideology. See EMH references above.

    Anyone notice how market movements are thought to be Gaussian but we have had more 20% falls than expected?

    The markets are sometimes efficient but when everyone tries to leave at the same time we do not need short sellers pushing everyone towards the exit.

    One of the reviews of the 87 crash had a professor of Finance stating that program trading only accounted for 2/5 of 1% of trades which led Martin Mayer to comment that once upon a time professors of Finance understood the consequences.

    Interestingly too in this crash prices in the futures market were often cheaper than the cash so it made sense to sell in the cash market and buy the futures and wait for the prices to align.

    Gerry Anderson
    “Hookers like to be paid up front”
    “Hookers like to be paid up front”
    “Hookers like to be paid up front”
    “Hookers like to be paid up front”

    How could Radio4 let such a hilarious man go?