He is concerned that the state itself may become bankrupt by bailing out the banks through NAMA and nationalisation. His solution is to turn the foreign creditors of banks into their owners as Iceland has done with Kaupthing Bank.

• Anglo Irish Bank – €28 billion out of total loans of €70 billion
• AIB – €24.2 billion
• Bank of Ireland – €16 billion
• Irish Nationwide Bld Soc – €8 billion
• Educational Building Soc – €1 billion

It is becoming apparent that the real value of the property portfolios is about 35% less rather than the 15% hoped for a few months ago.

When the banks sell NAMA their property assets, the losses resulting will be apparent immediately. This means that they will need capital money (Tier 1 Capital Ratios of 8% are likely to become the industry norm – JP Morgan) in order to fulfil the minimum requirements to trade as financial institutions.

AIB report that the NAMA transfer at a 30% discount will force their Core Tier 1 capital ratio to fall from 8.5 to 6.3: their tier 1 Capital Ratio from 7.8 to 6.1% and their Total Capital Ratio from 10.7 to 9.5%. Bank of Ireland will lose €3.4 billion on the NAMA transfer. Bank of Ireland’s Core Tier 1 Capital ratio will then fall from 10.1 to 8.3%. JP Morgan’s estimated that, in late October, the Tier 1 Capital Ratio in AIB is 6.2% and in Bank of Ireland is 7.3%. Both AIB and Bank of Ireland expect the NAMA transfers to take place from January up to the middle of 2010.

Likely recapitalisations needed in 2010 : -

• AIB €4.4 billion
• Bank of Ireland €2.8 billion
• Irish Nationwide €1.2 billion
• EBS €300 million
• TSB €800 million

Current market value in December 09 was – AIB €1.2 billion and Bank of Ireland €1.5 billion. This shows that if the state invests in these banks, the government will have a massive majority shareholding. The shares must continue to be traded and I believe that the bank value will rise over time assuming proper financial management.

The state will own all of our banks in the short term. It is likely that the National Pension Reserve Fund will be used to find the money for this.

The Anglo Irish Bank disaster will see 40% of their loan book is impaired.

Last summer, the Irish government spend €4 billion on Anglo – money already lost- and Anglo lost €4.1 billion in the latest half year. Another €4 to €9.6 billion is likely to have to be spent on this bank. The rescue of Anglo Irish bank may have been a reckless mistake.

Fianna Fail/ Green untruths on NAMA propaganda

“NAMA will not put banks in position to lend more” Karl Whelan in the Irish Times of Thursday 17th December 2009. The effect of NAMA will be to make the Irish banks appear less risky investments and reduce the costs of their borrowing. NAMA will not result in extra lending nor is there any promise of cheaper lending. Some of the propaganda from Fianna Fail’s Sean Fleming and Limerick’s leader WilliO is exposed. (William O’Dea). The ECB is not an ATM for Irish banks.

ULSTER BANK (incorporating First Active) and the British Asset Protection Scheme

The Royal Bank of Scotland, largely owned by the British government, owns Ulster Bank. Ulster has transferred assets from the Republic of Ireland to that agency : mortgages amounting to £4.23 billion, £0.56 billion in retail loans, £0.98 billion of business loans £37.98 billion in commercial property loans and other corporate loans with a default estimate personal of over 7.5%. 33% of mortgage portfolio is buy-to-let which is not surprising. Ulster backed the famous Sean Dunne purchase of the Jury’s site in Ballsbridge for €260 million. The British Treasury published the figures in December 09. (ref Kathleen Barrington – Sunday Business Post)

100 company survey regarding pay and employment

In 2009, most companies reduced payroll costs by reducing employee numbers not by salary cuts. Salary freezes are the most common but salary levels are cut for new positions. (Suzanne Lynch, Irish Times 15 December 2009)

Pay cuts

• 70% of companies reduced payroll costs in 2009 by an average of 11%
• 9% implemented salary cuts
• 12% introduced unpaid leave
• 33% introduced pay freezes in 2008 and 2009
• 50% intend to have a salary freeze in 2010

Salary levels

• Down 30% in construction and property
• Down 10 – 20% in Accounting and Finance
• Down 15% in Information Technology
• Down 10% in office support
• Down 10% in Financial Services
• Down 10% in Insurance

Public sector – please note for comparison.

Core tier 1 Capital Changes possible

The Basel committee on banking supervision which sets regulatory standards for world banks has said that the quality of capital reserves in banks must be improved by deducting pension liabilities and deferred tax assets from the current calculations. This would mean that the 4% minimum capital ratio set by the Financial Regulator in Ireland would become a problem for AIB and Bank of Ireland without fresh capital. The new capital figures for these banks would be €2.4 billion and €2.7 billion respectively. But the changes are subject to direction from the Financial Regulator and the banks would have until the end of 2012 to implement the changes. These figures were calculated by Union Bank of Switzerland and reported in the Sunday Tribune

Anglo Irish Bank

• KPMG and DeLoitte were involved in drawing up a five year bank restructuring plan for the EU Commission under the terms of the €4 billion state bailout.
• State would have to inject (give/handout) capital to dissolve the bank and fund the liquidation
• Anglo Irish wants to split into a good bank with loans of €44 billion and €8.5 billion treasury assets which will focus on business lending.
• Bad bank to wind down after €28 billion property assets bought by NAMA
• If an immediate liquidation over 1 year was chosen, Irish government bonds rates and borrowing costs of other Irish banks would immediately rise. The government bank guarantee would be triggered. Asset values across the Irish market would be further lowered triggering capital problems for the other Irish banks immediately.
• A wind down over 5 years was also modelled. It would make more difficult the management sell-off of loans in the US and UK and would be similar in effect to liquidation.
• Anglo Irish was told that the cost of liquidation to the government would be much greater than restructuring and running the bank as a slimmed down going concern.

If Anglo Irish was not part of the state guarantee originally- what would likely have happened?

Details of he final pathway for Anglo Irish await the verdict from Brussels.

(ref. Simon Carswell- Irish Times)

Bill Tormey Comment – If the figures are valid after subjection to expert peer review, then there is now no choice except to run the good bank/bad bank scenario

According to the government – NAMA will buy bank loans with a face value of €77 billion for €54 billion (the good loans are €62 billion and €15 billion bad loans). The current market value is supposed to be €47 billion. That means that Joe Public is handing the banks a free €7,000,000,000. Looks wild when the zeros replace the word billion. Traders normally bulk buy huge amounts in a market with a discount to the current market value. So the handout to the banks is even more than the advertised €7billion.

The government is buying the loans from the banks using €51.3 billion of IOUs called bonds. These bonds can be cashed in at the European Central Bank for money. Another €2.7 billion worth of state IOUs will only be paid to the banks if the value of the assets when sold covers what the government (NAMA) paid for them. That may reduce NAMA losses by €2.7 billions

NAMA – Income – €12 billion in interest payments from good developers owing €62 billion over 11 years. NAMA expects to get 4 billion for the €15 billion in bad loans.

The 80% windfall profit tax on all rezoned land in the NAMA bill will further reduce the NAMA returns on dealing in development lands. This tax rate in up from 20% capital gains tax. The government ignored this in their calculations because it was introduced as a late amendment.

NAMA expects to spend €16 billion in interest payments in the NAMA bonds (IOUs). This depends on interest rates. NAMA bonds will get a 1.5% interest rate variable. Most borrowers will pay Euribor rate plus 2%.

Fees and expenses paid out by NAMA are projected to be €2.64 billion in 11 years. And the government claim that they will make a profit of €5.5 billion by 2020. The government expect a 20% default rate on the €77 billion.

The €77 billion face value of loans is difficult to judge because it is unclear how much collateral was taken by the banks before the loans were paid out. How many 100% loans were issued without collateral.

When is a debt not a debt – when you are the Irish government!

The owners of NAMA will be a Special Purpose Vehicle owned 51% privately and 49% by government. The €54 billion that the government will issue as bonds (IOUs) will not appear on the state’s balance sheet. No folks, we really don’t owe this at all!

This fiction is approved by Eurostat, the EU statistics agency. I will be very careful before I believe any EU statistics again.