Monday, April 19, 2010

Economics 19/04/2010: INBS - Titanic hits the ocean floor...

INBS has reported a €2.49bn loss for FY 2009 on the loan book just under €11bn, with roughly €8.5bn of this attributable to development and investment in property markets. Provisions amounted to €2.8bn, so in other words, the Kingdom of Irish Local Finance has managed to pile up an impressive 25.5% impairment charge on the book that has already taken a hit in 2008. Between 2008 and 2009, INBS has managed to post impairments of 30%.

Actually, here is a better view: 96% of all losses are on commercial development books, which means INBS has been lending money to folks whose default rates are currently running at more than 33% yoy! These are recognized default rates, which conceal the fact that many of the INBS' loans (just as in the case of other banks) would really be deep in red, were they not re-negotiated and switched into 'interest holiday' loans back in 2008-2009. Now, remember the numbers released by Nama? 2/3rds of the loans not paying interest. Apply that to the INBS books - the expected impairment charge for 2010-2012 will be around €5.7bn. And that's only for the non-householders' loans...

The numbers are truly outstanding by all possible measures.

INBS's administration expenses rose to €46mln from €45mln in 2008, and the bank has managed to accumulate €7 million in professional fees as one-off expenses, presumably relating to the management efforts to shore up the hull of a sinking boat.

Per Irish Times report, CEO Gerry McGinn said the greatest management challenges were in relation to the commercial loan portfolio. "The society has manifestly been seriously under-resourced in many areas of its business activities and support functions, but most especially in commercial lending," he siad.

Under-resourced? As if throwing more cash at staff and consultants would have prevented them from issuing so absurdly poorly priced and analyzed loans?

At this stage, especially given Mr McGinn's denial of the reality (that the INBS is a burnt-out force with not a modicum of decorum to pretend that it can act as a functional lender) any more taxpayers cash directed to the INBS would be a pure and gratuitous waste!


Unknown said...

thank god its systemically important or else it would have to fold!

TrueEconomics said...

Indeed, Brian. What makes me feel even better is that the Irish taxpayers, the same ones who are struggling to pay their bills, mortgages, keep their kids in creches and are facing the costs of rising taxes can now delight themselves with the Government's generous decision to make sure Mr McGinn's management team has all the funds it needs to restructure the fantastically promising, but 'underfunded' financial services undertaking known as INBS...

James said...

I remember listening to you on the radio defending the market and the banks when house prices were rocketing. Paraphrasing 'in the old days young Irish people had to live at home now the market is providing them with jobs' etc. Never a word from you about the obvious credit bubble of the fed leading to an Austrian style crash (I suggest you read Human Action by Von Mises). So it's hard to take now when you're offering solutions to something you never saw.
Also to Brian Lucey - he did a report for the Irish government saying that all was ok with the Irish property market just before the crash. There were economists both here and in Ireland who lifted their heads from the fake data of the banks and used logic but you two weren't among them.

laughingbear said...

With a staff of 16 people in this country investigating the matters of our Banks, one can imagine the latter to have a serious laugh at us.

Banks are reporting losses or profits, as they see fit.

On the bigger stage, without a well trained economic brain at my disposal, the destruction of the Euro is inevitable. The whole Euro notion was based on ever rising liabilities of importers, even a heavily intoxicated person would have judged this as unsustainable. Decades later, the shit hits the fan and we witness the cataclysmic eruption in realtime.

Ireland, with debts six times over income ratio, a contracting economy and severely paralyzed political stage sits right on the edge of that volcano.

TrueEconomics said...


on many occasions in the past I have been critical of the bubble emergence - on the record.

Since at least 2002 on I have warned consistently that Irish public sector spending is out of touch with reality and dangerously unsustainable.

Since around 2004 I have been saying consistently that were fooling ourselves when we believe the hype of the construction-fueled wealth.

What I always defended and continue to defend is the fact that parts of Irish growth did come from the productive sectors - exports, MNCs, and even in financial services there has been plenty of real growth, including in indigenous companies.

Not for my love of speculative development and lending was I assigned to that prestigious and small group of commentators who are regraded as 'extremists' and 'unreasonable'.

Having lost a newspaper column in 2007 to the fact that I dared to publicly criticize our great real estate peddlers, I do not think I need much of the credentials to defend myself against your statement.

My suggestion is: read the facts and argue these. Ditto for your comments on Brian Lucey.