Economics 05/05/2010: Third Force's Burn-out Bench

The news stream is getting thicker and thicker with Irish financials and sovereign / fiscal debacles stories. Reuters is reporting (hat tip to Brian) (here) that the Third Force now looks more like a Burn-out Bench and that there is little prospect for growth or profitability for BofI and AIB.

All's fine, as far as the arguments go, except, there is that silly ending to the article putting blame for the crisis on 'too much competition' in the Irish banking sector. I'd say this pure rubbish. Here is an earlier note I wrote on that subject. In simple terms, it does not matter what profit margins could have been were we to have lower competition. Irish banking crisis was caused by excessive willingness to take risks, spurred on by the Government, the Regulator, the Central Bank and ECB. May be there was too much competition amongst the incompetent cooks in that kitchen?


Oh, and Nouriel Roubini puts a clear number on the fear of European contagion: "European banks hold claims of US$193 billion on Greece and more than US$1 trillion of further claims on Portugal, Ireland and Spain. It cannot be ruled out that the ECB will eventually have to resort to more aggressive measures such as buying government bonds in the secondary market in order to stop the contagion."

So the next stage of contagion can cost Germany (and make no mistake - Germany will be paying for this in the end) upwards of 5 times what the Greek bailout will cost.

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!