Why Irish Banks Are Smiling

I can only assume Hank Paulson was the inspiration because this plan by Ireland, sounds a lot like what Hank was trying to originally do in the states. Since then of course we've morphed into an even "better" plan (bigger, stronger, faster!). The numbers in this story are staggering - and effectively repeats much of what the U.S. is doing, although we are funneling much of the bad assets... err, I'm sorry ... we're funneling much of the AAA rated paper into the burrows of the Federal Reserve. Then walking the emperor through the middle of town pointing at all his clothes... "oooh, ahhh... nice robe."

So as we discuss career choices for your children, it appears in addition to "federal government worker" & "healthcare worker" we will need to add "banking executive in any major industrialized Western country". Life is good when you take risks, profit from the gains, and shuffle losses onto the taxpayers when you lose. And still take home the bacon.

This surely is only good news for speculators and banking executives - more and more risk is put on sovereign states and taken away from the private corporations - amazing to see this happening in country after country, really. As you can see it was time to rejoice at Allied Irish Bank (AIB) and the Bank of Ireland (IRE) - wish I had caught this story early in the day or I would have jumped in. The governments of the West have made banks risk free investments.

Welcome to our party Ireland. Thank you (again) taxpayers of all stripes - your generosity knows no bounds. Luckily the Irish no longer have their own currency and can hide under the banner of the Euro after this move.

Via Bloomberg

• Ireland plans to spend 54 billion euros ($79 billion) buying real-estate loans to purge the country’s financial system of the toxic assets that are crippling what was once Europe’s fastest-growing economy.
• The government’s new National Asset Management Agency, or NAMA, proposes to pay a 30 percent discount on the 77 billion- euro book value of the loans, Finance Minister Brian Lenihan said in a speech in parliament in Dublin today. The current market value of the debt is about 47 billion euros, he said.

Yep, definitely Hank Paulson inspired - paying MORE for said assets than the market deems appropriate to help bail out banks and the banker class. Classic.

• In what may be the biggest financial gamble in 87 years as a sovereign state, the government will spend about 28 percent of the country’s gross domestic product for 2008 to become the owner of loans for property developments that are plunging in value.
• The strategy is designed to keep alive Bank of Ireland Plc and Allied Irish Banks Plc. In April, the government said NAMA would take on about 90 billion euros of loans.
• NAMA could almost double the national debt, and many of the loans are already likely in default, meaning the government will have to foreclose on them, leaving it the direct owner of huge amounts of housing.
• Last September, Ireland guaranteed about 440 billion euros of deposits and some debts of the banks. It has also pumped about 11 billion euros into Allied Irish, Bank of Ireland and the now nationalized Anglo Irish Bank Corp.
• The agency will pay for the loans with bonds that the banks can exchange with the ECB for cash.

Of course the ECB is Europe's parallel to the Fed - same game, different continent.

I was just scouring the comments section for the CBSMarketwatch story on the same topic, and it seems the Irish are not quite so easily distracted with NFL games (a different kind of football in their case) or American Idol (Britain's Got Talent?) as Americans. Some examples:

#1 - I'm Irish, living in Ireland, and the population wants our leader's head on a plate of this NAMA business. Basically, it's a bailout by the taxpayer to the property developers and banks that got us into this problem in the first place. Shameful and disgusting.

#2 - It's not only taxpayers they are hurting, but central banks have robbed income/money from savers/retirees by cheapening money with all of the liquidity they are injecting into the system.

#3 - Ireland's problem is that it copied the American model of parasitic capitalism. They allowed companies to lend money to people who had no way to ever pay it back. No money down mortgages, loans for vacations etc. The executives who benefited from these practices have run off with their ill gotten gains and the Irish workers are left holding the bag.

Boo Yah bankers. You win again; I have to simply admire you on that end.

Comments

[tcgrower]

I'm only a tiny % irish: take a pain pill. everyone and their country is going through the same thing. you guys weren't harping when you were reaping the benefits of being connected to the fastest emerging markets in the world, that being aibs banks being tied to eastern block countries and eastern europe. So just sit back and invest in your banks and drink some irish whiskey and you will be ok

2009 Sep 21 06:42 AM

[Buckoux]

"..the American model of parasitic capitalism."

"Parasitic capitalism". What an excellent phrase to describe the US economy of the last 10 years. And the parasites were on both sides of the transactions. At first glance it appears to be an oxymoron but, with nuanced perception, it accurately describes the contradictions that got us into the present mess.

"They [government & regulators] allowed (compelled?) companies to lend money to people who had no way to ever pay it back."

The "payback" was intended to be the sub-prime borrowers vote! Unfortunately the laws of economics that socialists always try to repeal - and always fail - prevailed in the end. Rep. Maxine Waters, of the house banking committee, is certainly not Irish, but she does know the word: "nationalize".

2009 Sep 22 12:18 PM

[Irish-Banks]

Good point there, the Banks on our blog have certainly benefited from this massive handout. I just don't know where it will end up? Or if they really will benefit from it in the long run, maybe its better the banks take the hit sooner.

2009 Sep 24 07:48 PM

[Fliujniligui]

This is not yet done it seems

This is interesting now. There is a lot of lifetime buying opportunities out there. I agree, things were cheaper in March, but the risk of total loss in all the investments I will discuss later were also much higher then, or seemed so. Now, many bargains still exist and in many instances, problems topped and performance bottomed or is bottoming. Irish Banks are going to be cleaned and there will be remaining capital and earning capacity for the long run once cleanup and dilutive capital raisings are done. There are also other crazy bargains around that may be less stressful than AIB and IRE and still offer a nice upside potential, albeit a smaller one than Irish Banks. Here is what I hoard. I also rate them with a risk factor and reward factor. Mixing all the stuff together gives a good mix of future dividend income.

AIB 8 for risk and 10 for reward
IRE 6/9
BCS 2/5
DB 2/6
Crédit Agricole 1/3
NBG 1/5 --> this one is not cheap but net interest margin is near 4%, bad loan coverage by earnings is about 2-3 times, it is more fatly capitalized than Canadian Banks and it has an Emerging Europe exposure (reminds me BZWBK...)
To be played as Apple and Google of banks. More expensive but probably a long term killer growth thing EWBC ??? It is a buy, this is also a Google Bank now. They serve a niche market, they are so fatly capitalized that they can take their own losses along with a part of UCBH's ones without crimpling their lending capacity by straining capital once business pick up. They are still very cheap, and if we can get them under 13 $ once again, blessed would we be. I did not buy EWBC yet, since I think getting at a lower price is not impossible, and should it never happen, I can play with the other stocks mentionned up there.

2009 Nov 13 11:58 PM