Bubbles and Busts'  Instablog

The 2011 annual reports for Bank of Ireland, AIB/EBS and Irish Life reveal the scale of losses that will be in store if our economy doesn't turn around and grow. Each of these three financial institutions published two valuations for their loan-books - a "carrying value" which is what is reported in the accounts and represents the book value of the loans less a convoluted provision for impairments and a "fair value" which represents what the loans are worth today if they were called in and the underlying asset was used to pay off the loan. Here is the summary of the loan books in 2011 which show that the overall difference between "carrying value" and "fair value" for these three institutions is an almighty €38bn which if it materialised would wipe out the entire capital base and need nearly €20bn in additional capital to boot, just to keep banks solvent. To give them adequate capital buffers might involve a further €20bn. So €40bn, all told on top of the €72bn current and projected cost. (my emphasis)

And take a look at the loan books the previous year in 2010.

There has been a major deterioration in the "fair value" and the gap between the "carrying value" and the "fair value" which is what you would expect when the economy is still in recession, where residential property fell by 16%-plus in the past year and commercial property fell by 10%-plus, and where unemployment is now at a current-crisis record of 14.8%.

Read it at NAMA Wine Lake
2011 annual reports for Irish banks reveal potentially catastrophic losses and additional bailouts requirements
(h/t FT Alphaville)

So much for those stress tests, huh? It is already pretty widely accepted that Portugal will need a second bailout later this year and it appears Ireland isn't out of the woods yet either. Optimistic expectations for growth are nice to look at, but can have terrible ramifications when used for policy making. Growth prospects for the PIIGS remain extremely weak, looking out over the next few years, which means banking shortfalls in the countries will probably increase further. If the necessary size of Ireland's bailouts offers even a reasonable comparative estimate for Spain, instead of 100 billion euros, the ultimate total may be upwards of 400-500 billion euros.