Inside The World Of Business
Banks’ extraordinary lengths to avoid recognising losses
VERY SERIOUS doubts are emerging about the extent to which Irish banks are really facing up to their losses on big-ticket investment property lending.
Two banks in particular, AIB and Anglo Irish, seem to be going to extraordinary lengths to avoid having to recognise losses on frothy deals done at the top of the market which have come back to bite them.
The properties cannot be dispatched into the National Asset Management Agency as it is only taking investment property which has been pledged as collateral for land and development loans. As a result the banks are faced with the prospect of absorbing the full market-related hits on the portfolios, worth around €700 million in the case of AIB and €1 billion in the case of Anglo Irish.
Faced with this unpalatable prospect AIB entered into a complex transaction with Green Property, which appears to be the model for a similar one being contemplated by Anglo Irish.
In both cases investment properties are being removed from the bank balance sheet – or bypassing it entirely – in off-market transaction that allow the banks to avoid having to mark them to market and take the loss. But given that Green Property is not a charity and its chief executive Stephen Veron is no fool, it’s safe to assume that the deals have been done in a way that the risk reverts to the banks.
What this means is that post-Nama, AIB and Anglo will have, respectively, €700 million and a €1 billion worth of property assets sitting off balance sheet, valued at above the market price and thus with an associated unquantified potential liability for the bank. And those are the two such deals that we know something about.
While the attraction of such deals to the banks is obvious, the benefit to the taxpayer of going through the pain of the Nama process and still ending up with dirty banks is far harder to see.
Spurring a willing horse?
Like a trusty warhorse, the National Treasury Management Agency has once again been pressed into action.
The agency is to take over responsibility for managing the State’s shareholdings in the banks and will represent the Minister for Finance in discussion over further capital investment and the “realignment or restructuring of the industry”. This is presumably Merrion Street speak for the creation of the so called “third force” in Irish banking.
The move has been generally welcomed as it puts some distance between the politicians and the day-to-day engagement of the Government with the banks. This is important when you consider that the Government is almost certain to be the majority shareholder in AIB and the biggest shareholder in Bank of Ireland once they are recapitalised.
Opposition politicians have been quick to point out that it also makes scrutiny of the Government’s action all that harder.
On balance, the more nimble approach to managing the Government’s interests and the reduced scope for political interference suggested by the NTMA’s involvement trumps this concern. Although some thought needs to be given to oversight.
But, sticking with the equine analogies, there is a danger of spurring a willing horse.
The NTMA will have its hands full with its day job – raising debt for the exchequer – over the next few few years. It is worth noting that no sooner do things seem to be getting easier on that front than the next crisis blows up: Greece being a case in point.
Delegating more work to the NTMA may prove counter-productive if the agency does not get the resources needed to carry it out the job.
Rabbits have fingers crossed
“Never in the history of the State have so many people been out of work,” said Fine Gael enterprise spokesman Leo Varadkar yesterday, with Churchillian flair.
But while the figures in the latest Live Register data published by the Central Statistics Office (CSO) are horrendous – 437,000 people claiming unemployment benefits in January – it is probably “important not to lose sight of the big picture”, as Ulster Bank economist Lynsey Clemenger noted yesterday.
January 2010’s increase of 5,800 claimants on a seasonally adjusted basis compares rather favourably to the 29,000 people who signed on in January 2009.
By this measure, the worst of Ireland’s jobs crisis has indeed passed. What is less comforting, however, is the lacklustre response of the Government to the crisis. When Isme chief executive Mark Fielding can accuse policymakers of acting like “rabbits in a headlight” to a more or less silent response, he proves his own point.
Paradoxically, migration acts as a political saviour: if the number of people who leave the country increases, it reduces the size of the labour market, flattering the unemployment rate. Employment subsidy schemes may alleviate a short-term crisis for a small handful of employers, but it is in the long term where the Government’s industrial policy has adopted a concerning “fingers crossed” dimension.
Ministers’ speechwriters must by now have set up a shortcut key for “smart economy” on their word processors. But reality does not match these aspirations: the number of job training opportunities amounts to little more than a trickle and education places are far too few. Fine Gael’s charge yesterday that the sitting Government represents “no jobs, no plan and no hope” will find many sympathisers – at least 437,000 of them, in fact.
Today
The Finance Bill, giving effect to the measures announced in the budget, will be published this afternoon. It is is also expected to implement some of the recommendations of the Commission on Taxation report
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