OPINION:There is a PR spin currently in circulation to the effect that the banks are 'open for business' and are lending as normal. This clearly is not the case
I RUN a town planning consultancy based in Dawson Street in Dublin. We got permission for a number of projects last summer and autumn and many of our clients in these cases have applied to a number of banks for funding. Their applications have been in front of those banks since last October and November. The banks will neither say yes or no. This permits them to continue with the fiction that they are open for business.
All of these projects that I am aware of have tenants lined up for the completed development. If the banks would allow the developer to draw down a facility, they would be able to pay their architect, planning consultant, solicitor, quantity surveyor, estate agent/valuer and all those who were involved in getting the project to this stage.
Moreover, the contractor could go on site and he would employ labourers, plumbers, carpenters, bricklayers and all the trades associated with construction. The buildings when completed would have a number of businesses operating, all employing people. In one case, a listed building currently vacant, would be refurbished and activity would be created within the building and on the adjoining street. I am aware of similar cases in Cork, Limerick and Galway.
Instead there is no economic activity, no money in circulation and no employment. Many if not most small and medium enterprises in the private sector are putting their staff on three-day weeks or laying them off. The situation is steadily getting worse. In addition, many companies are unable to pay their monthly tax returns and this can be seen in the decline of exchequer returns each month.
If the banks continue not to lend there will be no money in circulation, less employment and more people signing on with each passing month. The amount of tax paid will reduce, while Government expenditure on social welfare and redundancy will increase.
If a trend analysis was carried out on the rate of decline over the first three months of this year, the outcome for the end of the year is likely to be horrific. However, as with all trend analyses, action can change the trend.
There is an urgent need for the Government to do something about the banks. It is clear the banks lent out so much in recent years that they now cannot lend in a more modest and reasonable manner.
The banks borrowed money from abroad and gave hundreds of millions to developers to buy potentially valuable greenfield sites on the edge of towns all over the country. These sites are now worth half of what was paid for them. The banks realise (but won’t admit) that they won’t get their money back, but they still owe the money to the sources they borrowed from.
The reason the Government says it must give money to the banks is that they are utilities just like power and water and must be prevented from going under. The Government says it is giving the money so that the banks can lend again. However, banks seem to have no intention of doing so and instead are selfishly using the money to shore up their balance sheets. There has been much talk about the creation of a “bad bank” to take over the toxic assets (ie property loans not likely to be repaid) in the banking system.
A more viable solution might be to create a “good bank” that is empowered to lend to the small businesses that keep this country going. It may be that the logistics of setting up a new bank in the time required may be too great.
The alternative might be to split the existing banks into two. Part A (or should that be B for bad) could contain all the bad loans and could be managed by the senior staff who created this problem. If they failed to trade their way out of it, they would be allowed go bankrupt in the future without causing any damage to the general economy. The other half of the bank would continue with day-to-day normal banking catering to the average customer and normal businesses.
The Government could pump money into this branch of the bank on condition that this is lent straight into the economy. The brighter, younger staff, could run this part of the bank. This kind of retail banking is less profitable and so there should be no pressure to increase profits over and above the previous year. The aim should be to make a profit and whether it is up or down on last year should not be relevant.
The board of Anglo Irish Bank is said to be scratching around for a new business plan. One that presents itself is to lend money to the kinds of developers mentioned at the beginning of this article. In other words, people who are intending to physically build or refurbish premises, employ people and create economic activity rather than the speculative non-productive lending that went on in the past. This lending would be in the tens of millions for productive investment rather than the hundreds of millions given out for speculative investment. The staff in Anglo Irish must be well versed in property matters and so should have a good feel for what is a viable project or not. There is also an opportunity for a State bank to purchase the stock of built but unsold housing stock for social affordable housing. The various landbanks that unpaid loans are secured on could also be examined for productive uses.
Government money should continue to be spent on providing physical infrastructure throughout the country, but in a joined up manner integrated with other development proposals.
The choices facing the Government are stark. If it doesn’t make the right decisions during April, including in the budget, Ireland will continue its slide into God knows where.
The central focus must be how to get lending going again to businesses, to get money into circulation and to create a plan for development that can take us on to the next surge upwards. A clear plan will give hope and restore confidence – the two most important ingredients in any recovery.
Tony Manahan is a town planning consultant