Above I wrote “It’s my understanding that at the turn of the year AIB had €1.6 billion outstanding in lower tier 2 securities and that BoI had €3.6 billion … And that Anglo has about €4 billion in same?”

I looked at the information I had on this today and realised that I had gotten by two AIBs — Anglo and Allied confused. The figures I was looking at actually showed that at turn of year, it was Allied 4.3bn, BoI 3.6 and Anglo 1.6. I just typed them in hear wrongly. Implications for totals outstanding are the same.

Separating the payment system from the lending would decrease the systemic importance of banks.

**&&%$$$**&&^%$^&zzzzzzzzzzzzzzzzzzz

The importance of time, and timely action, and getting relevant information on time, is central to crisis managment ………. we’ve now been waiting about three quarters of a million minutes is all ……….. ~750,000 minutes is all - shur what’s the rush - won’t it all work out in the end! or a bl**dy €billion a second is all - ~50 billion seconds and €50 billion into the black-hole. HOW DO I SCREAM ON A BLOG?

We are kidding ourselves if we think we can resolve this without knowing how much the final cost will be and how we will pay it. We will end up like all the half-finished estates round the country - built on hope and hot air. Hope has been dealt with; unless you are in a balloon, hot air is not a strategy either.

that was some rest! Good work & keep it up …..

Yes - ‘Anglo is different’ - deserves the ferengi-treatment.

What is 15billion when you are at that level. So instead of the state (you and me) facing a bill of 15billion it will be closer to 30billion. Moreover at the end we will still have a leveraged banking system. Therefore, we will still need the bond markets. So therefore, burning senior bond holders is a gamble and burning some subbies might have unintended consequences. This applies to AIB/BOI alone. Anglo is different.

The average loss of a property bust and financial crisis is about 12% of total banking assets. You can’t only count the banks that are in trouble, you have to count all assets, so while you have more equity to play with, the losses are asynchronous (the players with the equity are not necessarily those with the losses). So overall losses to the system will, I reckon, be about 50 bn on a baseline (average) case. On that case 3-4% of PTSB’s PPR residential book will go bad. The same for INBS. Then add in a bit for RIL (which has a higher default rate, maybe 5-6%) and EBS’s commercial (about 12%) and C&D (about 20%). These are the best two, because they have the lowest exposure to the stuff that will go really bad.

You for sure have to include INBS in the basket case category.

Of course, we could be having a worse than average property bust and financial crisis…

decided to do a bit of digging around today.
*there is about 13billion in total on subbies in the whole system with about 9bn in the 2 biggies so you are correct. Some of it is newly minted I think as it is already the result of previous debt buybacks. Most seems to be lower T2.
*I stand to be corrected on this but this is less risk bearing than the T1 stuff i.e coupons can’t be stopped. Eoin will clarify, I am sure.
* Who owns this stuff? Some of the experts will help hear but the suspicion is that most is owned by banks and not marked to market. So does this mean if you torch it in A it makes the whole bigger in B.
*as regard the stuff in AIB/BOI which are the systemically important banks well lets just say the owners would not be happy if you hurt them. They might not take kindly to somebody with a lot of sovereign and bank paper to sell. This is our Clint Eastwood moment and I suspect we are looking at the wrong end of the gun.
*Anglo is probably a different case and here the Northern Rock approach should be tried.

In summary, the IMF estimate of the the cost of clean up at 35billion is probably realistic -about 10% of the AIB/Anglo/BOI loan book. A third will be absorbed by the equity owners. Another third could be distributed between the subbies, asset sales and future profits. That leaves a third at least to be met by someone else. At the moment it is either a) through a combo of the NPRF/NAMA/Central Exchequer spread over a generation or b) NPRF/Exchequer spread over a generation.

I struggle to see where a foreigner would come from. The UK are leaving. The Danes and the Benelux would like to leave. The Spanish have fingers and toes crossed. BNP is looking at Soc Gen. HSBC is looking at Asia. The Canadians wanted M&T not AIB.

Moreover as Cormac Lucey points out growth in this economy is going to be sub par for a decade so why would a white knight appear.

At this stage the two big banks end largely up in state control, Anglo is in state control. The Third force is a runt. The proeprty market is in State Conrol and to cap it all we look like a one party state. We might as well leave the EZ and reconstitute the Warsaw Pact. This debate on the pros and cons of NAMA is now as sterile as a Lilliputian on the right way to open a boiled egg.

Yes - Seven_of_Nine does that at times - those borg tendencies haven’t gone away you know - spotted her reading The Examiner yesterday and she went out a few minutes ago - think she said - ‘Lee, you later’ - strange …

“An economist is like a man who knows a hundred ways to make love but doesn’t know any woman.” [George Lee, 22-02-2010 Irish Examiner, p. 6. during a speech in Borisokane]

If I was offered 30 cents on the Euro of nominal capital as suggested
earlier, I would presumably get only 30% of €10,000, say three years’
dividend  (as these shares yielded 12% when originally issued long
ago,  I assume that the nominal issue value of the shares was €10,000
since I paid €20,000 and got 6%).

So I’ll stick with my old packet of Daz, thank you, as the lady said
in the ad.

Even if I were offered the deal which the Lloyds Bank Pref.
shareholders got, i.e., they got an option of converting to bonds
yielding one or two per cent more, for periods of 10 or 20 years, but
converting to ordinary shares if bank core capital falls below 5%
(see “bondvigilantes” blog of the 12th of November 2009 for further
details and comment)

Might be worth a gamble, depending on what you paid for for your
shares and what yield you were getting, but the risk of the core
capital of Bank of Ireland falling below 5% will still be very high,
even after  NAMA, as demonstrated by Morgan Kelly in his “Irish
credit bubble” paper of December last .

Better to be patient, and hold on to my Prefs for say five years,
when they might start paying me 6% again (even the ordinary shares
must start paying out some time, which means the Prefs will get paid
first)?

But you have to balance that against the eventual risk of a
Resolution enforced by the IMF or the EU, as mooted and advocated by
Morgan Kelly in the paper mentioned above.  Which might be even less
than 30 cents on the Euro.

Back to paragraph 2 above and start again.

Such are the thoughts that go round and round in the heads of  bond -
owning  folk.

Current value = €1.07

Current unrealised loss = 21%

AIB @ €0.99

From the Irish Independent Saturday November 22 2008.

http://www.independent.ie/national-news/bertie-goes-off-track-with-bank-of-ireland-shares-tip-1549316.html

“Bank of Ireland shares are €3.80 today. Now if I meet you here next year, or the year after, do you seriously think Bank of Ireland shares will be €3.80? I’d go out and buy Bank of Ireland shares . . . that’s what I’d do,” he said.

I hope Brian Lenihan didn’t take his advice.

“p.s. Seven_of_ Nine says Hi! She enjoyed the fling (-;”

And she said she was only going out to buy some sugar because the Replicator was on the blink.

See extract from today’s Ferengi Times above.

Not the ‘COWBOY’ Ferengi. Big Naa-Maa supporters these CowBoy Ferengi & their first cousins - The Cowboy Ferengi Bankers, ShawnEee an’ Fingers Louty ………. other two are amateur ferengi - and it really shows at the mo.

Things must be really bad when we wish for the REAL FERENGI - they would have liquidated on the spot, sold the prinicipals into slavery in the kryptonite mines on Nirvana, shut up the shop, and headed for pastures greener at warp-9 (-;

p.s. Seven_of_ Nine says Hi! She enjoyed the fling (-;

“Nationalisation anyone?”

Any self respecting Ferengi would say liquidation.

Pick any old number - none have any objective validity whatsoever - policy on the hoof …….. gizza number.

@joe
re sov default & euro exit! Take a good rest Joe - NaaMaa does this to people … if it continues try the Naa-Maa recovery groups.

@Gregory Connor
Any update on making the case for a ‘foreign bank’ to come in and take over the mess? We would all be eternally grateful to anyone who could construct such a case.

@Padraigh Harrington

A minor matter - I’ll stick with the majors.

@All
Nationalisation anyone?

Michael Soden has talked about how some assets could be stripped out of the banks (http://www.eire.com/2010/02/23/what-are-we-going-to-do-about-bank-of-ireland/). If the State owned the bank, it could carve up the bank(s) in this way, and then sell the bank for a premium, but with a bank guarantee. The State would have cash up front, and any losses from bad debts would fall to the taxpayer over a couple of years rather than all at once (which is what happens if you liquidate the banks and trigger all the guarantees).

However the State can only legally drive this if it wholly owns the bank(s). That is why the bank(s) need to be nationalized. It is the first essential step to fundamental restructuring.

“…if we weren’t running a combined budget deficit of roughly 40% of GDP between 2008-2011 we could probably have taken a harder line against the banks….”

Many thanks for putting the bank resolution issue in its proper context – and in the broader policy-making context. As we approach the final 6 months of the blanket guarantee period it seems all that remains is speculation about the nature of the end-game - and a hope that the powers-that-be have worked out some sort of damage-limiting end-game. We won’t know what this will be until it happens - if ever.

We might as well face it: we are living under an elective dictatorship. All this means is that we have periodic opportunities to select who governs during sequential, but, more often, extended, periods of tyranny. A government that can marshal the lobby fodder in the Dail and with the full machinery of government at its disposal can do, more or less, as it wishes without let or hindrance. The only risk it runs is the flakiness of a coalition partner or of backbenchers in response to Macmillan’s “events, dear boy, events”.

This is the way the banking debacle has been tackled. Decisions are made at a high level by a small number of people without transparency or scrutiny, the spin machine goes into over-drive, any dissenting views are squashed and the decisions are rammed through the Oireachtas. It may all work out well in the end – and I am not alleging any malign intent, but this is the nature of governance that created this financial and economic debacle.

Until enough people take an interest in pushing for major reform of the system of democratic governance, we are doomed to experience a protracted and painful exit from this mess and run the risk of future repetitions. In the meantime all comment and speculation on the process of governance is futile and ineffective – even if, on occasion, it can generate some entertainment.

“Were it not for the banks, Ireland’s fiscal position would be more manageable”

Equally, if we weren’t running a combined budget deficit of roughly 40% of GDP between 2008-2011 we could probably have taken a harder line against the banks….

Or perhaps we don’t need to do either? Perhaps we could just tear up the guarantee and sue PWC? It might get sticky for a while to issue sovereign debt, but the NTMA are smart chaps and being forewarned could stock up on t-bills to get us through the next six months.

Were it not for the banks, Ireland’s fiscal position would be more manageable - either longer could be taken or capital spending could be maintained while current spending declined (to reduce the structural element) and tax revenue increased. (Much and all as I think much of what has been considered as ‘capital’ spending has been disguised current spending…).

Yep, the €8.8 billion is my count of what’s left even after the recent activity. But it’s difficult to keep track of this stuff and I’m not on the Bloomberg machine keeping a daily watch on this. I’m happy to be corrected by someone who’s confident they have a better or more up-to-date count.

On burning our subbie friends, I’m not going to play at “what did Patrick really think” as I can think for myself — I was merely pointing out that some people worth respecting share the idea of a nationalised bank negotiating with subordinated bondholders after it had blown through it’s equity.

As for “It may be that Sov default and exit from the Euro is the only option” I suspect that entering into our horrible jesuitical subbie debates (we do this every few weeks just for fun) has depressed you unnecessarily. You’ll feel better in the morning.

Is there still 9bn of “somebody elses money” in the subbie a/c for the big banks post all the recent activity?
Does the most recent BOI buyback actually constuitute a debt equity swap, buying back low coupn debt and issuing higher coupon debt. Sure it generates a capital gain now but what impact does it have on operating profits in future?
The Guvnor recommends “negotiating” with the Anglo subbies. “Sell or get burned”. Did he say anything about the two big guys. In fact, is the Regulator really on board with these buybacks. Should he not be worried about the erosion of total capital in the two big banks.

I doubt whether there really is “someone else” who can pay for the mess we collectively created. We did after all elect the current govt. Maybe those of us who can prove we did not vote FF in the last election should be let off. It may be that Sov default and exit from the Euro is the only option.