19 replies on “Honohan article in the FT: A Plan to Restore Ireland’s Banks to Health”
Holohan is not one of the bad guys.
He took over the CB after:
1.25% of GNP had evaporated.
2.We had overbuilt by 350,000 empties which is probably enough for 15 years of national demand including holiday homes.
3.Losses on construction loans, private syndicate muck, commercial and residential mortgages and of course the developers had probably hit €100bn at least and all to be funded by an economy that was 25% smaller.
Holohans article is a good start in that context, his main job is to preserve confidence in the international funding of the stupendous sovereign issuance that the government envisages over the next 2-3 years.
He should not be doing this at all. Anglo and INBS should be in the hands of the Liquidators and the sovereign issuance should have been a lot smaller and more manageable.
He should be explaining why he was simply tolerating the winding up these two chancers.
Maybe he can give a flat in leafy Longford and a fishing tackle to everybody who comes up with a good comment on the FT site. He can certainly afford to as long as they are City chappies 🙂
@Philip Lane
Very Timely, and measured, from The Governor, and from his position as Governor of The Central Bank of Ireland.
I suppose a few external observers will wonder at the “losses reflect a runaway credit binge led by [Anglo-Irish] (whose balance sheet grew at an average annual rate of 36 per cent for the 10 years to 2007).” & why this did not raise a few flags. Not the thread for personal opinions on this decade here.
My personal apologies to the English nation for one of our own bringing the term ‘Anglo’ into such disrepute.
Minor point: PH – when mentioning ‘wages’ please also add ‘prices’ …
@PL
We on GMT now?
I was taken aback by this:
“Meeting the bank’s net liabilities, in accordance with the guarantee of September 2008, has already cost the government more than €12bn and is likely to cost about €10bn more. This is a truly shocking figure, albeit one that is affordable for the state.”
I know what he’s trying to say, but saying bailing out Anglo is “affordable” is fairly shocking.
I started reading this article yesterday, got some ways down, thought to myself this is rubbish (sorry Mr. Honohan) and skipped off to the editorial page. It is only now I realise who wrote it. What can I say? That you are governor and I am only a humble citizen. Well, be that as it may I am still the citizen who must pay for the frauds and ergo must be entitled to my opinion.
The guarantee has been a disaster. It cannot be spun in any other way. It prevents the pain from going past the level of tax payer and ordinary share holder to bond holders. Anglo, “our bank” is so shrouded in secrecy that we are not allowed to have access to reports that keep telling us, that phrase again, “keeping it open is the only game in town”. No, No, No. It is our bank, it is our money and we must have access to all documents that we are paying for. All their figures must be put openly on the table for inspection. Who are the Anglo bondholders?
Yesterday, in the IT we were told who the NAMA majority stake holders will be:
Irish Life Assurance, part of IL&P deeply involved with Anglo
New Ireland owned by BoI and unbelievably too “major clients” of AIB Investment Managers.
There is a huge conflict of interest here. How, can Matthew Elderfiled and Patrick Honohan countenance this conflict of interest? The same people and groups are on both sides of the fence here. As beneficiaries of NAMA they now own the 51% controlling share holding in National Asset Management Agency Investment Ltd while at the same time receiving the invaluable largess (scarce) from “NAMA” . Wait until the rating agencies get wind of all this. Will we be able to find out what decisions are being made, by whom with links to whom inside the SPV? Have we learned nothing?
Ireland need fear no debt trap? Or will it be worse here? Plans for the banks need not include borrowing. They are far too big for the real economy, stripped of FIRE and corruption.
Small is effective. What was once affordable is now exorbitant. Obviously, PH nexpects recovery around the corner.
And if it is not?
@ Dave
Notwithstanding the author’s professional credentials and personal probity, the purpose of the article is to persuade the capital markets that Ireland will never default on it sovereign debt. No nay never.
‘Affordability’ in this context can only mean mean that we are again preparing to’sacrifice a generation, to preserve the political status quo. TINA is the message. Was it Joyce who said that Ireland is the sow whcih eats its young ?
@PL
It’s noteworthy that Honahan mentions RBS and Lloyds being run as commercial enterprises. The UK papers spend inches every week lambasting Darling and Brown over RBS and Lloyds (and that’s even after it looks like they might make a modest profit on Lloyds).
Isn’t it time the Govt invite in KKR, LoneStar, Blackstone, Cinven, Santander, and the rest of the vultures to look at the banks’ assets. Start with the smallest, work way up to the largest. Put the banks/ building societies into these cut-throats’ hands and we’ll have a truly commercial financial sector.
And if none of them want to buy a single Irish bank/ building society, even for a €1, (sic, price of most Irish owned assets these days: e.g. The UK Indo). Then we’d know that the 31st December 2009 balance sheets were a fiction, and there would be more writedowns and bail-outs on the way.
Better we know than not know, and the sooner the better.
I’ll even pay for Stephen Schwarzman’s plane ticket, just for the pleasure of seeing the fear of God in the bankers’ faces.
Moody’s has wrote a 5-page comment on Irish banks and the sovereign… the tone is favourable, if guarded.
The news is seen as positive for banks… no surprise here.
“Moody’s considers the NAMA transfers and the resulting improvement in banks’ balance sheets as generally positive for the Irish banks’ own credit profile.” “and have consequently placed the standalone D BFSR rating of BoI (A1/stable/D) on review for upgrade, and changed the outlook on the D BFSR of AIB (A1/stable/D) and EBS (A2/negative/D) to positive.”
The agency opines, “The aim of the NAMA project is to renew the credit supply to viable businesses”…. And even more remarkably, “the Irish government has decisively cut expenditures and increased revenues”.
Moody’s does have a section asking, “Is the banks’ gain therefore the government’s loss?”
The conclusion is “Moody’s is closer to determining at what level in the Aa rating range Ireland’s ratings are likely to settle” and is all a “balancing act between preserving the Irish economy’s vitality on the one hand and the government’s financial strength on the other” [for “financial strength”, read vulnerability]
The article is convincing. Hopefully it will help bring fresh private equity into our banks.
@ Zhou_enlai
You are hoping “it will bring fresh private equity into our banks” so are many of us, but is that really likely? The FT editorial commentary on the same paper yesterday, certainly did not find it very convincing and cut to the chase.
They highlighted crucial flaws in NAMA. The Levy which still overhangs Irish banks and any potential investors for years to come. Why would investors put money into Irish banks, when all they have to do, is wait for the unfolding sovereign debt crisis and they will get far higher returns?
Their second point was a more general point, the abject failure of NAMA to share losses with bond holders putting the tax payer on the hook for more and more debt they simply cannot afford.
Trouble is that the sovereigns guarantee was always more aspirational than real.
@ Pat Donnelly
Thanks for the link, but the 64 dollar question is what is the rool-over figure for Irish sovereign debt as opposed to UK debt?
Least anyone has forgotten Nama has to roll over bonds annually. Which creates a huge exposure.
@ciaran o’hagan
‘The agency (Moody) opines, “The aim of the NAMA project is to renew the credit supply to viable businesses”….
Doubtless, but it looks like that will entail:
* protection of international bondholders
* shielding of local vested interests
at the cost of
* burdening the sovereign unrealistically
* decrease of public confidence in government
leading to
* public sector breakdown and implosion
* deflation, emigration and growth of the informal economy
Irish assets, including labour, could again become ‘attractive’, but the political and industrial relations climate is the x in the equation. It is notable that conservative as well as social democratic parties have opposed NAMA.
Moody’s have just shown us why they triple “A” rated the most toxic of securities and derivatives in America leading many people to incinerate their savings and causing excruciating pain for all and sundry. Court cases still pending no doubt.
They are a shameless lot, and there ‘analysis’ is seriously flawed. It amounts to this, if the Irish tax payer is on the hook for everything then this must be good for our clients ergo the country. What a joke. On that logic we swill soon have our ‘AAA’ rating back as we pile on even more debt.
Oops, “On that logic we will soon have our ‘AAA’ rating back as we pile on even more debt.”
@Ciaran
“The agency opines, “The aim of the NAMA project is to renew the credit supply to viable businesses”…. And even more remarkably, “the Irish government has decisively cut expenditures and increased revenues”.”
It’s an astonishing set of statements. paul quigley has already started on the first. Mind you, that is not the stated aim of NAMA, rather it is to put a floor under asset prices.
Expenditures that were cut, eh, some public service pay, have just been agreed back up. Deferring future expenditure is not the same as cutting, particularly not in a deflationary environment.
Increased revenues? This is the most laughable. Revenues are projected to fall again this year despite the state taking an increased proportion of GNP in taxation. The state is sucking the life out of the economy.
It is doing this to prop up the banks.
The banks pay Moodys.
Moodys like it.
The choice was always “the banks or the economy”. The choice has been made.
The article begins by saying this:
“The shadow that has hung over Ireland’s banks for the past 18 months is lifting.”
It might be better to phrase it slightly differently. How about this:
“The shadow that Ireland’s banks hung over themselves for the past 18 months is being lifted and being moved to hang right over Ireland’s taxpayers.”
@ yogan
‘Expenditures that were cut, eh, some public service pay, have just been agreed back up. Deferring future expenditure is not the same as cutting, particularly not in a deflationary environment.
I am not privy to what happened in the recent talks, but it seems likely that there were a number of factors at work.
First, there were pragmatic organisational and political factors. Industrial action was tending to undermine the already limited powers of public sector managers, and was probably strengthening the hand of local shop stewards. Escalation could lead to a fall of the government with FF/Green wipeout, or to a churning of trade union leadership. Hang together or hang separately.
Secondly, the management side was also presented with a reasoned economic argument around the deflationary impact of repeated public sector pay cuts. The knock on effect in the private sector was probably highlighted, with predictably sobering results. Many Irish families have a foot in both camps.
In any case, the wheels are, for better or worse, already starting to come off the deal. It is hard to see a New Dawn in the public sector, while responsibility for the bust is concealed. The Taoiseach’s personal position is untenable in the medium term.
‘Increased revenues? This is the most laughable. Revenues are projected to fall again this year despite the state taking an increased proportion of GNP in taxation. The state is sucking the life out of the economy’
Insofar as that is the case, there is a time honoured mechanism here. It’s called tax evasion, which we deplore formally, but tend to regard as a venial sin. That’s the colonial legacy. Sure, it’s coming off a broad back.
If we are not to have another painful round of mass emigration, we need to ask ‘What kind of state, and economy, do we want ?’
Communicating clearly with the citizens ought to be Mr Honohan’s first priority. He is a highly qualified economist, and not a bishop. Insofar as he asserts that NAMA is ‘affordable’, the onus is surely on him to give his reasons.
Governor Honohan announces the banks will no longer have to depend on State guarantees, when will this be the case? No announcement for repeal of the guarantee has been made by the government.
Is this the 1st official announcement that Anglo is effectively being wound down anyway?
“The new management plans to carve out a small but healthy banking book as a going concern, with a view to Anglo’s subsequent sale. The remainder would be wound down as an asset recovery agency.”
I note Irish uncompetitiveness was not listed as one of the causes of the economy’s problems but is suggested as a solution.
19 replies on “Honohan article in the FT: A Plan to Restore Ireland’s Banks to Health”
Holohan is not one of the bad guys.
He took over the CB after:
1.25% of GNP had evaporated.
2.We had overbuilt by 350,000 empties which is probably enough for 15 years of national demand including holiday homes.
3.Losses on construction loans, private syndicate muck, commercial and residential mortgages and of course the developers had probably hit €100bn at least and all to be funded by an economy that was 25% smaller.
Holohans article is a good start in that context, his main job is to preserve confidence in the international funding of the stupendous sovereign issuance that the government envisages over the next 2-3 years.
He should not be doing this at all. Anglo and INBS should be in the hands of the Liquidators and the sovereign issuance should have been a lot smaller and more manageable.
He should be explaining why he was simply tolerating the winding up these two chancers.
Maybe he can give a flat in leafy Longford and a fishing tackle to everybody who comes up with a good comment on the FT site. He can certainly afford to as long as they are City chappies 🙂
@Philip Lane
Very Timely, and measured, from The Governor, and from his position as Governor of The Central Bank of Ireland.
I suppose a few external observers will wonder at the “losses reflect a runaway credit binge led by [Anglo-Irish] (whose balance sheet grew at an average annual rate of 36 per cent for the 10 years to 2007).” & why this did not raise a few flags. Not the thread for personal opinions on this decade here.
My personal apologies to the English nation for one of our own bringing the term ‘Anglo’ into such disrepute.
Minor point: PH – when mentioning ‘wages’ please also add ‘prices’ …
@PL
We on GMT now?
I was taken aback by this:
“Meeting the bank’s net liabilities, in accordance with the guarantee of September 2008, has already cost the government more than €12bn and is likely to cost about €10bn more. This is a truly shocking figure, albeit one that is affordable for the state.”
I know what he’s trying to say, but saying bailing out Anglo is “affordable” is fairly shocking.
I started reading this article yesterday, got some ways down, thought to myself this is rubbish (sorry Mr. Honohan) and skipped off to the editorial page. It is only now I realise who wrote it. What can I say? That you are governor and I am only a humble citizen. Well, be that as it may I am still the citizen who must pay for the frauds and ergo must be entitled to my opinion.
The guarantee has been a disaster. It cannot be spun in any other way. It prevents the pain from going past the level of tax payer and ordinary share holder to bond holders. Anglo, “our bank” is so shrouded in secrecy that we are not allowed to have access to reports that keep telling us, that phrase again, “keeping it open is the only game in town”. No, No, No. It is our bank, it is our money and we must have access to all documents that we are paying for. All their figures must be put openly on the table for inspection. Who are the Anglo bondholders?
Yesterday, in the IT we were told who the NAMA majority stake holders will be:
Irish Life Assurance, part of IL&P deeply involved with Anglo
New Ireland owned by BoI and unbelievably too “major clients” of AIB Investment Managers.
There is a huge conflict of interest here. How, can Matthew Elderfiled and Patrick Honohan countenance this conflict of interest? The same people and groups are on both sides of the fence here. As beneficiaries of NAMA they now own the 51% controlling share holding in National Asset Management Agency Investment Ltd while at the same time receiving the invaluable largess (scarce) from “NAMA” . Wait until the rating agencies get wind of all this. Will we be able to find out what decisions are being made, by whom with links to whom inside the SPV? Have we learned nothing?
http://www.telegraph.co.uk/finance/economics/7542428/PIMCO-fears-UK-debt-trap.html
Ireland need fear no debt trap? Or will it be worse here? Plans for the banks need not include borrowing. They are far too big for the real economy, stripped of FIRE and corruption.
Small is effective. What was once affordable is now exorbitant. Obviously, PH nexpects recovery around the corner.
And if it is not?
@ Dave
Notwithstanding the author’s professional credentials and personal probity, the purpose of the article is to persuade the capital markets that Ireland will never default on it sovereign debt. No nay never.
‘Affordability’ in this context can only mean mean that we are again preparing to’sacrifice a generation, to preserve the political status quo. TINA is the message. Was it Joyce who said that Ireland is the sow whcih eats its young ?
@PL
It’s noteworthy that Honahan mentions RBS and Lloyds being run as commercial enterprises. The UK papers spend inches every week lambasting Darling and Brown over RBS and Lloyds (and that’s even after it looks like they might make a modest profit on Lloyds).
Isn’t it time the Govt invite in KKR, LoneStar, Blackstone, Cinven, Santander, and the rest of the vultures to look at the banks’ assets. Start with the smallest, work way up to the largest. Put the banks/ building societies into these cut-throats’ hands and we’ll have a truly commercial financial sector.
And if none of them want to buy a single Irish bank/ building society, even for a €1, (sic, price of most Irish owned assets these days: e.g. The UK Indo). Then we’d know that the 31st December 2009 balance sheets were a fiction, and there would be more writedowns and bail-outs on the way.
Better we know than not know, and the sooner the better.
I’ll even pay for Stephen Schwarzman’s plane ticket, just for the pleasure of seeing the fear of God in the bankers’ faces.
Moody’s has wrote a 5-page comment on Irish banks and the sovereign… the tone is favourable, if guarded.
The news is seen as positive for banks… no surprise here.
“Moody’s considers the NAMA transfers and the resulting improvement in banks’ balance sheets as generally positive for the Irish banks’ own credit profile.” “and have consequently placed the standalone D BFSR rating of BoI (A1/stable/D) on review for upgrade, and changed the outlook on the D BFSR of AIB (A1/stable/D) and EBS (A2/negative/D) to positive.”
The agency opines, “The aim of the NAMA project is to renew the credit supply to viable businesses”…. And even more remarkably, “the Irish government has decisively cut expenditures and increased revenues”.
Moody’s does have a section asking, “Is the banks’ gain therefore the government’s loss?”
The conclusion is “Moody’s is closer to determining at what level in the Aa rating range Ireland’s ratings are likely to settle” and is all a “balancing act between preserving the Irish economy’s vitality on the one hand and the government’s financial strength on the other” [for “financial strength”, read vulnerability]
The article is convincing. Hopefully it will help bring fresh private equity into our banks.
@ Zhou_enlai
You are hoping “it will bring fresh private equity into our banks” so are many of us, but is that really likely? The FT editorial commentary on the same paper yesterday, certainly did not find it very convincing and cut to the chase.
They highlighted crucial flaws in NAMA. The Levy which still overhangs Irish banks and any potential investors for years to come. Why would investors put money into Irish banks, when all they have to do, is wait for the unfolding sovereign debt crisis and they will get far higher returns?
Their second point was a more general point, the abject failure of NAMA to share losses with bond holders putting the tax payer on the hook for more and more debt they simply cannot afford.
Trouble is that the sovereigns guarantee was always more aspirational than real.
@ Pat Donnelly
Thanks for the link, but the 64 dollar question is what is the rool-over figure for Irish sovereign debt as opposed to UK debt?
Least anyone has forgotten Nama has to roll over bonds annually. Which creates a huge exposure.
@ciaran o’hagan
‘The agency (Moody) opines, “The aim of the NAMA project is to renew the credit supply to viable businesses”….
Doubtless, but it looks like that will entail:
* protection of international bondholders
* shielding of local vested interests
at the cost of
* burdening the sovereign unrealistically
* decrease of public confidence in government
leading to
* public sector breakdown and implosion
* deflation, emigration and growth of the informal economy
Irish assets, including labour, could again become ‘attractive’, but the political and industrial relations climate is the x in the equation. It is notable that conservative as well as social democratic parties have opposed NAMA.
Moody’s have just shown us why they triple “A” rated the most toxic of securities and derivatives in America leading many people to incinerate their savings and causing excruciating pain for all and sundry. Court cases still pending no doubt.
They are a shameless lot, and there ‘analysis’ is seriously flawed. It amounts to this, if the Irish tax payer is on the hook for everything then this must be good for our clients ergo the country. What a joke. On that logic we swill soon have our ‘AAA’ rating back as we pile on even more debt.
Oops, “On that logic we will soon have our ‘AAA’ rating back as we pile on even more debt.”
@Ciaran
“The agency opines, “The aim of the NAMA project is to renew the credit supply to viable businesses”…. And even more remarkably, “the Irish government has decisively cut expenditures and increased revenues”.”
It’s an astonishing set of statements. paul quigley has already started on the first. Mind you, that is not the stated aim of NAMA, rather it is to put a floor under asset prices.
Expenditures that were cut, eh, some public service pay, have just been agreed back up. Deferring future expenditure is not the same as cutting, particularly not in a deflationary environment.
Increased revenues? This is the most laughable. Revenues are projected to fall again this year despite the state taking an increased proportion of GNP in taxation. The state is sucking the life out of the economy.
It is doing this to prop up the banks.
The banks pay Moodys.
Moodys like it.
The choice was always “the banks or the economy”. The choice has been made.
The article begins by saying this:
“The shadow that has hung over Ireland’s banks for the past 18 months is lifting.”
It might be better to phrase it slightly differently. How about this:
“The shadow that Ireland’s banks hung over themselves for the past 18 months is being lifted and being moved to hang right over Ireland’s taxpayers.”
@ yogan
‘Expenditures that were cut, eh, some public service pay, have just been agreed back up. Deferring future expenditure is not the same as cutting, particularly not in a deflationary environment.
I am not privy to what happened in the recent talks, but it seems likely that there were a number of factors at work.
First, there were pragmatic organisational and political factors. Industrial action was tending to undermine the already limited powers of public sector managers, and was probably strengthening the hand of local shop stewards. Escalation could lead to a fall of the government with FF/Green wipeout, or to a churning of trade union leadership. Hang together or hang separately.
Secondly, the management side was also presented with a reasoned economic argument around the deflationary impact of repeated public sector pay cuts. The knock on effect in the private sector was probably highlighted, with predictably sobering results. Many Irish families have a foot in both camps.
In any case, the wheels are, for better or worse, already starting to come off the deal. It is hard to see a New Dawn in the public sector, while responsibility for the bust is concealed. The Taoiseach’s personal position is untenable in the medium term.
‘Increased revenues? This is the most laughable. Revenues are projected to fall again this year despite the state taking an increased proportion of GNP in taxation. The state is sucking the life out of the economy’
Insofar as that is the case, there is a time honoured mechanism here. It’s called tax evasion, which we deplore formally, but tend to regard as a venial sin. That’s the colonial legacy. Sure, it’s coming off a broad back.
If we are not to have another painful round of mass emigration, we need to ask ‘What kind of state, and economy, do we want ?’
Communicating clearly with the citizens ought to be Mr Honohan’s first priority. He is a highly qualified economist, and not a bishop. Insofar as he asserts that NAMA is ‘affordable’, the onus is surely on him to give his reasons.
Governor Honohan announces the banks will no longer have to depend on State guarantees, when will this be the case? No announcement for repeal of the guarantee has been made by the government.
Is this the 1st official announcement that Anglo is effectively being wound down anyway?
“The new management plans to carve out a small but healthy banking book as a going concern, with a view to Anglo’s subsequent sale. The remainder would be wound down as an asset recovery agency.”
I note Irish uncompetitiveness was not listed as one of the causes of the economy’s problems but is suggested as a solution.