FT Magazine: How bankers brought Ireland to its knees

The cover story in this weekend’s FT magazine reviews the Irish banking crisis and features several current and former IE bloggers: you can read it here.

34 replies on “FT Magazine: How bankers brought Ireland to its knees”

Generally – a good piece which is maybe slighly over-optimistic if anything. A small quibble – but not with the article but rather a quote from Colm McCarthy:
“This was a very old-fashioned banking collapse, nothing to do with derivatives and US toxic assets,”

I’m sure I saw a somewhere that the banks had about 40Bn exposure to those derivatives. I guess we were in trouble anyway – but it was hardly “nothing”

@ Aidan

did the Irish banks lose any sizeable money because of those derivatives?

There was some mention of derivate exposure about a year back. It does not seem to have amounted to much compared to the bad developer/construction/property loans. Goldman Sachs was advising some of our revered financial institutions I am pleasantly surprised that they did not bite. This is backed up by email produced at Washington hearings where a GS sales rep complained that the Irish banking people were not stupid enough to fall for the scam being offered. Clearly there were people with sense in the banks. What brought us down was the hand washing as in one hand washes the other, mutual back scratching, wink, nod and nudge at the highest levels of Gov’t, banks, developers and construction. Twas great while it lasted though, wasn’t it lads.

It is said that ALL the major banks are bankrupt because of their exposure to 400+ Trillion USD in derivatives. They are trying to keep afloat and unwind… this will be so destructive for years…

“€14bn” injected into Anglo?

Apart from the €3.8bn early last year and the €8.3bn announced at the end of March 2010, has there been a further injection?

Anglo “Net trading income includes credit fair value losses of
€212 million on lending client originated derivative
Normally that would have been headline news. But most people were probably delighted it was so small.

Ireland is stupid as regards banking.
The IFSC is going great guns.
We do not know what is going on there.
We do not want to know.
We are happy to be ignorant.
We are Irish.
We have to learn lessons over hundreds of years, unlike the Germans.
Ignore what was said.
You know you want to.
In Australia, we have the “too hard basket”.
Because we have identified some problems as too hard, we steer clear of them. We are going great guns ……. Not exactly innovative or smart really.

@ BL

is it fair to assume that those transactions were likely related to fixed rate loans which went bad? Is the derivative fair value loss likely to be a small fraction of the underlying loans? Are you suggesting that we should not offer fixed rate products to borrowers?

The derivatives entered into by the Irish banks were for the most part related to underlying customer hedging. They were both prudent and vanilla in nature. They constituted a credit facilty in many ways, and as such a defaulting customer could create an additional loss (although it could as easily create a profit) as a result of having to unwind the derivative being used to hedge a cash position. However to create, yet again, some sort of derivative-boogey-man in the Irish bank balance sheets sadly misses the point entirely: I’d love to say that Irish bankers just had difficulty understanding complicated underlying products and exposures, but that wasn’t the problem – they actually failed to understand far more basic banking principles relating to cash lending. But hey, by all means, waste losts of time, energy and post-space worrying about the derivatives in the Irish banks, without ever actually suggesting just what we’re all supposed to be so worried about.

No, just pointing out that there were losses. You seemed to think there werent. Chill dude….
q: “did the Irish banks lose any sizeable money because of those derivatives?”
A: yes.
Your reaction ….bizzare, my friend. And it took me about 20s to find and post that. I think your the one wasting time and energy. go take a walk. I cant, too many scripts to mark.

@ BL

Anglo Irish bank lost 12.7bn in that period. So the losses on underlying customer derivatives amounted to 1.67% of total losses? In that context, they are not “sizeable”.

My point is that the Irish banks got into serious trouble because of lending mistakes – any losses on toxic assets etc were minor, and would not have precipitated the system-wide collapse. In that sense, it was a very old-fashioned banking crisis.

@Robert Scott,

It could well be a typo in the FT.

Given however that Anglo’s last accounts were for the 15-month period ending 31 December 2009 and those accounts included in capital the €8.3bn injection which was only announced in March 2010 – and if that capital had not been shown in the December 2009 accounts Anglo would have been massively insolvent – because of the timing of that injection and announcement, it would not surprise me to hear unexpectedly that another few €bn had been injected. The Opp inarticulately tried to find out why the announcement was delayed for so long but the govt side-stepped it. Would it be so extraordinary that we first heard about a new injection in the FT?

On a related topic, to the best of my knowledge, we found out for the first time late last week from the Taoiseach’s speech at the ND Chamber of Commerce that average unit labour costs are expected to fall 8% between this year and next. This is, to me at least, an astounding piece of information. For example in terms of property and mortgages which depend on multiples of income, how will mortgage limits and consequently house prices be affected? I would have said a reduction of 8% in both would seem likely (I know it mightn’t be exactly 8% because of marginal tax rates etc but you see the point).

@ Colm

+1 : that was my exact point. People tend to lose the run of themselves round here whenever the ‘D’ word comes up, even though in many ways its a generic and meaningless word in and of itself without some accompanying information.

This article is fairly magisterial. The best overall layman’s survey of the causes and course of the crash that I’ve seen. The entire debate on this thread so far about derivatives is so wonderfully Asbergers. Well done guys. You’ve really nailed the point.

My favourite parts of the article are: Dermot McCarthy’s suggest that Ireland’s “best calling card is its culture”.

Most people in Ireland have no better grasp of culture than anywhere else. Why does the RTE playlist comprise mainly doleful females singing about loss?.

– Hugh Brady’s “the most valuable product that we produce is highly skilled graduates.” Drivel.

and Neil O’Leary’s “The 1980s émigré phenomenon was really part of the boom: yes, you had this drift of brainpower to the wider world but then they came back fizzing with ideas….You have much more ordinary magic lying all around you.”

Absolutely ****ing hilarious.

The FT survey is spot on though as are the comments by KW, DMcW and CMcC – all of which are very good) But it’s really funny to read the Irish corporate, political and ESRI – the ‘respected’ (by whom for heaven’s sake?) think-tank) commentators.


The affordability of houses, a phrase not used in recent months by the usual suspects, is obviously getting worse as earnings decline.

But the key factors driving house prices down are our old friends supply and demand.


I do a small amount of one-to-one maths teaching to LC students – a.k.a. grinds. It is an eye opener. Judging by my very limited sample, the standard of maths teaching is appalling.

I wouldn’t bet my pension on the Irish education system driving our recovery.

@Eoin Bond etc.
I guess I did drag the the discussion way off topic – sorry folks.
I think it was Pat McArdle on Fridays Irish Times I had in mind when I mentioned 40Bn – No idea how much it is likely to cost in the long run or even if the figure itself is accurate:

“Irish banks had little exposure to US subprime debt but did raise almost €40 billion from such securitisations. But for this, mortgage credit outstanding would now be €110 billion instead of €150 billion. ”

I suppose the point is there was a lot of “cheap” money floating around because of this junk, and it seems to have been used to inflate our housing bubble.

btw I know Pat comes in for a lot of criticism here, but the article does address an issue which deserves more scrutiny – the usefulness of the rating agencies.

This is backed up by email produced at Washington hearings where a GS sales rep complained that the Irish banking people were not stupid enough to fall for the scam being offered. Clearly there were people with sense in the banks.

The Goldman people were talking specifically about AIB if I recall. After being burned in Baltimore and incinerated in London, it’s no surprise that AIB had at least learned to be careful in its foreign adventures. Besides, since it was the imperative for higher returns during the “Great Moderation” which was driving banks around the world to gamble on US subprime, the Irish banks’ big feast at home must have sated their appetite for whatever bait New York was dangling in front of them. Maybe the state’s Green Jersey Agenda contributed to their domestic focus too? Small mercies…

“My favourite parts of the article are: Dermot McCarthy’s suggest that Ireland’s “best calling card is its culture”.

Most people in Ireland have no better grasp of culture than anywhere else. Why does the RTE playlist comprise mainly doleful females singing about loss?.”

I don’t think this is meant as a boast, in my experience one of the main reasons Ireland has been able to attract high quality graduates from other countries is that, despite the weather, we enjoy living here and feel there is something to the culture here. This is not to say that everyone is uber-cultured….

Was it bankers that did the damage or borrowing?

See how the emphasis changes?

Individuals did it, not a flawed system that will enable the same thing to recur …..

When it does recur, as it will, the consequences will be worse, as we have borrowed more in the meantime. The only thing that will ameliorate this is devaluation, absent a massive source of revenue for government and individuals alike.

Japan is the example now?

Pat, I’m only speaking for myself here, but I’d be more inclined to read your posts if you condensed them into one instead of 4 or 5.

I’d say that the English speaking workforce isn’t a particular strength for Ireland, however, what is a strength is the native English speaking population.

The reason why the English speaking population is a strength is that it is easier to relocate to a country where it is easy to communicate with the locals. Costs might be lower in other countries but if a multinational workforce is needed then that workforce is more likely to be found and kept in a country where skilled foreigners can easily integrate.

Poland & other new EU contries are nice places, but Polish & the other eatern languages are very (my experience) difficult to learn.

Low taxes, cheap accomodation and immigrants being able to communicate with the locals would be Irish strengths. However, taxes are likely to go up, partly to keep accomodation costs artificially higher than supply and demand would warrant and locals seem to be getting a bit xenophobic. Add to that some hints of unrest (not yet Greek style) & then a SWOT of Ireland might not be all positive.

So let me get this straight. Current shareholders get to buy at 55c and the government buys at 1 Euro. What a sweet deal for the taxpayer.

Comments are closed.