“No plausible, transparent explanation has been offered”

Eh, i thought everyone, both within and outside the industry (who has an interest), was aware that lots of BOI’s loans were being refinanced by other banks, and so reducing the amount to be transferred? Matthews acts like this is suddently new information, even though everyone has known about it for months! Also, why does Peter Matthews suddently start using a 30% discount figure in his “new” calculations vs a 40% figure in his original ones? And why does he continunaly throw in lines like “in my professional opinion”? Im not alone in finding it seriously irritating and pointless - you used to work for a bank Peter, we get it!!

Excerpt:
On September 16th, 2009, Minister for Finance Brian Lenihan advised by PricewaterhouseCoopers, reporting consultants to the National Treasury Management Agency and the Department of Finance, presented to Dáil Éireann the summary details of the loans listings from five Irish-owned banks that would be participating in the Nama project.

The Minister told the Dáil that Nama would purchase loans totalling €77 billion from the banks for €54 billion. Included in the €77 billion were €16 billion loans to be purchased from BoI.

Dan Loughrey states that BoI’s Nama-listed loans on the audited (by PWC) balance sheet dated December 31st, 2009, only three months after September 16th, 2009, amounted to €12 billion. Curiously, a large €4 billion amount of reclassification of Nama “eligible” loans had materialised in the three months since September.

No plausible, transparent explanation has been offered. At a 30 per cent write-down level, reducing the Nama-destined loans from €16 billion to €12 billion, achieves a smaller total write-down of €3.6 billion instead of €4.8 billion and, correspondingly, a reduction in losses of €1.2 billion. In turn, this reduces by €1.2 billion the pressure on the bank to recapitalise, thereby reducing and avoiding existing shareholder dilution.

This type of “economical” accounting, in my professional opinion, actually undermines proper measurement and true assessment of the capital requirements of the bank, and, arguably, undermines the safety of customer deposits.

More here, at least until the paywall descends - http://www.irishtimes.com/letters/index.html#1224278896651

Useful as it shows how deceitful banks are! Lots of great comments although one seems to subscribe to the idea that reserves are necessary to lend! Perhaps in well regulated (comparatively) Australia?

Steve Keen doing great work despite predicting the collapse of the housing market in Australia! When China pops, maybe.

Dizard.

“The European Commission might exercise its power to relieve the Irish state of some of its overly-broad guarantees of bank obligations.”

Whoopee! Maybe Lisbon and the loss of sovereignty was worth it after all?

The interest rates are far higher than current in Ireland and higher than the USA, but this is stupid behaviour. Possibly only at the margin? No deposit means these folks had better be able to afford the house! I doubt it will spark a surge in prices…..

Many people sold houses without reinvesting the proceeds. There is plenty of scope for more taxation. Land is way over valued and can be brought down to the market value wherein it becomes popular again, via current annual taxation that forces the owner to use it …… or lose it.

This is a time for genuine, wide reaching tax reform and some economists might even make up for their short sightedness by using their expertize to jog an odd elbow?

2.5bn capital raised from this (so book value 0.6bn?)

I believe 2.9bn had been suggested beforehand (given that there was a floating share price, i suppose it was easier to calculate a likely sale price incl takeover premium)

Good news if true.

How’s 3bn USD compare with book value? What does it mean in terms of capital raise?

I do recall the big expensive Red Brick houses in that area taking a bit of a pasting. It was certainly difficult to sell a property at that time in the D4 area. As regards Browne who features in the IT yesterday and the Indo today in regard to the sale of his house and the losses he has racked up I wonder could people now start to realise commentators like him of which there are many need to be taken with a grain of salt.

Today’s business folks, 3bn+ being touted…

cheers. But there is a very big difference between real and nominal price movements, and the effect these have on the debt owed by both households as well as the banks themselves. To throw that comment out without explanation, as a comparison with today’s problems, is a sloppy and shoody way to argue a position.

http://www.esr.ie/vol30_4/1_Roche.pdf

Shows a national series. Real prices seem to peak around 120 and bootom at around 80.

Given that Mr. Browne bought his house in Dalkey in 1987 for the then princely sum of €119,000 and is looking to sell it for €3,250,000, it appears that Mr. Browne is conversant with inflation in prices, but perhaps not with inflation itself?

http://www.irishtimes.com/newspaper/property/2010/0909/1224278507148.html

Since the CPI doubled between 1979 and 1984, it sounds like he means real terms.

If house prices in D4 were the same in 1984 as he were in 1979, then they fell by 50%.

quick thing on Peter Matthews appearance on Vincent Browne last night - he said that property prices in D4 and D2 fell by 50% in the early 1980’s. VB called this, effectively, bull****. Is this correct? I was but a whipper snapper at the time, so did this actually occur?

Top tier capital holders can’t force those lower in the capital structure to take losses. Iot is intuitively absurd.

However, a sovereign power could at threat of nationalisation (complusory acquisition and defult)

Is this the face saving way to subvert the bank liability guarrantee?

They are now loss making and owned by the public until profit making or dissolved.

They are now reducing their lending.

Banking has two parts: retail and investment. Ireland decided that there were to be no restrictions on investment. Retail has suffered as a result. Retail can be taken over by the credit unions. Investment will fail again and again until the agency problem is addressed. Partnerships are appropriate for investment banking. Quinn nearly rescued Anglo! Government especially Irish style, is a super agency and has correspondingly large problems. Small banks are the way to go as they can compete.

Just remember that unrestricted investment results in a bubble….. and total loss can not be avoided.

Politicising the banks is clearly a bad thing.

sorry to rain on your parade, but B3 is likely to be closer to 7% than 13% for core T1 1 and the phase in period may be until 2018. If that is the case BOI will look well capitalised.

It is likely to be a minimum of 5% plus 2 buffers adding up to 4.5% making T1 = 9 to 9.5% with 80% core which would be around 7-7.5%.

That would take Tier 1 to 13% for some of the too big to fail banks. Has Ms Elderfield and our CB governor got us covered for this one?

Perhaps Peter Matthews has underestimated the capital requirements of BoI and AIB.

I know that a lot of you people will deserve a good rest-up this weekend. It’s been a very long, hard week of debate and discussion. I appreciate the efforts that have gone into contributions in the various threads, and hope to get around to reading through much of the above. Thanks again, BOH.

“Can we not ban opinion pieces in the Irish Times on this subject?”

Sure we could do better and ban Morgan Kelly, Mathews etc and what about this piece for an scorched earth view of Irish banking.

http://www.irishtimes.com/newspaper/breaking/2010/0909/breaking32.html

the BoI figures are categorically wrong - the announced way back in March i think, that they would in fact only be transferring 12bn and not 16bn to NAMA. This reduction alone, per Peters figures, garned from his relevant professional experience no doubt, reduces down their required capital by 1.7bn. This is before we even go into the fantasy land of his suggestions, given that the government will not be revoking on the guarantee, defaulting on its debt, or threatening to liquidate BOI or AIB, one or all of which would be required to push through a d-for-e swap. And this is before we go into loan provisions already taken, operating profits etc etc. The guy is dangerously wrong.

http://www.youtube.com/watch?v=11CCxv2ueiQ