Month: September 2010

Lex on Nama

The FT’s Lex column gives its pithy assessment of Nama.

A flavour:

Nama is an odd creature: part debt collection agency, part property developer. As well as toxic loans, it may end up with a portfolio of property which was collateral for the banks’ lending binge. It was meant to fix the broken banks, convince taxpayers they might be repaid and reassure the markets the banks’ liabilities would be met in full. Facing in three directions, it has not appeared convincing in any: slow, bureaucratic, initially indecisive, almost excessively transparent (every toxic loan is assessed individually).

It concludes a bit more hopefully.

IMF: The Fiscal Situation in Advanced Economies

The IMF has released three major studies on the fiscal situation in advanced economies.

The summary is here, while the papers are available at:

Mortgage Arrears: June 2010

The apparently newly branded Central Bank of Ireland has released the latest summary data on mortgage arrears here.  

A total of 36,438 mortgage accounts were in arrears over 90 days in June 2010, up from 32,321 in March. This meant that 4.6 percent of mortgages were in arrears, up from 4.1 percent in March and 3.3 percent in September 2009.  However, mortgages in arrears have a higher average balance (€190,000 compared to an average of €149,000 for the full sample) so the 4.6 percent of mortgages in arrears accounted for 5.9 percent of the total outstanding mortgage balance.

The arrears on the overdue loans totalled €559 million in June. Those in arrears over 180 days are, on average, behind on 10 percent of their total balance.

Negative Net Lending to Firms and Households

Last month, Philip noted the new Central Bank release on Money and Banking. Philip pointed out the new presentation of the data in a more useful format, with figures presented for what is essentially an IFSC and non-IFSC breakdown.  I had meant at the time to chip in to note some other useful improvements but didn’t get around to it.

So, with this month’s release now available (with figures through July), let me first point out that the Bank are now making historical time series available (not sure a direct link works, so click on Statistics on the — newly rebranded! — webpage and then on Data under Credit, Money and Banking Statistics along the left hand side.)

The Bank are also now releasing figures that make the underlying credit situation easier to understand. Detailed figures on lending to households and non-financial corporations, including a breakdown by duration, are now available. The charts on year-over-year lending to firms and households in the press release are based on levels series that are cleaned for factors such as NAMA or exchange rate adjustments that affect the figures for total loans on the reported aggregate bank balance sheets.

Most useful of all, to my mind, is that the Bank now publishes figures for net amounts of new lending (i.e. new lending minus loans paid off) for both firms and households. For example, go to spreadsheet A.5 and click on the tab labelled Transactions and you’ll see these figures broken down by sector and maturity.

These figures are quite volatile from month to month. However, I ran up a chart (see below) of the three month moving average of net new lending to firms and households and it makes it pretty clear that there was a step down in credit availability in late 2008 and that net new lending has been negative for most of the past two years.

This time last year we were inundated with government politicians telling us that NAMA was going to get credit flowing. Well, there’s very little evidence of this occurring yet.

20 Billion euro extra to wind down Anglo?

Simon Carswell reports on an interview with Anglo’s Mike Aynsley  and Maarten van Eden in this morning’s Irish Times.  The number that jumps out is the extra €20 billion Mr. Aynsley claims it would cost to wind down the bank.  

Winding down the whole bank would cost €20 billion – on top of the cost of the split, which stands at about €25 billion – he said.

Maarten van Eden, Anglo’s chief financial officer, added that the split option would also retain €47 billion of the bank’s funding, which would otherwise have to be provided by the Government.

This comprises €23 billion of customer deposits, €16.5 billion of wholesale funding and €7 billion provided by other banks, he said.

A few observations: First, the €47 billion does not include funding from the ECB and Irish central bank, which I presume would be available (subject to liquidity programmes in place) in the wind-down scenario.  Second, surely Anglo’s “deposit franchise” is dependent on the government’s liability guarantees, and again it is not obvious that these it would not be available in a wind down – after all, the bank is presently not engaging in any new business either.  Finally, even in the worse case scenario where the deposit funding disappears, would it really be that much more costly if the government had to borrow to pay off the funders directly?   As it is, the markets are well able to see through the consolidated balance sheet of the government and the nationalised (and semi-nationalised) banking system.  And even with the guarantee, Anglo must offer premium rates (e.g. 3.5 percent on one-year deposits).

It would be good to get commenters’ views on the €20 billion premium cost estimate.