Honohan Speech at IFSS2010 event

Patrick Honohan’s latest speech is here.

In addition to explaining the extent of the recapitalisation of the Irish banking system, he also highlights the desirability of transferring risk to foreign investors, either through the sale of banks or the sale of packages of loans (including residential mortgages).

64 replies on “Honohan Speech at IFSS2010 event”

I haven’t read that speach but I have to say it is a bit frigging late. You sell high and buy cheap, or try to if you have any wit.

The time to be selling Irish risk assets was before the international inveating commutity had woken up to what Ireland is really like. There are now few naive potential buyers around.

His comments afterwards, which seemed to be about what hypothetically the IMF would want/do/look for, became an “IMF deal for Ireland!” rumour, and yields have puked up big time this afternoon. As someone said to me, why mention the IMF and hypotheticals if you don’t have to…ridiculous. No sign of the ECB and Lenny talking about putting a tax on internet betting. All very depressing stuff.

I assume Honohan is floating/prepping the idea of an IMF led bailout for a reason.
But what reason?

To prepare the populace?
Or to spook the ECB/EC who might not want to see the IMF taking a lead within the EZ without the Failed Sovereigns Fund being also involved?

Does the Govt have the cojones to play tougher with the EC than heretofore?

Silly question maybe…….

The IMF cut public sector pay by 30% in Latvia, closed hospitals and state agencies. Is this what our govt intend doing on Dec 7th. Honohan reckons our govt will do what the IMF will do. Come on, I smell a rat here.

It is clear that the markets have lost all faith in our leaders. The yield now at 8.59 on Bloomberg having spiked in the last hour.
Olli’s platitudes are cutting no ice with the markets.

I like the bit about loan losses being EUR 85b when you add on the non-Irish financial institutions, just what the markets need to be reminded. Anyway he does state that there is business to be done at the right price, most likely when the taxpayer is barefoot, empty-tummied and wearing rags.

Trying to figure why the sudden spike today on bond yields. RTe reporting 8.8% at 3.47pm. Is it the speech by the Professor or is it the actions of the clearing house?


Mainly the Professor. As Eoin said, he shouldn’t have mentioned the IMF. Once he did, only one thing was going to be picked up on the wires.

It’s hardly all due to the Prof. More likely a concerted push against the Euro with Ireland in no mans land.

Its actually getting weird now (see below). Almost seems deliberate, whether to soften up the Irish electorate, opposition politicians or EU Commission. Almost feel better the more he says it, cos he’s either drunk and/or gone mad, or its a deliberate ploy from a very smart guy. Maybe he does have the cajones?


Out of all the public figures at present….
He strikes me as the most compentent and with it and impervious to the political horseshite that corrupts the rest of them.
He speaks marketesse and for whatever hunch I cant explain, I trust him.
Is it time for an election???

@ Al

im with you, he’s too smart to be doing this by accident. Is he trying to seriosuly shake some cages in both Ireland and Europe?



Tension rose today following a Portuguese debt auction. Lisbon did sell €686m 10-year bonds and €556m 6-year bonds, less than the guideline range, which was €750-1250m in both cases. (Selling less than the guideline amount has been a feature of Portuguese debt auctions since
July. Yields, however, were punitive. Lisbon will pay 6.81 per cent on its 10-year debt, up more than half a point since the last auction of comparable debt in September – and up 1.5 percentage points on the August auction. The cost of debt on the 6-year bond has risen almost 2 percentage points since the last auction in August, now standing at 6.16 per cent. Yesterday, the Greek cost of debt for short-term debt – just six month bonds – rose 25bp to 4.82 per cent.

surely ireland will be forced to act drastically now, its all very well saying we’re funded till middle of next year, but EU cant be happy with the damage we are doing to other peripheral bond prices. portugal, spain et al are still in the market

@ Eoin B

He may have his eye on the national interest while our politicans are distracted by their European responcabilities…..
Everyone is looking at us, but if Portugal goes first then are we inevitable,,,

Is this going to be an all nighter or will the markets close soon?
I am a work typing up lecturing material, wondering if there is any point to doing it?

@ Al

bond markets basically close at 5pm. Think you can still trade off market in theory, but nothing gets done, and the likes of Bloomberg dont track it. Note – US holiday tomorrow as well, so could be quiet today and even tomorrow if guys are nipping off early.

This is a speculative bond market that is attempting to create a self fulfiling prophecy. Its irrational, there has been no logical reason for the dramatic increases in the last few days and any shrewd investor could deduct Irelands real financial position based on information available since before the governments revised budgetary figures. It may well got to 10 -12 ….And the reality is this is the same for the other peripheral economies. Ireland is on the verge on insolvency but has been since it took on all the bank liabilities, avoiding default is still possible but I assume if anyone on these boards was charged with the task of sorting this they would already be discussing financing arrangements with the EU. As for “reputational damage”, Im sure the official line will go along the lines of “Due to the unprecedented volatility in sovereign debt markets , the Irish Goverment together with the EU Commision has resolved to ensure Irelands budgetary adjustments and medium term financing needs will ……”

Gillian Tett from the FT asked Honohan after the speech if he would sell the Irish banks to the Chinese. In answer he referred to AIB unprompted.

PH:”The government will, I think, acquire a majority stake in AIB
But you’re going beyond that you want to know if I would like to see, if I would be happy to see, would there be a more general acceptance of this?

I think the answer is Yes

And In fact I’ve been asked this question in China and in Hong Kong and different places, people have stood up saying what about a Chinese purchaser, would even that be acceptable?”

I’m afraid I’m too much of an internationalist to say no to that”

GT: “If they come with cash, I’m sure you’ll be happy”

PH: “Yeah and I think the Chinese are serious people”

@Ossian Smyth

Pity he did not try to sell it to the Chinese before they sold all the good bits to Santander.

Hmmm. A bank in a newly accessed country with a huge run up in its balance sheet on the back of a domestic asset boom? They sold at exactly the right time and got a good price. Pity they didn’t sell more earlier.

I’m not sure how securitisation (or covered bonds as it would be) would help. I don’t believe there is sufficient confidence in the underlying assets.

Could not agree. Track record of Santander speaks for itself. Sell all your good assets and keep the rubbish rump is hardly a winning strategy. What business school did these guys attend.

Erik Nielsen, a Goldman Sachs economist, says in the FT today that bond investors are overreacting to the possibility of the permanent eurozone rescue mechanism providing for losses for private lenders.

He cites the problems of setting up a multi-country system.

That may be wishful thinking and Portugal today sold 10-year bonds at 6.85%.

Burning bondholdrs apaprently comes at a cost.

Have the election now, they seem to be shorting Ireland at max steep anyway. The last thing you want is an election the day the bag of cash dries up in the NTMA.

Honohan floating the idea of the Chinese??? Its like English football agents saying ‘Man City and Chelsea are interested in him’.

@ ceteris paribus

The margin requirement was a factor, among many.

About €8bn of Irish bonds are traded daily.

The Financial Times reported last week that that Ireland and Spain have been removed from a list of countries in which Russia’s $130.9bn sovereign wealth funds is permitted to invest, according to the Russian finance ministry’s website. Norway’s $520bn fund said the past few weeks had seen Spanish debt grow a lot less attractive.

“We are heading towards putting some bond markets into a prolonged period of cold storage,” as currently applies with Greece, Ciaran O’Hagan of Société Générale in Paris, wrote in a note to investors Tuesday. “We maintain our recommendation to avoid the riskier sovereigns.”

The Irishman wrote in The Irish Independent last September: “Ireland’s credit for now is as safe as houses. The Exchequer is swimming in cash. And it has ultra-strong backing from the European authorities. A 6%+ yield today on government bonds will prove a bargain, as long as the Government digs the Exchequer deficit out of its hole.”

@Michael Hennigan

Its an interesting comment. If you take the Irish 4.5 10 year now trading at 77 then the haircut is already priced in. Or are they contemplating a larger haircut?

@Michael Hennigan

Thanks Michael.

With RTE reporting 10year at 8.95% this evening then you would be losing your shirt if you bought at 6% on that recommendation. This latest twist in the downward spiral will inflict serious losses on the banks and the entire financial sector.

And to think that pension funds are arguing to be let into this volatile market?

It’s unspeakable short-sightedness on the part of pension fund managers.

wathing RTE news now. crikey Sharon Ni Beholain is beautiful..

anyway…sorry – david murphy saying that the 10 yr bond yields are based thin volumes and probably wont stay at that level.

seems like a bit of a non issue really. no panic according to RTE news.

@Judge John Deedes

Poor old David. Just as well he was not on the Titanic.
As Michael Hennigan said above about 8b traded daily. Thin trade is the usual excuse trotted out and makes no sense whatsoever. If trade was so thin then the ECB could hold the pricing at reasonable levels without acquiring truckloads of our paper. With 18b of our paper they must not want any more.
Perhaps they have stopped the bond buying programme.

“Perhaps they have stopped the bond buying programme.”

ive read on this site that when auctions are imminent the ECB strong arm some larger nations into buying our bonds to bring the yield down to reasonable levels.

I wonder if any posters here have any reason to believe that this wont happen again as we move into 2011. if it does then out >8% yields are academic.

@ Michael Hennigan

“as long as the Government digs the Exchequer deficit out of its hole.”

very unfortunate phrasing there

Did the track record of the Irish banks speak for itself too? Up until they went bust?

I think AIB got close to 20x earnings for Zachodny. That is a good price. Sell stuff that makes a good price.

Patrick Honohan on Anglo loses – August 2010:
Supporting Anglo Irish may result in a net cost of about €22 billion to €25 billion to the State, Mr Honohan said earlier this week.

One month later – September 2010:
The Government today confirmed the cost of sorting out Anglo Irish Bank would be €29bn, but could reach €34bn in a worst case scenario.

33% difference in 1 month.

But as Governor Honohan keeps telling us – (whatever the actual figure turns out to be) it’s manageable. Now, where have I heard that before…

Santander went through a property bubble and did not end up a basket case.
The price they got is irrelevent-that is if they needed to get rid of the entirety. And the good Professor has indicated that they do need to get owners.Selling the good bits of a corporation is plainly crazy.


Indeed, the market’s perception of the stressed condition of the Sovereign is surely weighing also on the banks in terms of interest costs and ready access to funding; just as the banking problems have weighed on the Sovereign. [……. ] Indeed, from a national point of view, the entry of foreign purchasers for some or all of the banks would help transfer both credit and liquidity risk to those in a better position to bear them. This is not as far-fetched a scenario as it might appear to some; astute bankers recognize that there is profitable banking business to be done in Ireland in the years to come, though they will differ on the optimal timing and pricing of entry. [The Governor]

“Nothing is impossible, then – and nothing can stop you.
And if you have no limits – then you can hold the State.” [Tao Te Ching: Ch 59]

Rumours floating in political/journo circles that IMF has offered facility at 5% but with strings attached. Govt reluctant to accept.

What do yoy think would be the better option: Brussels or Washington? having so publicly been hung out to dry by Europe, would we be better advised to go the IMF route. I can’t believe I am about to suggest this, but could the IMF care more about ireland and its economy than the Europeans?

@Joseph Ryan:
“A beggerman does not refuse beef.”

We don’t need beef: we’ve got cheese.


@ Joseph,
who said anything about beef. It might be crow.

I am not sure what the mechanics were in Latvia nad Hunngary. It is called an IMF package but I am sure the EU is involved. Honohan’s rhetoric was fairly specific today-the IMF was name checked not the EU. However, our Guvvnor is often not as precise as he should be. It must be due to his academic background.

If a package is on the table, the T&Cs must be fairly unpalatable for a populist party like FF. AFAIK, Latvia’s consisted of 30% off state pay and transfers. So you can kiss good night to Social Partnershp and Croker. Dave the Banker Begg and Fr Sean will not be happy.

As to your specific question, the IMF would probably give us a more realistic deal, cut spending, tax reform and debt restructuring in due course.

I believe the real worry is that Irish bonds have been sold in order to meet the new higher margin calls. Given that the big buyers of Irish debt in the last 9 months have been Irish financials swapping them for cash at the ecb, then it seems that these same institutions no longer have the cash to meet the margin calls, hence they ate selling down their position. So we are reaching the point where the Irish banks can’t buy any new paper to turn with the ecb a la carry trade as they can’t afford the lch margin. So thus there won’t be enough buyers for when the NTMA return to the Market. Also a worry has to be that how stretched are they if they can’t meet the margin? They must be worse than even Morgan Kelly would suggest.

Is this going over the top?


That is not true. The big buyers of Irish have not been the Irish banks. even if they were, the bonds are still eligible for repo with the ECB.

How credible do you think the IMF bailout stories are?

“That is not true. The big buyers of Irish have not been the Irish banks. even if they were, the bonds are still eligible for repo with the ECB.”

Not according to the FT.
“Please use the link to reference this article. Do not copy & paste articles which is a breach of FT.com’s Ts&Cs (www.ft.com/servicestools/help/terms) and is copyright infringement. Send a link for free or email ftsales.support@ft.com to purchase rights. http://www.ft.com/cms/s/0/41815768-ecfa-11df-9912-00144feab49a.html#ixzz14v413T5a

The LCH.Clearnet move means market participants would have to deposit cash with the clearing house equivalent to 15 per cent of their transaction as an indemnity against the risk of default. Market participants estimate that Ireland’s banks could have anywhere between €4bn and €8bn of bonds cleared through LCH.Clearnet.

One large hedge fund manager estimated that the banks would have to lodge between $1bn and $1.5bn in cash with LCH.Clearnet in order to avoid default and the forced unwinding of repo transactions. Some banks dumped bonds into the market in order to raise cash and buy other bonds that they could still repo”

The reluctance of Irish courts to order repossession of residential properties in mortgage arrears needs to be considered when looking at property as security.

@ Ash

per Tull, one of the big oddities in this latest round of the crisis has been the fact that Irish banks have NOT been big buyers of Irish govvies (they have bought bank ELG though). Every other country has strong domestic buying of government bonds, but for some bizarre reason the Irish banks won’t do the same thing.

@bond, Tull

I stand corrected.

I still think they had a big margin call to meet and it caused some trouble


The main paragraph being

The dramatic sell-off in Irish bonds was driven by a fire sale of positions by market participants who were unable to meet collateral requirements enforced by LCH.Clearnet – one of Europe’s biggest clearing houses – on Wednesday morning.

Ireland’s banks were faced with an estimated $1bn cash-call from LCH.Clearnet as a result of its decision to require a deposit of 15 per cent against all Irish bond positions as an indemnity against default.

The margin will be cleared on Thursday and collected on Friday, a memo sent to LCH.Clearnet members said.

Bank of Ireland alone must stump up as much as €250m ($344bn), the Financial Times has learnt.

The bank is understood to be meeting the call by dipping into its cash reserves, rather than through selling down its €1.7bn holding of bonds.

In order to avoid the call, many other banks and traders are dumping their bond positions, however.

An IMF offer? Very interesting if true, though I remain sceptical. The IMF’s 10 commandments show they are not the same as the slash and burn IMF of old. With a more stable source of funding they might even recommend against frontloading (commandment 2). Of course Croke Park would be gone in an instant. Overall I would say an IMF program would be more balanced than an EU-driven one – there are too many conflicts of interest between EU core and EU periphery countries.

Even if the offer was made, I would be very surprised if it was accepted. A characteristic of this government is that it ties its hands behind its back and cuts off as many policy options down the road as possible, as quickly as possible. Witness the demonizing of any recourse to outside assistance in the last few weeks – lots of talk about falling off cliffs/losing sovereignty etc. To accept outside help now would be to show that your previous position was wrong and misguided and that you have steered the country directly off the cliff that was warned about so much.

@Ash (the FT wrote:)
“Bank of Ireland alone must stump up as much as €250m ($344bn), the Financial Times has learnt.”
Jeepers, the dollar has really gone to pot, hasn’t it?

Brian G

All very fair points. I presume an offer would only be made though if the IMF were sure it was going to be accepted. It is interesting that Dr H today stated IMF policy would look the same as Govt (and by extension EU) policy. Would it also bring with the possibility of debt restructuring which as been anathema to the ECB? Will Portugal follow and whither Spain?

The big loser out of all this could be the core. The periphery gets debt restructuring, exit from the euro, competitive deval and a more sustainable fiscal setting. The core gets downside of these plus political opprobrium to boot.

@Bryan G
“To accept outside help now would be to show that your previous position was wrong and misguided and that you have steered the country directly off the cliff that was warned about so much.”
How many cliffs have we turned corners into so far? FF and particularly the Greens know no depths that cannot be plumbed.

“The big loser out of all this could be the core. The periphery gets debt restructuring, exit from the euro, competitive deval and a more sustainable fiscal setting. The core gets downside of these plus political opprobrium to boot.”
Yes and no.

The core will have their problems forced on them (I presume the IMF offer immediate debt restructuring rather than later). In return, the core will outlaw all the bits of the periphery they don’t like. The result will be that the periphery will still have nothing to sell to the core and will still be importing stuff from the core. The one member of the periphery with exports will no longer have them as transfer pricing banned.

The UK will be forced to choose. Will it choose the basket cases? At the current exchange rate, I doubt it…

If the margin call is costing BOI 250m then AIB could be faced with a far larger call as they are holding a lot more Irish Government Bonds.

Reuters are saying that Irish 2 yr are at 7.76%.

LCH Raises Irish Bond-Trading Margin as Yields Soar

“The move by LCH pushed Irish bonds lower, extending their two-week decline as investors speculate costs to bail out the nation’s banks have made the government debt load unsustainable.

“Clearing houses such as LCH guarantee investors’ trades are completed by standing in the middle of two counterparties, and raise margin requirements to protect themselves against losses should one of the participants in a trade fail.”


So how long can Ireland push the bank debt up the mountain?


The markets know it.

Everybody knows.

Everybody knows it can’t be done.

Everybody knows it should not have been done in the first place.

Everybody knows that the Euro has an existential crisis.

Everybody knows that the Central Bank of Ireland is just a branch of Deutsche Bank.

Everybody knows that Deutsche Bank is the problem.

Honohan is wrong to say risk has been repriced. See the US bond “market”! One per cent interest rates?

“De risking”? Oh dear! Working too hard eh? Reconciling the irreconcilable by the looks of it.

“The policy responses that have been adopted and proposed, both in international fora and in national regulatory policies here in Ireland and in most other jurisdictions have sought”

Not a good sign, inability to express oneself! Clarity of expression betokens clarity of thought and vision. Lacking, therefore!

“Thus, to meet heightened credit risk, there have for years been capital requirements; to meet liquidity risk there were liquidity ratio requirements; to meet complexity risk there have been restrictions on scope of activity; and to meet incentive risk there is prudential supervision.”

Hmmm! Talks the talk anyway!

The rest of it is too tendentious to address bit by bit. He is pretending that there still is a money machine and that he and others know how to fix it! Liar! If he does know then he is misleading as deflation and destruction is inevitable. “Shifting risk”? Sovereigns getting some idiot to pay! There is no risk: it is certain!

What a banker!

Transfer risk to foreign investors! I am sure he was misquoted. The media are trying to create a crisis and a circus at the same time. Maybe a tragicomedy would be a suitable description.

In any case Honohan appeared to have a grasp on reality up to now. Exposure to Cowen/Lenihan may be affecting his judgement.

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