Ireland Handbook from Goldman Sachs

In its latest European Weekly Analyst issue,  the Goldman Sachs team run the numbers on possible bank losses in Ireland (the central scenario has NAMA being too pessimistic about likely losses). In addition, they provide a useful Q&A on the bailout talks.  You can download it here.

169 replies on “Ireland Handbook from Goldman Sachs”

Key point:

“But if our estimates suggest anything, it is that the ultimate losses, and the ultimate burden on the Irish government, will be quite a bit lower than estimated by NAMA, which is likely to make money on its investments. Correspondingly, the government will significantly have over-capitalised the banks, perhaps by tens of billions of Euros.”

In other words, they flatly refute everything that 90% of Irish economists, 95% of the Irish media, and 99% of posters on here have claimed. Clearly, resignations are called for. Where does this leave Morgan Kelly now, coming soon after the demolition of his claim that there are 300k newly-built empty houses in Ireland, and the INBS figures on Wednesday showing a levelling-out of mortgage arrears.

Stand by for a barrage of posts claiming that Goldman Sachs don’t know what they are talking about. I’d expect it to reach about 5,000 by the time I log back on this afternoon. It happens to everyone who does not accept the doom scanario that the Morgan Kelly cult followers espouse, from the Goldman Sachs and Morgan Stanleys at the top of the food-chain of economic analysis to JTO at the bottom.

It is imperative that the Government take account of the information in this report when dealing with the IMF. They should not be panicked by pressure from politically-motivated Irish economists/media into rolling over.

P4

“assets in the Irish banking system amount to €1.7 trillion (a remarkable 1,060% of GDP), 70% are owned by foreign banks with branches in Ireland or banks that are registered in Ireland but conduct the bulk
of their business abroad.”

What’s would be the split of these assets by domestic banks, UK banks , Continental Europe (eg KBS) . Would IFSC stuff be included in this number?

It is very hard not to think that a lot of the money that was created between 2003 and 2008 was invested in fluff.

@ JTO
“Correspondingly, the government will significantly have over-capitalised the banks, perhaps by tens of billions of Euros.”

Looks like we can send the IMF home. False alarm

‘But even allowing for the scale of the boom in commercial and development property lending, right at the peak of the market, the 50% haircut NAMA has applied to these toxic loans appears too high’

Somehow I doubt these boys have seen any of these ‘assets’.

JTO

Morgan Kelly isn’t responsible for the Government’s utterly appalling PR effort over the past 5 days. He doesn’t prepare Dick Roche’s words. He can’t put the light back in Brian Cowen’s eyes.

@ Joseph

yes – due today, but dunno when. I will of course stick ’em up when i get ’em!

@JTO, , Eoin Bond

If you think those comments will stop the right and proper rebuttal think again.

Yesterday it was Davy today its Goldman.
You guys obviously totally disregard the quality of a source once they go along with your point of view.

The day after the Irish government accepts taking a massive high interest loan from the IMF/EFSF which will mean that bond holders will not be burned (for a while), Goldman Sachs comes out with a hand book telling the Irish people that the burden of saving these bondholders from their losses will be more manageable than the NTMA believes.

Now if you cannot see a conflict of interest in that, then I give up.

Hope you guys continue to make piles of money on your bond trades. Irish sovereignty is a small price to pay.

We have been IMF’d by NAMA
It an outrageous scandal
Months ago my line in my blog was that this NAMA scheme was a big loan by the banks to the State. When you see (in Goldman’s reasonable analysis) by how much they have over cut the hair, and remember that they make only a vague promise ever to repay anything, and specirfically will not pay ultimate market value back to the banks…then it is hard to resist the conculsion that this is an enormous theft of the property of 150,000 elderly shareholders
Another factor is that the interest rate which NAMA is paying the banks is hundreds of basis points less that what they should be paying. That alone represents a loss to the banks of maybe an extra €15 bn. over the period indicated by the NAMA original BusinessPlan (assuming repayments were to be made on the indicateds dates, which I doubt)
– http://brianodoherty.ie/wp/featured/2010/02/state-to-gain-billions-from-nama-assets/

@seafoid

Morgan Kelly isn’t responsible for the Government’s utterly appalling PR effort over the past 5 days. He doesn’t prepare Dick Roche’s words. He can’t put the light back in Brian Cowen’s eyes.

JTO again:

I never said that he was. I don’t blame him for everything. I don’t blame him for Tyrone’s fluke defeat by Dublin in August or Man Utd only being in third place in Premiership. But, I most certainly DO blame him for making a whole raft of forecasts which are:

(a) Damaging.

(b) False.

Obviously, if all his forecasts proved true or do yet prove true, you could overlook the fact that they were damaging, and instead campaign to have his statute erected in O’Connel Street. But, that’s the whole point. They are not. Most of them are allready proving or will prove false by the time everything settles down and we can look back and see what happened in retrospect. When that happens, he will have to face the reckoning.

Also just out this morning from the CSO. Merchandise exports booming. Merchandise trade surplus soaring. Augurs very well for Q3 GDP figure. Government should delay any decision on IMF until it knows the Q3 GDP figure. It would be daft to be panicked and conclude some damaging agreement based on D of Finance/Central Bank/ESRI growth forecasts, which are usually hopelessly inaccurate, and then find,a week later, that growth is turning out much better than forecasts. They might know it a few days before it is published (Dec 16), so therefore it doesn’t have to delay a conclusion to the IMF talks too long. I am by no means saying that it is certain to be good, although it is looking that way as of now. There are too many areas (services expenditure and services exports) where no monthly figures are published, and no one knows what is happening there until the GDP figures themselves are published. So, I am not making a definite prediction as to the Q3 GDP figure. All I am saying is that, based on the figures we allready know for Q3, because they are published monthly for: manufacturing output, merchandise trade, agricultural output and prices, tourism numbers, new car sales, now house completions, live register, job redundances, job vacancies, tax revenue and others, all of which show a big improvement in Q3, it is well worth taking a chance to see how the Q3 GDP figure turns out, in the knowledge that a good one will calm markets.

This is my last post on here until January 9/10. I’m off to USA tonight on business for 6-7 weeks. Yes, I know they have internet there. But, I just don’t have the time/privacy on a business trip to post here regularly or to do the statistical research that I like to put in my posts. Nice to see that I’m going out on a high note. Au revoir, especially to Eoin, a true genius and the man who knows more about these banking/financial matters than everyone else on here put together. Why he isn’t a the most-quoted-in-the-media expert in Ireland on all these matters, rather than Morgan Kelly, is beyond me. But, then they do say, a prophet is without honour in his own land.

Do GS own/trade any Irish Bank shares by any chance? They’ll go up because they are now not banks but slave masters living off the sweat of those that are left behind.

@Eamonn Moran

Are you sure there is a conflict of interest.

The major bond holders are other European retail banks such as RBS and Hypo.

If anything, GS traders, like Hedge funds, began shorting Irish bonds last month. I very much doubt that GS have very large, passive, long positions of Irish govt debt.

Gosh. Someone better tell the international markets it’s safe to lend to Irish banks. Im looking forward to gs showing it’s faith with a massive overnight deposit and announcement of a major credit lime to the banks.

@Eamonn Moran, Brian Flanagan

You are both bashing Goldman, but for completely opposite reasons.

So which is? Do you think Goldman are long or short Irish debt?

Is Goldman increasing Irelands woes by selling our debt or are they artificially talking up Irelands position to influence the value of their holdings?

Two points –
1: Irish banks are a good short to medium term bet because they are being bailed out not just by Ireland now but by Europe
2: GS probably have a load of bank shares bought and will make a tidy little sum as they rise.

@Eoin and Bazza

You will end spending the day refuting wild accusations about conflicts of interest and conspiracy theories if you are not careful.

It’s a research piece. It’s as valid as any piece of research thrown out there by other commentators. If people choose to disagree with it, that’s fine. But disagree with it for the right reasons. Maybe instead of shooting Goldman Sachs, people can actually point out what assumptions they made that you have problem with.

Dear Eoin
I bet 20€ on a horse the other day. It didn’t win. I asked the bookie if he could give me 4€ of my stake back. He told me where to go.
Your buddies should be told where to go. Haircuts?!

If I understand Goldman Sachs figures they are estimating €1.7 billion losses on Irish Mortgages which are about 100 billion (1.7%).
Mortgages over 90 days in arrears are already heading towards 5%. Sounds to me like that should be a starting figure and going up from there.

@all

Surely the banks will be fully nationalised if the Govt is pumping more billions in via IMF and EU, please tell me bank shreholders are not going to be bailed out?

Their position is correct but they can’t admit that it’s because Ireland will bleed for the banks. And when Ireland has exsanguinated Europe is lined up to bleed for them too. Simple as that

@bazza:
“So which is? Do you think Goldman are long or short Irish debt?”

Probably both.

bjg

@Joseph Ryan

GS are using a cumaltive default rate of 3-4% over a 5 year cycle. It could well be higher but I can’t see it being much more.
5% arrears does not equate to 5% default rate. Not to mention recovery rates etc. To ge to GS, they admit they are shooting in the dark here but so is every commentator.

A work of pure fiction to add to the growing list that will make for depressing reading in 5yrs time. The reasoning behind the default rates they put forward for domestic residential and commercial are backward-looking, one-dimensional, and without any detailed context provided.

Only use vague international empirical evidence, no attempt made at trying to equate the ratio of people’s current and future earnings to their net debt – that’s pretty basic stuff in anyone’s book.

Relevance?

@Tim

They admit they don’t have the data for Ireland.

So what are people like Morgan Kelly using when they make their predictions and yet everyone jumps on his findings as Gospel?

It’s important to look at the assumptions Goldmans use – it seems they use the Permanent/TSB House Price Index for residential property. Their base case scenario has a 40% peak to trough decline, their worst case scenario a 50% peak to trough. Seeing as we are already at a 55% peak to current (and falling) their analysis is already out of date.

Surely Eoin can tell us:
Do they trade in Irish bank shares?
What other ways they have thought of to feed off the carcass?

So can we agree (for once) that this publication is based on flawed assumptions and maybe influenced by a vested interest?

@ Enda F

I’m sure Morgan uses a mixture of old wive’s tales, suspicion, rumour, sixth sense as well as the more conventional methods such as detailed studies of similar events in other countries (placed in context), detailed employment figures, future effects of debt repayment on disposable income and so on.

I don’t think people jump on his findings as Gospel, just more plausible in the range of possible future scenarios put forward.

We should always ask the question: cui bono? But it seems to cover the bases. And we have the curate’s egg.

1. Vibrant and resilent tradable sectors straining to pull the economy out of the mire but (which GS doesn’t highlight) burdened by sceloritic non-tradable sectors;
2. A banking sector debacle about which (as Governor Honohan pointed out) ‘objectively’ enough has probably been done, but it has not secured market confidence as the Govt. developed and sold its approach very badly;
3. A delayed recognition of a doubling (7.5 to 15) of the fiscal adjustment required which roiled the markets coupled with a government barely sustaining constitutional legitimacy and two opposition factions (which normally occupy opposite sides of the politcial deivide in mature, developed economies) fighting like dogs to secure supremacy in a future governing combination;

Incompetence and inaction on these three fronts has got us to this point. I would love to see these clowns turn the game around and play a blinder for the country, but I’m not holding my breath.

@ Eureka

of course they trade in Irish bank shares. But have you seen the volumes recently? Its not a market you can buy particularly big amounts in, so not a place you can make a load of money in.

@JTO

I hope your trip to the states goes well – it will be very interesting to see what transpires in this great little country between now and then. I look forward to reading your posts then……..

As someone who wades through a lot of sell-side fluff as part of my job, just a couple of points:

Firstly, they’re not called the sell-side for nothing.
Secondly, they didn’t get to where they are today by sharing their best ideas with all and sundry.
Third, they’re just sussing a black box from the outside; combine that with a bit of sell-side fairy dust, and of course you end up with a bullish story. I still have a Goldman research piece on Enron: ‘The best of the best’:

“Still the best of the best. With perceptions far below reality, we see major catalysts in third-quarter results and increased
disclosure in coming months. We strongly reiterate our Recommended List rating and our conviction in high and sustained growth prospects, even though we have cut 2002 EPS to $2.15 and our price target to $48. We expect Enron shares to recover dramatically in the coming months. We view the current period as an extremely rare opportunity to purchase the shares of a company that remains extremely well positioned to grow at a substantial rate and earn strong returns in the still-very-young and evolving energy convergence space.” (…energy convergence space?!).

Six weeks later, Enron filed for bankruptcy….black box + bullishness = bullshit. Don’t surrender your mental sovereignty.

“But even allowing for the scale of the boom in
commercial and development property lending, right at the peak of the market, the 50% haircut NAMA has
applied to these toxic loans appears too high.”

This just looks like it was written by a naive guy in an office far away.

It’s amazing that the IMF has to send a 12 man team to get the clear picture but GS can do it all through desk review.

@ The Other Andrew

you see the problem here? You think we shouldn’t believe the GS stuff because they’re just trying to sell us something and don’t really know whats going on. However, most of the others on this thread think we shouldn’t believe the GS stuff because they really DO know whats going on and are trying to talk up a bad position or have a conflict as interest. As Bazza noted, we have one set of people thinking they’re long and wrong, and another set of people thinking they’re the ones shorting the crap out of our bonds of late and perpetuating the crisis. The only thing you all seem to agree on is that you hate GS…which is precisely what JtO predicted above!

Stand by for a barrage of posts claiming that Goldman Sachs don’t know what they are talking about.

Just so everyone knows, Goldman Sachs is notorious at this point for publicly making one prediction, while secretly betting on the opposite outcome. It’s not so much that they would be wrong; it’s that they would be deliberately wrong. Conning the rest of the investors to make money for themselves.

Self serving poppycock is the first thing that comes to mind. Does this smooth the flow of consulting fees or does it enhance the value of positions already taken.

The problem with this site is the people are often more interested in shooting the messenger than actually looking at the message and analysing that. Of course you have to take the research for what it is. It is simply an opinion.

Having said that, there are plenty of figures in there that are worth discussing. (Which is more than what usually accompanies some opinion piece in the Irish Times by some economist). For example, do people think they are wrong on residential mortgages? I have heard many people comment that residential mortgage defaults would lead to multi billion euro losses for the banks. I actually think the assumptions that GS make are reasonable.

Take Goldman Sachs off the cover and discuss the data as presented. Save the conspiracy theories for the pub.

Mr Bond,

Obviously, numerous posters have entrenched positions, bullish or bearish…weight them as you wish…
Again, obviously, the very mention of Goldman Sachs throws many commentators into Pavlovian paroxysms…nothing for it, I suppose although deep breathing seems to help.

I’m just highlighting my take on this kind of stuff. My basic assumption when confronted with some gleaming youngster pontificating on CNBC is: ‘those that know don’t talk, and those that talk don’t know’.

In this particular case, I don’t pretend to know whether GS are long, short or flat. But their weltaunschang inclines them to keep the whole capital markets show on the road by sprinkling bullish fairy dust around. For me, this piece is just so much fairy dust.

Exactly Enda – GS did great work for the Greek Government which the public there are still celebrating, remember they have Irelands best interests at heart!!. This is definably another corner turned:)

PS: Morgan Kelly is just being silly, I rate Dan McLaughlin and any IBEC economist you care to mention much higher!!

@JohnTheOptimist

You quote Goldman: “Correspondingly, the government will significantly have over-capitalised the banks, perhaps by tens of billions of Euros.”

You conclude: “In other words, they flatly refute everything that 90% of Irish economists, 95% of the Irish media, and 99% of posters on here have claimed.”

Please explain why you omitted the paragraph that follows your quote:
“It is certainly possible that the government’s bearish outlook on the bank is warranted and that our loss estimates are too conservative . . .”

@Eoin Bond:
“You think we shouldn’t believe the GS stuff because they’re just trying to sell us something and don’t really know whats going on. However, most of the others on this thread think we shouldn’t believe the GS stuff because they really DO know whats going on and are trying to talk up a bad position or have a conflict as interest.”

There is something in what you say, but I don’t think you’ve identified the real problem, which is that GS rather resembles the Irish government. In both cases there is no necessary connection between the truth (or GS’s or the Irish government’s perception of the truth) and what they say. The low value many folk place on statements issued by either GS or the government is not a function of the content of those statements.

That said, I have downloaded a copy of the statement and intend to read it later.

bjg

@Andrew – “please tell me bank shreholders are not going to be bailed out?”

Why would that surprise you? This is Ireland.

BTW – I hope not but I wouldn’t bet on it.

@Bond. Eoin Bond – “yes – due today, but dunno when. I will of course stick ‘em up when i get ‘em!”

Looks like it’s going to be after closing at this point.

Jeez,
I have read it all now.As Brian Lucey rightly say’s no doubt Goldman Sachs will follow this up with a couple of Billion on deposit.

These guys are the most shameless rampers in Finance.

@JTO
You refer to the ‘Morgan Kelly cult’ in your initial posting – if that exists there is also another one and it is called ‘Fianna Fail’………

@All

“This is the most important eurozone news today, much more important, and alarming, than anything that happens in Ireland. The OECD forecasts that Germany’s current account surplus will rise back to 7% of GDP by 2012, close to the 7.6% record in 2007. This means that the forces that driving the eurozone apart, are gathering speed again. ”

http://www.eurointelligence.com/index.php?id=581&tx_ttnews%5Btt_news%5D=2959&tx_ttnews%5BbackPid%5D=901&cHash=ee2abf6c49

My, my, we’re all getting a bit het up. I think we should be able to agree that had the Government behaved a tad more strategically, been able to do more than one thing at the time, not been seen to be forced to the wire before conceding the scale of the banks losses and the fiscal adjustment required and presented what it was doing more effectively – both domestically and internationally, we might, just might, have escaped the current situation. But Chancellor’s Merkel’s comments might have done for us anyway.

The IMF team will form its view – and woe betide the Government if it seeks to continue the bluster and obfuscation it has employed up to now in response to data and information requests from the IMF team.

I think we’ll just have to wait and see.

GS, associates and their clients will likely have been very active in trading Irish cds and bonds on the way down. More importantly, the peripherals cds and bonds are all highly correlated so there is lots of volume and tail-wagging-dog opportunity.

If so then a puff piece from sell side analysts or economists would be helpful if they have decided the bonds are now vulnerable to short covering. What can happen is that someone within the firm – known to have a particular view one way or the other (there are lots of them, think Kelly or Aherne) can be asked to write a note. The guy who suggests it might know where the book is, but the Morgan Kelly or Alan Aherne doesn’t. So move along please, nothing to smell here.

Or, shock horror, it might be coincidence and written by a real Ireland expert. I doubt it.

@ Bazza
I am not talking about how much goldman have in Irish bonds now i am talking about how much they have in non sub bond holders that need to be hit.

@eoin bond
That means they got 20% of their money back when they should have got nothing. They lost in the game of capitalism. Senior Bond holders are the ones who need to take haircuts. Subbies should have got zip, zero , nadda.

I guess the 80% subbie haircut was the Irish govs idea of negotiating. Pathetic.

@Paul Hunt – “and woe betide the Government if it seeks to continue the bluster and obfuscation it has employed up to now in response to data and information requests from the IMF team.”

I can imagine.

I wonder if there’s an economic equivalent to ‘waterboarding’….

One thing that’s true…whatever Goldman says…is that if the IMF come to town you’d better make a deal.

Hopefully you make a good deal, but the last thing Ireland needs is the IMF leaving town without having done a deal.

Feeding selected ministers, bankers and property developers to Paul-the squid on a Primetime special – with telephone vote and Irish dancing, might be a good idea, or if too expensive maybe on Vincent Browne instead.

Do cephalopods have lips? If so they were being licked when the idea of “calling the market’s bluff” was being sold in big swinging Dickblin. Note to some Irish Politicians and economics lecturers – you’re watching too much late night poker on the telly.

@ Eoin, Enda F,

Whether GS or Dustin wrote this piece is irrelevant to me, in it I just see a set of fairly random assumptions leading to the production of numbers that are detached from reality. The most important question is how can we repay our future debt obligations and this analysis does not scratch the surface of this.

” Goldman Sachs says Irish bailout by IMF would resolve market tension ”

For how many months ? The crisis is only into the early iterations.

Piling on more debt onto Ireland doesn’t seem to be a very logical long term solution.

@Karl

JTO “This is my last post on here until January 9/10. I’m off to USA tonight on business for 6-7 weeks. Yes, I know they have internet there. But, I just don’t have the time/privacy on a business trip to post here regularly or to do the statistical research that I like to put in my posts. Nice to see that I’m going out on a high note. Au revoir, especially to Eoin, a true genius and the man who knows more about these banking/financial matters than everyone else on here put together. Why he isn’t a the most-quoted-in-the-media expert in Ireland on all these matters, rather than Morgan Kelly, is beyond me. But, then they do say, a prophet is without honour in his own land.”

One has to ask who this guy actually was and what his interests were.

At least Eoin Bond gives us a clue in his name as to the side of the argument he was on.

They should have called themselves the “No Default on Seniors Society”

All very strange people. I have seen more sense written on poltics.ie and that is saying something.

Anyway the 4 year plan will be out next week. I look forward to another rational and detailed analysis and discussion then.

@ Eamonn

“One has to ask who this guy actually was and what his interests were.”

Shouldnt really be a problem, given that he has given us his full name and where he works….

“At least Eoin Bond gives us a clue in his name as to the side of the argument he was on.”

this was actually given to me by other commentors on here. They thought they were taking the p1ss out of me, but i loved it so much i kept it. Its a constant reminder of their idiocy, shoved straight back in their face. Its also rather cool.

@ All

AIB IMS out….

*ALLIED IRISH: CUSTOMER ACCTS DOWN BY EU13B FROM JAN TO 16 NOV.
*ALLIED IRISH TO INCREASE SIZE OF CAPITAL RAISING TO EU6.6BN
*ALLIED IRISH LOAN TO DEPOSIT RATIO 159% AT 30 SEPT.
*ALLIED IRISH TO LIFT SIZE OF CAP. RAISING TO EU6.6B FROM EU5.4B
*ALLIED IRISH CUSTOMER ACCTS COMPRISED 50% FUNDING AT END SEPT.

@ anyone who is able to conduct a poll on the site.

I would like to know how many people believe we can get out of this without having to result in either debt forgiveness or having our own currency to devalue.

I think between the Public, State and bank debt and now IMF debt the amount is just too big.
I dont think we can cut and tax our way out. Nor do I think we can grow our way out.
Paul Sommerville said something similar this week.
Can we have a straw pole?

@Eoin Bond

What is his name?

I didn’t see that and either did BL. Why doesn’t he use it if he has revealed it?

@ Eamonn

i imagine he doesn’t use it on here too much because (a) it would increase the chances of someone he works with maybe raising an eyebrow at his posting on here during work hours or (b) some malcontent on here may decide they wish to harass him.

Its not my place to give his name or where he works. But i would suggest if you want to check on his bona fides than you contact Karl or Philip and see if they’re happy enough with him posting on here. Otherwise, well, maybe you should just leave it – at the end of the day you calling yourself “Eamonn Moran” is somewhat meaningless to me, it may or may not be true, so what the difference?

As for BL not seeing it – as ive explained before, details aren’t his big thing…

62% of Joe Duffy listeners (or rather of those who managed to get through by text message before the system crashed) are more optimistic than they were before the IMF arrived. Joe Duffy sounded rather disappointed, quizzing optimists about how they would explain the cuts to those who want their local hospitals kept open (or expanded).

JtO, on the other hand, will be delighted to see so many recruits to the optimism camp, even if their optimism is attributable to the prospect of prising FF’s hands from the levers of power.

bjg

@all

Germany drafts permanent crisis plan
Dr Merkel acknowledged her demands upset the markets but insisted it was unfair for taxpayers to be saddled alone with the cost of sovereign rescues. “Let me put it simply: in this regard there may be a contradiction between the interests of the financial world and the interests of the political world,” she said. “We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”

http://www.irishtimes.com/newspaper/breaking/2010/1119/breaking20.html

Note to troika: 90 billion ‘if on state’ leads to +4 billion interest extra p.a. – leads to too much – leads to the most appropriate test case (<2% EZ GDP) in the not too distant future ….. do Irish citizens not rank equally with German, or Dutch ……….?

@ eoin
“@ Eureka

total vs partial is a fair argument. “Bondholders not getting burnt” is not.”

I should have said senoirs.

@ Bazza
Just so you are clear what i am suggesting.

I am saying GS and other holder of Irish bank bonds were selling off Irish Gov Bonds as away of letting the Goverment know that there was to be no burning of senoirs as they thought was suggested by Angela Merkel. Now that the IMF are coming in and the senior bond holders are being made whole they are talking up the economy. They are telling the citizens that they can afford to bail out the banks government has just agreed to.

JTO is not complicated. He wants more than anything, for Ireland to be great and Northern Ireland not to be great, so that eventually Northern Ireland will want to be part of Ireland and then it can be great too…. This desire is the foundation of everything he posts on here. He is completely compromised by it.

Everything is hunky dory. AIB only lost 13b of deposits and
‘General funding market conditions in recent months have become increasingly challenging. This has had a negative impact on AIB’s funding position which has seen a reduction on maturity of debt securities in issue and customer accounts. This reduction has been offset by an increase in secured deposits by banks, in particular by monetary authorities’.

Where is the problem

Re NAMA assessment of asset values in today’s Irish Times business section:

‘Nama chief executive Brendan McDonagh said its original 30 per cent discount estimate in September 2009 was based on information provided by the banks that the average loan to value ratio was 77 per cent.
However he now believes the ratios were closer to 100 per cent and that the discount should have been estimated at 53 per cent.
However when the 30 per cent discount figure was disclosed in the Dáil in September 2009, AIB and the Bank of Ireland issued statements to the Stock Exchange saying they expected their discounts to be less than that.
“I think there are questions to be asked and to be answered,” he said.
When Mr McGrath made his suggestion that the Garda or the Office of the Director of Corporate Enforcement should investigate the matter, given the “systematic” nature of the misinformation, Mr McDonagh said he did not disagree with anything the deputy had said. Mr McGrath said he knew he was making a serious charge but the evidence was “overwhelming”.
Mr McDonagh said Financial Regulator Matthew Elderfield would have access to a lot of the information and should be the “first port of call”.’
http://www.irishtimes.com/newspaper/finance/2010/1119/1224283709822.html

@Brian Lucey:
The Daily Mail article seems to have been last updated in February 2009. Am I missing something?

bjg

BJG
Its being retweeted from the uk a lot today. Which is suspicious given the concerns last few weeks re the ul exposure to ireland.

@ BjG

re Daily Mail article from Brian Lucey – please see my earlier comment about the Prof:

“As for BL not seeing it – as ive explained before, details aren’t his big thing…”

@Seafoid
‘The institutional response to a potentially terminal crisis is very interesting’

How about this response-

‘Minister for Health Mary Harney said this morning said she has “huge” confidence in Minister for Finance Brian Lenihan. “I think he has done an awesome job in the last two years,” she said. “There’s no Minister for Finance that can have a magic wand in relation to the situation we’re in. We are all dependent on working with one another.”

Awesome

Mary is moving closer to Boston

I think many of the esteemed contributors to this blog have lost the wood for the trees. And need to get beyond denial (the Brits yanked your chain and you duly obliged in Pavlovian fashion). Guys, when you are bust, you are bust. As the surgeon approaches with finger in glove, all you can do is hope there is some vaseline to hand.

This from Marginal Revolution:

…this [forthcoming bailout] is roughly 60% of Ireland’s GDP. It would be about equivalent to the United States getting a bailout of $9 trillion.

Am I missing something.

AIB say they will need an additional 1.2b capital on top of that already flagged.

Minister Carey-
Mr Carey said it was impossible to say how much aid Ireland would need until the EU/IMF mission examines the state the country’s banks are in. “Until such a time as the IMF and others have examined how critical the situation in the banks is, I think it would be impossible to say how much would be required,” he told Newstalk.

‘how critical the situation in the banks is’ – I thought they were stressed tested a few weeks ago.

http://www.ft.com/cms/s/0/33e6ebcc-f3e9-11df-901e-00144feab49a.html#axzz15kHPZPWk

Mary Harney, health minister, confirmed it was the government’s intention to publish the four-year plan “in the early part of next week”. “What we’re looking for here, is not for somebody bailing us out. If we have to get contingency arrangements or borrow money – that money will be paid back. This country has the capacity to pay back that money. There is no question of not being able to pay our debts. We will pay our debts.”

@ simpleton

According to GS “assets in the Irish banking system amount to €1.7 trillion (a remarkable 1,060% of GDP).

That sticking plaster of 60% of GDP may not fix the cancer. Ireland is a massive casino attached to a small house.

Here is my “2 cents worth” having only had time to read Philip Laneś summary.

Perhaps “NAMA being too pessimistic” is not unconnected with the usual Government”spin” leading up to recent budgets: play up the “portents of doom” and then present a less shocking budget.

Naturally I am excluding the coming budget as I am pretty sure Budget 2011 will be a block(ball?)buster that we will alll remember for some time.

Goldman and the rest of the pack are slowly keeping the patient alive so that they can bleed us of interest income until our collective deposits disappear.
I am sure there will be some winners but most will slowly die a financial and perhaps a real death
Why not stick it to them now and fill their greedy mouths full of punts while we still have some power over the matrix

Do we have any respect left for ourselves or are we to be condemned to fumble for eternity in the greasy till

P.S. John Waters although usually a prat of the Highest order has written a excellent article about people whining about the loss of sovereignty.

You are either for independence or you ain’t – there is no in between – if we take the 30 notes of Euro then we cannot bitch about sovereignty.

My view is that we should stick it to them where it hurts and bring down this diabolical construction known as the Euro.

On subject

‘If bankers are villains, Goldman is Blofeld, Don Vito Corleone and Scarface rolled into one.’ Great quote from Telegraph.

@ceteris paribus – “I thought they were stressed tested a few weeks ago.”

They were…. but things change on a day by day basis don’t you know (according to Minister Roche)

@Eamonn Moran

If you want to set up an online poll and invite people to respond to it, try surveymonkey.com – it’s a very useful tool for conducting (free) online surveys and respondents remain anonymous.

@ceteris paribus

I wonder whether that optimistic note is evidence of one of the tenticles attaching a sucker.

Alternative imagery is available from “Alien”, or was it “Alien 2”.

@Keith Cunneen

I’ve read the Waters article you mention. I’m not sure if it’s ‘excellent’, unless perhaps by the low, special-needs standards one might subconsciously apply to the author (he is indeed a prat). When Waters writes that [t]here is nothing new or shocking about bailouts he is bullshitting. Still, his final recommendation that it might be wiser and more edifying to say nothing about the GPO is pretty apposite.

I think I’ll go out and buy some GS stock.

Nah, much safer to buy an index fund. I don’t believe everything I read in the blogosphere

@simpleton

Ouch!

Last week I was hoping for an ECB miracle – silly me, banks don’t do miracles.

The Goldman letter reads like typical sell-side research and as such is pretty much worthless. I’d like to see Goldmans private-client buy-side research for Euro bonds and equities and see what the story there is. Very different I’m absolutely certain.

@Geronimo

Don’t be hasty now – Remember 1929. At a Senate hearing in 1932 the following conversation ensued:

Senator Couzens: Did Goldman, Sachs and Company organize the Goldman Sachs Trading Corporation?

Mr Sachs: Yes, sir.

SC: And it sold its stock to the public?

Mr Sachs: A portion of it. The firms invested originally in ten per cent of the entire issue of the sum of $10,000,000.

SC: And the other ninety percent was sold to the public?

Mr Sachs: Yes, sir.

SC: At what price?

Mr Sachs: At 104. That is the old stock … the stock was split two for one.

SC: And what is the price of the stock now?

Mr Sachs: Approximately ONE and THREE QUARTERS.

[J. K. Galbraith, The Great Crash of 1929, p. 90]

The shares of BoI and AIB had a strangely good day.
Maybe they hold the deeds of the Merrion Hotel.

From the NY Times

‘
PARIS — The financial support program being discussed between Ireland and potential donors should amount to at least €50 billion, officials with knowledge of the talks said Friday. ‘

Doners, digouts eh

I wish JTO was here to read this thread. Not one person criticising the report has come out and said what is wrong with the assumptions made by GS. Instead all we get is paranoid waffle, links to the daily mail, references to twitter and other useless information. The report could be 100% wrong and complete rubbish but over 100 posts later, people are still more intersted In bashing Goldman sachs than talking about the figures.

So the Goldman optimism seems to hang on what will the ultimate default rate be on residential mortgages. The premise for a low default rate seems to that Irish mortgages are not ‘non-recourse’ loans and that housing prices have stabilised. We shall see.

Contrary to Goldman’s assertion, in the US many defaults occur on loans that are recourse. Typically only the initial mortgage is non-recourse, where the loan is a refinancing to either extract equity during the boom years and or to obtain a lower interest rate a deficiency judgement can be sought. It does not seem to have made any difference in default rates such that I can tell though I have seen no data on this.

US banks have not pursued deficiency judgments on any scale on the theory that you can’t get blood from a turnip though some have sold the rights to collect to third parties. In other cases homeowners have negotiated with the bank to waive any further action so the homeowner can engage in a ‘short sale’ , selling the property for less than the loan balance, or where the homeowner executes a deed in lieu of foreclosure.

I will be interested to see how Irish banks deal with this situation because the incentive for a underwater homeowner to default is very strong. I would also expect Irish lawyers to get very creative in their efforts to defeat any attempts by banks to pursue a deficiency judgement against a homeowner who was enticed into buying a home at the peak of the bubble. As the banks
found out in the US to their dismay, lawyers representing homeowners uncovered some very disturbing practices the banks were engaged in.

@Enda f
Why waste our time listening to what GS has to say at this juncture.
Lets see what the IMF make of it. At least they don’t play both sides.

@ David O’Donnell

But if GS are the Masters of the Universe that the contributors to this blog suggest, ain’t it a terrific buy?

@Enda F
“The problem with this site is the people are often more interested in shooting the messenger than actually looking at the message and analysing that. Of course you have to take the research for what it is. It is simply an opinion.”
Seriously Enda do you not think that you should look at the credentils of the messenger before you decide whether his opinion is worth analysing. Ad hominem is not always an invalid or illogical position to adopt. There is no point in wasting time debating why GS opinions can not be trusted. They have a history of fraud deception and double dealing which you can not just ignore as if it was of no consequence.

@Geronimo

Indeed , I am sick of pub talk now – people in this country still have financial power – we should use our monetory assets now before it evaporates to pay interest income to some guy in London or Frankfurt.

Has anyone read that report? Reading comments here would lead one to think that Goldman had given Irish banks and government bonds a strong buy recommendation which they haven’t in any shape or form. I am defending GS. I have read enough crap from them and other banks over the years so I know exactly how much faith to put in their research. I am simply asking why people don’t criticise the report for it’s crazy assumptions rather than just dismiss it because it came from GS. There are some Irish economists and academics who have made ludicrous statements and analysis over the past few years but it doesn’t mean everything they come out with is rubbish and not worthy of analysis.

@enda f
You say
“Not one person criticising the report has come out and said what is wrong with the assumptions made by GS”

So since you missed it, and it is key to the guy’s conclusions, just for you, here it is repeated:

Quote from report:
“But even allowing for the scale of the boom in
commercial and development property lending, right at the peak of the market, the 50% haircut NAMA has
applied to these toxic loans appears too high.”

Observation:
This just looks like it was written by a naive guy in an office far away.

Others have also made the point that given the reality of the res and CRE market and (perhaps with the insight that comes from more local familiarity with the valuation practices and general bullshit of the banks) the bloke in the office at the Squid has been suckered into toppy valuation assumptions.

You seem like the kind of guy GS would like as a sell side client.

@Enda f

Goldman has always played to the powerful human emotions of fear and greed – and indeed from a gaming perspective Goldman has always won – but I wonder have they factored in another perhaps stronger emotion when a animal is caged and tortured – Hate.
The time to be rational is long gone – this is payback time no matter what the cost.

What a strange blog this is.

Donal O’Mahoney or Goldman Sachs utter views contrary to the prevailing doomsayer Zeitgeist and what do we get? We do not get a flow of “I wish these positive views were correct but they just don’t stack up”. Instead we get a torrent of “how dare these people spoil the party, they’re only doing it for personal gain, why can’t we be allowed wallow in our death wish?”

When Morgan Kelly or Prof Lucey put forward their latest tirade what do we get? Wallow, wallow, wallow.

@BWII
I disagree – I haven’t bothered to read the report and don’t intend to. It should be dismissed as untrustsworthy just because it originates form GS.

@Brian Woods II

What are you talking about ? – deposits are collapsing here because we continue to pay interest to the shadow bank sector even though credit creation has gone into reverse.
I am sure they will arrange a deposit transfer scheme from a bankrupt bank to a smaller bank and then a smaller bank and another until we have bank accounts full of peanuts as our unit of account – then they may leave this shit hole.
They do not plan any capital creation – they want us to pay the maximum amount of interest on currency they created – this is Malthusian economics – don’t you get it ?

@ Keith C

Your suspicions about credit creation are not without foundation, but as the US General said in Vietnam
“I have seen the enemy, and it is us’.

@Brian Woods II

Ok Brian – I am a pessimist – if we can manage to grow this economy sustainability at maybe 2% and the IMF/ECB wants 5% then what the hell happens to the place.
Maybe if we can put the sods back over the Tara road the fairies may forgive us , also I have it on good authority from no less then Eddie Lenihan that the CBs are run by fairies and if we make a few more sacrifices on the alter of Mammon they will produce new high powered money for us.
Just remember be on the look out for those weasels

http://www.youtube.com/watch?v=Q_ez_g_VqEE

why are Goldman Sacs even mentioned on this blog. remember these are the guys who cooked the boys For Greece to enter the EU and are now probably going short on Greek Debt and Irish Debt. I am sure John McHale will find some nice polished way to spin this one. Could,nt top his last one on the IMF, are,nt that bad really. Get ready for so economic shock therapy. Cracks me up the IMF arestaying in the Merrion, who is paying their bill. NO chance of staying in the Best Western.

can some one confirm for me whether its true that 4 hundred million of illegal loans from Sean Fitz, Drumm and Sean Quinn are lying in off shore accounts and are being investigated by the EU, we hope.

@Brian Woods II 7:09 pm

Donal O’Mahoney or Goldman Sachs utter views contrary to the prevailing doomsayer Zeitgeist and what do we get? We do not get a flow of “I wish these positive views were correct but they just don’t stack up”. Instead we get a torrent of “how dare these people spoil the party, they’re only doing it for personal gain, why can’t we be allowed wallow in our death wish?”

[Chuckle] there is certainly some truth in what you say, but at least as regards Goldman Sachs there are good reasons for factoring in the credibility issue. We don’t all have the time or skills to read through and understand complex papers and in such cases the justifiable response of the educated non-expert is to ask: cui bono?. GS is not an academic institution devoted to the pursuit of knowledge. They are truth-seekers only to the extent that it may be in their own interest to establish the facts of a case. But they have little interest in passing on these facts to the general public — except that their reputation (laughter) may suffer if their forecasts prove too often to be mistaken. However, they have every interest in maximising their own profits, and if a cavalier approach to truth gives them a helping hand, cavalier it will be.

GS’s worst case scenario for mortgages:

“For mortgages, we assume that the peak-to-trough decline in house prices reaches 50% as opposed to 40%, which serves to bring 27% of the mortgage stock into negative equity. We then double default rates over the cycle from 4% to 8%, and also increase average loss-given-default to 50%. This brings loss rates over the cycle from 1.6% to 5%, extremely high by any international standard or historical experience.”

I wonder how this compares to Morgan Kelly’s worst case scenarios? My hunch and hope is that we’ve front loaded lots of pain through NAMA and that there is potential for upside towards the end of the decade. Just my non-expert hunch and hope, would be good to hear other people’s thoughts.

Read the report. Many assumptions made in the report.

Number in employment in Ireland has dropped from 2.2m(?) to 1.8m(?). There were not much reference to the local impact this will have on the local property market.

Oversupply was probably already for 2.2m in employment & with transactions happening on the margin I’d say it might be likely that property prices has further to fall.

Excess commercial real estate. Excess residential real estate. Number in employment decreasing. & this somehow leads to stable prices?

Anyway, if GS actually believes there is more upside than downside to NAMA then maybe GS will make an offer to buy NAMA &/or AIB & BOI soon 🙂

@ All

JTO will not last until January 9/10. He simply won’t be able to resist. This site means too much to him now!

I’d offer odds of 20\1 that he will not blog. Especially if BL takes a punt!

@ Carolus

Yes. Agreed. Is Sudsy still involved in GS? My point is that the reaction should be “I wish they were right but they just ain’t credible”. Instead the reaction seems to be “How dare they confront our doomsaying, they ain’t credible”

There are 2 separate points made in the GS piece.
First, that NAMA has probably been very conservative in it’s valuations and has a high probability of making a profit. This is entirely consistent with the view of those dealing with NAMA, a point I have made on here before. Over 40% of the assets are offshore and they are being inundated with bids for many of their portfolios. The Irish portfolio is an unknown, but I would estimate they have paid less than 20% of the original loan value and therefore probably less than 10% of the original purchase price. NAMA will make a fortune in the next 10 years, with the only real risk that the global economy goes into meltdown
Secondly, that the Irish banks are probably overcapitalised by billions. Again this stands unto scrutiny. Uniquely among EU banks, Irish banks have marked to market all their balance sheets via NAMA and PCAR and the problem is now a liquidity rather than capital issue. If one more tosspot expert on the radio or TV confuses these 2 issues Im going to shoot myself. No international Treasurer or debt investor dares hold money in an Irish bank given the headlines, hence the flight of deposits but liquidity is a confidence issue and once a line of credit has been established funds will start returning.
Ireland has taken a battering from deciding to fess up, alone, to the capital hole in it’s banking system and filling that hole in the depth of a cyclical recession has had a catastrophic impact. Thankfully the EU, IMF etc understand that and will ignore the ludicrous nonsense of MK and his merry band of sycophants. The only objective of their ‘bailout’ will be to facilitate the restructuring of the banking system, restoring confidence and giving time for stable independent liquidity sources to be reestablished and crucially give the Government cover to get through the fiscal adjustments required from the excesses of the past few years.

Criticise the report?

Oookay. It appears that it was written by a child.

House price index used is DOEHLG which is non-hedonic. Chart 2 is simply wrong in showing a rise of house prices in the last quarter. Wrong. Did I say it was wrong?

No account is taken of securitised mortgages. Covered bonds are bought back by the banks after a set time. They are not like securitised mortgages in the US. This is simple ignorance of european markets.

On the UK
“We therefore borrow their assumption of a loss
rate of 1.2% of UK mortgages over the cycle, which,
when applied to the €43bn of outstanding Irish bank
mortgages to UK residents, places potential losses on this
segment of the loan portfolio at only around €0.5bn.”
This is just nonsense. The Irish banks heavily sold RIL mortgages. No money down, I/O. Despite the recover in prices in the UK, BoI’s Bristol and West (I think) RIL book is still 25% in negative equity. No mention is made of IVAs as a means to escape recourse…

Irish Commercial and C/D
“Anecdotal
figures from the major Irish banks, however, suggest that
average LTVs during the boom years were around 70%.”
This is just nonsense. Even the banks were only claiming 75%. NAMA have said it was closer to 95% having looked at the loans and the pledged assets.

“For
land and development loans, this yields a loss rate of
22.5%, and for other LCP loans, a rate of 9%. Across the
whole LCP portfolio to Irish residents, this results in
losses of roughly €11bn.”
This is also nonsense. For a start, On the C&D and large chunks of commercial (which is what NAMA has taken), non-performance is already at the 75% level. Given the work namawinelake has done on collating price indices, we can see that rental values and sales prices are already down 60% (roughly speaking).

I gave up at this point. I am by no means a professional in these matter, but a cursory look shows up errors, schoolboy assumptions, and childish extrapolations. Someone should show the author the “correlation does not imply causation” cartoon, though I doubt they’d get it.

Personally, *I* think that NAMA will make a profit on the current basis. Because it is designed that way. It was planned as FF’s return to power. It was planned to bail out borrowers by making it easy for them to buy back their loans at a discount to book, but way above NAMA purchase price. That is the endgame for NAMA. If the banks really do go bust, it may not happen, hence the desperate attempts to save them in their current forms.

@MPLT

How do you know they have been marked to market ? – these units have not been sold yet – they have been marked to the expected sale price yes although I do concede that compared to the German banks the Irish banks are like Born again Christians.

@hoganmahew

Just to pick up on some of those points
Yes covered bonds are repaid but most of the Irish securitisations are RMBS and given the current price of funding are unlikely to be called so the risk sits with the bond holder.
I have no idea where you get the BOI negative equity number but Uk house prices are only off 10% from their peak so unless all their loans were made at the peak and were 100% ltv, your numbers can’t be correct. in addition bOI have said that their loan book in the UK s performing better than the industry average arrears (bil) I think so assuming a consistent performance with industry norms seems reasonable
NAMAs loans were specific to land and dvt greater than 20mio so ltvs there are by no means a read across to the remaining books, and the banks have not given a 75% number for their non nama portfolios
The non nama lcp loans are not at 75% non performing, that’s only Nama which was the real nutty stuff.
like it or not, the regulator has stressed all the loan books, and the banks are solvent. interestingly the latest mortgage arrears numbers which at 5.1 % are awful, are 2% lower than the regulator assumed for end dec 2010 in his tests.

@ Well said. I agree fuly

As for NAMA…They were meant to provide a liquidity mechanism to the banks and they haven’t done so. They are an abject failure. Actually, they seem to have forgotten their raison d’etre, and six months back, or thereabouts, decided their role was to screw the banks down as far as possible. This included not only elevated haircuts with no benefit to the nation, but an immoral and possibly illegal decision to not pay the banks the proceeds of eventual higher than expected obtained prices, but to tax them if proceeds are lower than expected. Meanwhile, due to this NAMA scheme, thousands of pensioners are put into penury, or worse.

What should be demanded now is that NAMA return their property to AIB-BOI-and any others who ask fo it.

Abolish NAMA, call in Goldman and save ourselves the humiliation of IMF.

@ Keith

by definition nama has mtm the loans they have transferred
the regulator in the PCAR has mtm the balance, we are the only country in Europe to mtm all loan portfolios and capitalize accordingly. the increases in capital requirements for aib & Anglo post the pcar was 100% attributable to higher nama discounts and not worse than expected performance in the non Nama portfolios
people on here don’t want to accept the facts but they are what they are

@Brian O’ Doherty

When you put a completed apartment block on ice so that a bank can recapitalise – who pays ?
Commuters cannot pay for its high price and have to continue to live in the sticks for perhaps a quarter of their working life so yee guys can pay back those mythical masses of pensioners.
The block begins to depreciate due to the elements , the neighbourhood tends to go sour , people burn more fuel and waste more time in traffic jams. I could go on…………
We would have one of the most competitive workforces in western europe but for your compulsion to put them on debt farms.
Give me a break.

@MPLT
I am sorry but I do not see this in the physical world – I see empty apartments everywhere.
This could be a breakdown in the debt cycle with obvious dislocation in the entire economy as people refuse to spend debt that they think is money but that merely reinforces my point that money creation should not be linked to consumption.
There is something very wrong when we have to consume to create wealth.

@ Keith
I agree there are empty apartments everywhere but they are all owned by NAMA and will not be dumped on the market. The loss on building them has been taken, it’s part of the 50 bio
I also agree that consumption should not be seen as wealth creation, it’s one of my pet hates to see higher car sales touted as good news. We might as well just send the cheque to Germany. The scrappage scheme Is the stupidest govt policy of all time. Wealth comes from the things we build, products we make, services we provide for domestic consumption and net inflow of capital via a current account surplus or net tourism. the latter 2 are beginning to go positive and ind prod is up 11%….. GDP is going to be positive next year, materially, darkest before the dawn and all that

@MPLT
“I have no idea where you get the BOI negative equity number”
You are right to pick me up on that. It was PTSB and Ireland. Sorry.

“NAMAs loans were specific to land and dvt greater than 20mio so ltvs there are by no means a read across to the remaining books,”
Well, any commercial loan in the developer’s name was also included. Hence the inclusion of Mr. McKillen. Mr. Quinlan could really hardly be called a developer, now could he? A speculator maybe, but not a developer.

I agree that there is not necessarily a correlation, but I would be surprised if there wasn’t. If large sums of money were handed over on a nod and a wink, why not smaller ones too? After all, we have seen such cases before the Commercial Court and BoI proudly advertised their no questions asked loan policy, ching, ching, you know what I mean?

“The non nama lcp loans are not at 75% non performing, that’s only Nama which was the real nutty stuff.”
We neither of us know this. The banks claimed that the NAMA bound was at 40% performing. NAMA found that this meant that 25% were paying *something*, not performing, just not in default.

“like it or not, the regulator has stressed all the loan books, and the banks are solvent.”
I am not arguing one way or another in this thread. What I am pointing out is the hopelessly childish assumptions that the GS ‘analyst’ has made.

“Yes covered bonds are repaid but most of the Irish securitisations are RMBS and given the current price of funding are unlikely to be called so the risk sits with the bond holder.”
Do you mean ACS or RMBS?

BoI has just completed restucturings of its Colston RMBS (issues 2-4), has it not? Costless to them was it?

@MPLT
“The scrappage scheme Is the stupidest govt policy of all time.”
Absolutely. Shout at the radio stuff.

@hoganmahew

ACS is the covered bond, and in Ireland I think the current external o/s are less than 5 bio. The bulk of the ACS issues are retained for liquidity, aibs programme is 13 bio but 10 is retained.
Re BOIs colstons, they are uk mortgage collateral and are all retained. GS numbers include all the underlying assets in their estimates as far as I can see
The recent restructuring I assume was simply part of their incorporation as a Uk regulated bank, so yes it would have been costless. They are the note holder.

@MPLT , Hoganmahew

I agree , but more a bang your head against a brick wall sort of thing.

Theres a ill advised policey and then there is a retarded reaction – that was off the scale stupidity or maybe just more clientelism.

@Keith
“maybe just more clientelism.”
You said it. I’m tired saying it.

So, is there an investment that could be made in the state that would generate a greater than 5% p/a long-run return? (And not just rent-seeking…).

@MPLT
Okay, can you provide me with an example of RMBS? Because so far, all I can find that is covered bonds?

@MPLT
Sorry to be a bad sport but the loss has not been entirely taken if they lie underutilised and vacant.
You see NAMA and the banks are full of bankers – they are not strategic industrialists.
A goverment with a strategic perspective would release the most favourably located apartments now at the true market price so that it could attract workers as close to their jobs as possible – instead they spend all of their lives looking at balance sheets which do not convey externalities over short time cycles.

@MPLT
Sorry to be a bad sport but the loss has not been entirely taken if they lie underutilised and vacant.
You see NAMA and the banks are full of bankers – they are not strategic industrialists.
A goverment with a strategic perspective would release the most favourably located apartments now at the true market price so that it could attract workers as close to their jobs as possible – instead they spend all of their lives looking at balance sheets which do not convey externalities over short time cycles.

@Hoganmahew
Well this may sound provincial as I do my Peoples Republic of Cork thing but a Luas from Mahon to Ballincollig would be one of the best investments in the country as it would link the linear urban environment of Cork beside the river.
I know that it is essentially a foregin company but the savings to peoples fuel bills and possible non purchase of foregin cars which collectively effect the balance of trade many times more would be worth it.
Besides their has been many quality apartments built in Cork that have increased the potential density of the town immensely.
Cork desperatly needs light manufacturing back again to sustain the lower middle class and the honest working class – we have the apartments , we have empty factories , if the debt burden is lifted this workforce will become very competitive again at lower nominal wages but static net wages.
A public transport option linking the fabric of the town-lands will make owning a car a luxury rather then a necessity further reducing the need for wage inflation.

@MPLT – “Ireland has taken a battering from deciding to fess up, alone, to the capital hole in it’s banking system”

The battering has been all the worse because the fessing up took so long – I am not even sure if there is more fessing up to happen. I seem to remember 3bn being the cost at the start – here we are two years still none the wiser so much so that a delgation from the IMF are here. These guys should refuse a bailout to Ireland (and the banks) unless every last dimwit that was in charge throughout this debacle has been fired, arrested or preferably both.

@MPLT and Keith Cunneen
Who made these losses? Who exactly has taken these losses?

To say this thread is an anti-GS rant of a farce is a bit of an understatement. Perhaps JtO’s most accurate prediction yet…

@Noel
To counter the declining private credit money supply the fiscal debt increases – that and the shenanigans with the special vehicles such as NAMA and the like socialises the losses.

However we are in a depression because the sovergin bond market refuses to give us money to equalise the losses from private investment mistakes in the main – although fiscal debt made huge mistakes trying to keep up with this credit creation you could not have had negative fiscal debt so therefore the goverment had to spend the money created if it wanted to remain a goverment.
.
You pay for this by losing your job , reducing consumption , Increased taxes , sacrificing services etc etc.
The losses to the people are far bigger then the headline goverment figures.
Do not believe the propoganda about unsustainable fiscal debt – without fiscal debt we would be starving in the streets.

Debt is merely out of equilibrium – the wealth has not disappeared globally or indeed to a large extent at home – its just the debt loads for the future cannot be paid off at current growth rates due to catastrophic strategic and local investment decisions.

In general depressions are not characterised by real overall losses – the wealth is merely transferred.

“Bond. Eoin Bond… Says:

November 20th, 2010 at 12:40 am
To say this thread is an anti-GS rant of a farce is a bit of an understatement. Perhaps JtO’s most accurate prediction yet…”

Right on. If the Irish Government had poured its citizens’ hard earned taxes into Goldman Sachs’ stock since October 2008 and not into the useless Irish banks, it is highly unlikely that Ireland would be on its knees today.

I have no particuar feelings either way about Goldman Sachs. I think it should be more profitable to assess the validity of what they have to say against the merits of the case they make, rather than assumptions about their biases.

A couple of points struck me, reading through the document.

One is that the average 70% loan-to-value assumption on commercial and development property loans appears to me to sit uneasily beside the report in yesterday’s Irish Times that 77% LTV ratios were communicated by the banks to NAMA, which subsequently turned out to be closer to 100%.

The other is that it reads to me as if the GS assumptions on residential outcomes are based on the assumption that a single quarter (Q1 2010) of decent data on average house prices from the Department of the Environment is enough to call a bottom to the collapse in residential property prices. Perhaps they are right, but it looks like a rather heroic assumption to me, particularly given the fiscal adjustment we are just about to go through, the prospects of a property tax and the overhang of housing inventory currently being kept off the market by policy interventions.

I would expect that different assumptions in these two areas could have led to radically different conclusions from GS.

I am not wading in to such clear waters. Nothing has changed except GS has provided an(y) excuse for unclear thinkers to wade in and kick up mud.

Ireland is clearly a ball in play and much will be said about it that many of us will be unable to recognize as true. That was what got Ireland into the mess in the first place.

Those indulging in such unclear thinking would seem to have a very legitimate reason for hiding their identity from
.
.
.
.
their employer! Most unimpressive attempts to score points while conceding the argument. Much effort for little reward. Sad that the situation is still so bad.

In view of the impact of world reporting on our dynamic duo of Brians, I expect a 7Bn budget at least? This recent kerfuffle will therefore have helped to more rapidly deflate and to drive down the euro. Making up for lost time. So ^*&^*$&** sad that they have wasted so much time, defending the indefensible.

I see more community on the blog, lately. Hopefully this may produce something positive. Happy Christmas!

This is my last post on here until January 9/10. I’m off to USA tonight on business for 6-7 weeks. Yes, I know they have internet there. But, I just don’t have the time/privacy on a business trip to post here regularly or to do the statistical research that I like to put in my posts. Nice to see that I’m going out on a high note.

It is too, though maybe not in the sense that you would have hoped it! I’m reminded of mustachioed Germans in bunkers, for some reason…

(Can a JtO ‘Downfall’ video be far behind?)

@ Eoin
“To say this thread is an anti-GS rant of a farce is a bit of an understatement”
Nobody likes money lenders and Bond traders are just the money lenders of yesteryear.
They may grow rich but will always be hated. They are thick (skinned) though, so doesn’t seem to bother them.
That is all

@Eureka

They are more then money lenders – they are our civil servants – they dictate policey.
Do you think the US treasury of the 1930s was anything like what it is now ?
Did we not have a more independent civil service in lets say the 1950s then now ?
This is alot deeper then a basic commercial transaction between independent entities.

@ Keith Cunneen
Once again I think that we’ll be on our own on this one. Pity. Many economists don’t seem to do the big picture.

@ jmc

i’m confused. If GS are short, or think their private clients should be short, then why put out a bullish long suggestion like this? Or if they are long, or think their clients should be long, then surely their real belief tallies up with this research? Your comment is pure GS-hating idiocy. I’m sorry, that unfair, your comment is just stupid.

@Eoing,
You’re turning a bit simple in your old age, no?
jmc wrote:
“The Goldman letter reads like typical sell-side research and as such is pretty much worthless. I’d like to see Goldmans private-client buy-side research for Euro bonds and equities and see what the story there is. Very different I’m absolutely certain.”

Or are you telling me that Goldman Sachs doesn’t enforce its chinese walls? This stuff is strictly for the birds. It’s the sort of fluff that a primary dealer in Irish bonds is expected to produce.

An interesting document with many erroneous assumptions such as the loan to value of properties being 70% when NAMA admits that it is nearer 100%. I wonder how this reality would affect their conclusions.

Also, the assumed low default rate of 3% to 4% on mortgages and the further assumption that people will continue to pay their mortgages under severe economic pressure, thereby limiting losses to €1.6 billion in Ireland seems totally unrealistic.

Still, an interesting read and food for further thought – but I wish that they would start with accurate facts.

@Eoin

The fact that you do seem to understand what I am talking about would indicate that you dont know what you are talking about. If you are familiar with the business you would know that huge amounts of research is generated, most of it worthless. The only research of any merit I’ve seen tends to be buy side, produced for those large client who are thinking of buying a particular product from some other vendor. All other research is de facto sell side. They are trying to make me buys something they are selling directly or indirectly and as such is just sales bumf.

My favorite example is still CDO2’s and other structured products like them. Read the prospectus all seems reasonable. Read the sell side research and you will find little more than a nuanced echoing of the prospectus. Read the buy side research and you will find the default cascade risk profile outlined in all its gory detail. Those who bought CDO2’s on the strength of the sell side research are now all out of business. Those who read the buy side research either stayed away or else further hedged their positions and have survived to trade another day.

The GS paper reads like sell side research written by a very junior group trying to justify their budget. Nothing wrong with that but it should be treated as such. If you want to find good free research try the hedgies. There are so many out there that some of them are bound to get it right at any given time. Whether its actually worth the 2/20 is another matter altogether.

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