New from Department of Finance Post author By Philip Lane Post date November 7, 2013 7-11-2013 Successful completion of 12th and Final Review Mission of the EU/ IMF Programme Ireland has successfully concluded the 12th and final review mission 7-11-2013 The Department of Finance announces two senior appointments. Categories In Uncategorized 39 Comments on New from Department of Finance ← Fishamble’s “Guaranteed!” by Colin Murphy on national tour → Public-Private Wage Gaps: EU Evidence 39 replies on “New from Department of Finance” re: DOF appointments: I wish both people well in their new positions. The appointment of Mr Carville however comes after a very strategic, and in my opinion incorrect, decision has been taken. The strategy is clear from the press release. “Des will be responsible for the completion of the restructuring of the banking system and managing the State’s shareholding in the banks and disposals thereof..” “This experience will play a critical role as we move to the next phase of exiting the State’s shareholding in the banking sector….” ‘Disposals..exit’. Why not put up a ‘Firesale On Here’ sign. The decision to sell has clearly been made. That is a pity, even from the point of view of Mr Carville. The press release binds one hand behind his back. In addition, this is another critical decision made without debate or Dail decision. Surely it would better to keep the banks in State ownership for a number of reasons. 1. To make sure that every cent of the billions wasted by and on the banks is recouped by the State. If it takes a ‘thousand years’. 2. To retain the final decisions on asset allocation within Ireland, and not in a boardroom in Basle or Bremen. 3. To prevent deposit stealing, which is exactly what will happen to both large personal and corporate deposits, if the banks are merged or sold to large conglomerate banks. 4. The banks will in time make money from Irish households and businesses. Why throw that license away, just to satisfy a State debt reduction target of the ECB/ EZ, that is hardly being achieved by any country in the EZ. I wish both individuals well. It is the policy they are asked to carry out that bothers me. So these two insiders one, an out and out 20 year qualified, insider. The other a not so out and out insider, are to help us to recover our 64bn that we have pumped into the banks to date. Strange that Wilbur got his 15% stake in BoI for 300 million euro and our’s cost 5.5bn for the same shares? So Farewell then, The Troika “The program remains on track” Yes, that was your catchphrase “Steadfast policy implementation” That was another. “Fully funded till June 2011” That was the catchphrase which preceded your arrival In November 2010. No longer need we wonder What hotel The Chopper is staying at. But we’re all in the Hotel Frankfurt You can check out anytime you like But you can never leave. 260 boxes have been ticked off but laundry lists do not make a strategy. Irish Bailout Exit: Doleful knell should ring in ears of ‘victors’ I agree with Joseph Ryan above, particularly on: “Des will be responsible for the completion of the restructuring of the banking system and managing the State’s shareholding in the banks and disposals thereof.” And John Moran says: ‘”Des brings all his corporate finance experience to his position as Head of the Shareholder Management Unit at a key moment as we make decisions about the State’s ongoing shareholding in the banks.'” Who is this ‘we’ I wonder? Any chance some politicians can bring this up? Also, the tone is all very blokey and dress-down-Friday chummy. “Successful completion of 12th and final mission” – is it Groundhog Day? http://cdn.theatlantic.com/static/mt/assets/international/mission%20accomplished%20banner%2023423423.jpg with the mortgages as the Sunni/Shia civil war to come No growth is the real news. Ireland leaves the hospital and it is still economic winter. Nominal EZ GDP at the end of 2012 was only 2.5% higher than in Q1 2008. All that huffing and puffing – even if they saved the bonds they didn’t get the growth. And the bailouts all assumed growth flourishing at the end of the projection, as all rational projections do, selbstverstaendlich. Laughing here,last chap sold 1bill coco to BofI then bolted to BofI… “Davy had paid off more than half its loan and plans to purchase the outstanding €140m.” http://www.rte.ie/news/2013/1011/479691-ibrc/ Joseph & Gavin, As Colm McCarthy has often pointed out, the new rules for EU banking are such that we would be far better off with no exposure whatever to that industry. Ideally I’d like all Irish bank branches to be absorbed into an outfit whose HQ is on Mars, but I’d settle for Australia. Let the ECB send future demands for bailouts to a Melbourne address. FI TCD = University of Dublin. These DIT mainly taught degrees were overseen and validated by TCD in days of yore. Methinks you pick nits @Kevin Donoghue I would urge you to think again about Irish government exposure to Irish banks, whether headquartered in Ireland or elsewhere, and whether owned by the State or in private hands. The State does have exposure and will continue to have exposure for all deposits under €100,000. In addition the Irish economy has mega-exposure for shortfalls over €100,000. Ref Cyprus debacle. Try to imagine the ‘unimaginable’, or ‘unthinkable’ as a former AG puts it, in a few years time. [The unimaginable will of course happen, but that is a personal opinion] Imagine a Euro breakup, with ‘Irish’ banks having long since passed into the ownership of a large EZ bank based in, lets say, Germany. This large EZ banks, post breakup, decides in cannot stand over its liabilities to its subsidiaries. The large depositors have fled the Irish subsidiary, encouraged no doubt by the supposed solidity of the parent company bank. The Irish bank, at this stage is funded by a large chunk of ECB liquidity and the ECB being an official creditor is first in the creditor queue, leaving a sizeable shortfall in the Irish subsidiary; a shortfall in both liquidity and solvency, the solvency due to more distressed loans following the EZ breakup crisis. Do the Irish bank subsidiary tell the ECB and official creditors to take a hike or do the directors arrive at government buildings some Monday afternoon? Where do the depositors under €100,000 look to for their funds? The State DGS scheme? Will it be able to pay? Of course, the above scenario could never happen. The parent bank would always treat all depositors and all creditors equally, no matter what the circumstances! Asset shifting, deposit shifting and ECB liquidity switching would never happen. Bankers worldwide are far too honest for those kind of tricks! In summary, we have already witnessed how exposure can be so easily transferred to the State. Why does anybody think that a similar outcome is not possible next time. BOI is only 15% owned by the State. So we have no more exposure to BOI? @Joseph Ryan, When I say I’d like all Irish bank branches to be absorbed into a foreign (preferably non-EZ) bank, I mean that quite literally. They should be full branches of a UK, US, Canadian or Australian bank. If depositors flee Barclays or Citibank that’s not my problem. Nobel winner Stiglitz warns of Ireland’s ‘lost decade’ Decision to bail out the bondholders was ‘deep mistake’ Ireland is facing a lost decade as a result of the Troika bailout, Nobel Memorial Prize winner Joseph Stiglitz said, as the country neared the end of its bailout programme. Speaking on RTE Radio One, Mr Stiglitz said it was a “deep mistake” to bail out the bondholders. He said he was “astonished” at how Irish people accepted the situation without protest. “A good share of the blame has to go to the ECB and commission for not restructuring the debts,” Mr Stiglitz said. […] Austerity “essentially never worked”Mr Stiglitz said. […] http://www.irishtimes.com/business/economy/nobel-winner-stiglitz-warns-of-ireland-s-lost-decade-1.1588511 “astonished” …. @ various Excluding the Anglo deposit bailout, the total realised losses of the foreign banks operating in Ireland may eventually be as high as the State bailout for the domestic banks. Having foreign banks involved in the domestic market spreads the risk but it should be kept in mind that while Ulster Bank and National Irish/Northern Bank have had different owners in recent decades, they were universal banks similar to the domestic banks. Bank of Scotland bought Equity Bank in 1989, a small business bank, and in 1999 it shook up the Irish mortgage by undercutting existing lenders by as much as 1%. In 2001 it bought the Industrial Credit Company, an important business lender that had been established by De Valera in 1933. So in all 3 cases, foreign-owned banks were buying into existing operations. Having either BoI or AIB in foreign ownership, would likely be a positive for the economy. As for Prof Stiglitz and the lost decade, we should know who was responsible for that while pre-property bubble growth powered by a huge real world rise in American FDI (as distinct from virtual or paper values) is not going to return irrespective of the debt level. Stiglitz says austerity “essentially never worked” and the decision to stay in the euro was probably the right one. It’s so easy and ridiculous to say that other countries should maintain bubble spending in a country, among those with Europe’s lowest tax rates. As for not exiting the euro, that implies some limits set by others and unfortunately, there were no bail-in procedures then. Even new bail-in rules provide for some op-outs and Mario Draghi, ECB president, last July in a letter to the European Commission warned of the risk of inflicting losses on junior bondholders in the aftermath of next year’s bank stress tests, where state aid is required to boost recapitalisation. He made clear that he does not oppose bail-ins in the longer term. Stiglitz is possibly unaware, in common with many locals, that Ireland also bailed-out depositors including possibly hedge funds as there was an unlimited guarantee after Sept 30, 2008. Anglo had €53bn in deposits while the Central Bank had about €600m in its guarantee fund, provided by a 0.2% levy on bank deposits. We will probably never know how it turns out. Have you read this? http://thestory.ie/2013/11/08/killing-freedom-of-information-in-ireland/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+thestory%2FQSEJ+%28The+Story%29 The government are about to kill off FOI. I cannot help but think that this and exit from ‘the programme’ are somehow linked. @Kevin Donoghue/ Michael Hennigan While I would soften my opposition to foreign ownership of Irish banking, if the banks in question were headquartered outside of the EZ, I cannot agree that it would be good idea to concede foreign ownership of banking. The rump Irish banks (incl all BOI) have assets of approx 180 billion, that on a clear day should return 2% of assets or over €3billion per year. That is not small change over a 30 /50 year period. The immediate concession of ‘foreign’ ownership’ seems to have at its heart an explicit admission that an Irish headquartered bank is congenitally incapable of running a responsible bank. That indeed may be true of the McCreevy ‘when I have, I spend it’ generation. But having broke both banks and country, should we not allow the next generation, that have been so badly mauled by the decisions of the McCreevy generation, to make the decision on whether to sell off the remaining banks. At the moment it seems that the only thing we are going to leave the next generation is piles of debt, with every and all State asset sold; sold to keep the present generation in clover. Further I am not entirely convinced that deposits and creditors losses cannot be manipulated, regardless of the HQ of the banks. @Michael Hennigan re; Stiglitz On the issue of Joseph Stiglitz commenting that austerity has never worked. It certainly has not worked to date. Germany cannot expect that countries in deficit will continue to allow their better off income earners to buy Mercedes and other high value German products, while consigning the vast majority of its citizens to penury. It is not politically realistic. Neither is it realistic that the euro can continue as it is. The latest ECB document posted by DOCM, looks like Draghi is prepared, with council backing, to make a properly run and properly funded Resolution Authority a make or break issue. The argument has been made, somewhat unthinking, that the Euro is a EU political project and therefore cannot fail or be allowed to fail. But on the basis of the past five years, it is exactly the politics of the project that have failed. While acknowledging Ireland and other countries part in the lead up to the crisis, my own view is that Germany bears a large degree of responsibility for its refusal to contemplate any solution not in its rather narrow economic catechism. @ Joseph Ryan The ECB is not formally party to the negotiations. What is has offered is an “opinion” which it is legally entitled to do. However, given the role that it has been assigned in respect of the SRM, this is but a detail. Schaeuble seems increasingly isolated. As usual, the position of Merkel is shrouded in mystery but she is reported as being more open to compromise than the finance minister. The SPD do not think his approach is workable. http://www.welt.de/print/die_welt/wirtschaft/article121709136/EZB-widerspricht-Schaeuble.html The issue is without doubt the watershed one confronting the EU. Not that it is getting much attention in Ireland! @ DOCM You remind me of RTE entertainment plugging Love/Hate http://www.rte.ie/ten/news/2013/1109/485633-ron-burgundy-on-love-hate-finale/ http://www.rte.ie/ten/news/2013/1108/485536-kinlan-two-love-hate-babies-on-the-way/ http://www.rte.ie/ten/news/2013/1108/485506-coonan-sad-about-love-hate-finale/ http://www.rte.ie/ten/news/2013/1107/485236-love-hate-set-for-american-remake/ http://www.rte.ie/ten/news/2013/1106/485017-love-hate/ HOW TO SPOT A PROPERTY BUBBLE In the long run,the value of an asset must be linked to the income that can be obtained from it,rent in the case of property and dividends in the case of shares. Some assets may shoot up in price,because some residential areas may become very fashionable and companies can have very successful products,but in aggregate,property and share prices are constrained by the growth rate of the economy. Rents cannot rise faster than incomes for long before no one can afford to rent,and similarly if house prices outstrip GDP,more and more of a home buyer’s income must go to service the mortgage.This is not sustainable. In the short run,changes in interest rates,lending practices,etc can cause property prices to overshoot. Property bubbles are difficult to stop,because they have many supporters when they are inflating. Banks are making money from lending,estate agents and property valuers are making money from property transactions,and the broadsheet media property advertising revenues soar. Property has Two Prices,the price you can get for it i.e. the transaction price/market price,or the present value of it’s future rental income i.e. the investment price.If a 5 euro note was auctioned on Grafton Street and an unwise person bid it up to 20 euro,then a valuer would value all 5 euro notes as 20 euro.Likewise if an unwise person paid 2 million euro for a house with a present value of 0.5 million euro,then a valuer would value all similar houses at 2 million euro. Almost all of the Irish banks reckless lending was done using surveyors/valuers valuations. These valuations were as good as money. This is the valuation error that created the property bubble and bankrupted Ireland. A bankers view….. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10436834/A-banking-union-should-end-the-doubts-still-hanging-over-the-sector-in-Europe.html @FLJ / DOCM / Kevin Donoghue re: Banco Santander Chairman speech in Telegraph as linked by FLJ above. Note the thinking of international bankers: ” Financial institutions must be allowed to choose a resolution strategy in line with their group structure. Just as Banco Santander is made up of subsidiaries that are autonomous in capital and liquidity, the multiple point of entry model is the most appropriate. ” Guess what that means? It means, imho, that bankers want the full right to be able to fold a subsidiary in any country, or anywhere, without any liability attaching to the parent group, beyond the capital and liquidity ratios imposed in the country where the subsidiary operates. Des Carville take note. You can sell the banks, but don’t think that because you sell the banks that depositors in that bank subsidiary will be bailed out by Big Mama, like the British bailed out BOS, or Ulster bank. A new normal is emerging. Banks will manipulate their corporate structures to slough off failing subsidiaries, leaving creditors and in particular depositors to take the hits. All argued for under the seemingly innocuous phrase: “the multiple point of entry model is the most appropriate. ” @DOCM I was not aware that the ECB role was confined to that of offering opinions! But I take you point. I found the ECB opinion to be a well considered document. It seems to argue, quite rightly, that all financial institutions will be subject to SRM (and presumably supervision) To do otherwise would be grossly distortionate and unfair to small institutions. The ECB document is deserving of being linked to again. I do hope the ECB will challenge the direction that Banco Santander would wish to go. A ‘home free’ run for large banking conglomerates. http://www.ecb.europa.eu/press/pr/date/2013/html/pr131108.en.html @ Joseph Ryan As indeed does the speech by Asmussen. http://www.ecb.europa.eu/press/key/date/2013/html/sp131108_1.en.html It may be noted that the analysis he puts forward bears more than a passing resemblance to the thesis advanced by Professor Adalbert Winkler of the Frankfurt School for Finance and Management i.e. that the actions of the EA resemble those taken by US banks prior to the establishment of the Federal Reserve – a system of co-insurance – but in a manner that was not thought through and inherently contradictory. Because of the huge increase in the issuance of government debt, both governments and banks are in the same business; maturity transformation of financial instruments. It may also be noted that Asmussen refers to a “vicious fiscal-financial feedback loop” and not to the vacuous mantra trotted out endlessly by politicians in Ireland about “breaking the vicious circle” between sovereigns and banks which is a nonsense, even if it is enshrined in the conclusions of a meeting of the European Council. The intention must be to reverse the feedback loop, not peddle the idea that sovereigns and banks can somehow ignore each other’s existence. I get the impression that the major players, including the major banks, are inching towards a modus vivendi; something on the lines of a virtual “public backstop” i.e. acceptance by Germany of a fund with some form of shared liability to match the virtual LOLR that Draghi has created at the ECB. France is clearing the banking decks! http://www.leparisien.fr/economie/credit-lyonnais-l-etat-passe-a-la-caisse-10-11-2013-3302883.php @Joseph Ryan “…bankers want the full right to be able to fold a subsidiary in any country….” Indeed. That’s why we should prefer full branches of foreign banks. Just imagine how little harm Sean FitzPatrick would have done to Ireland if he had been manager of Citibank’s Dublin branch. At the very, very worst, he’d have become Tim Geithner’s problem. @ Kevin Donoghue If only it were that simple! http://www.bloomberg.com/news/2013-02-28/nordic-banks-draw-latvian-rebuke-as-dominance-denounced.html P.S. I wonder what was AIB doing with a mortgage portfolio in Latvia. Below is the podcast of the editor of the Financial Times Lionel Barber’s lecture on 7th November at the LSE on the issue of “Can and Should the Eurozone Survive”. Lionel describes this eurozone crisis as “living through wartime” http://www.lse.ac….layer.aspx?id=2091 Bailout ending and Stiglitz’s comments- this song feels appropriate They could play it in Frankfurt as well – no harm either http://www.youtube.com/watch?v=PVrbO6CihGY And for the next time “what was that phrase – grace under pressure” Maybe FF could learn it @ All FYI http://www.reuters.com/article/2013/11/09/us-europe-banks-germany-idUSBRE9A808320131109 The current furores around RSA and the Newbridge Credit Union suggests that the Germans may have a point with regard to where the responsibilty for paying to resolve banks must lie given the present level of European political integration. fyi How To Address The Eurozone Problems? 08/11/2013 by Yves Leterme Watch the Deputy Secretary-General of the OECD, Yves Leterme, discuss the current woes of the Eurozone and how to address them. This speech was recorded at the conference ‘Can the Eurozone be saved?’ at the LBJ School of Public Affairs at the University of Austin, USA on 4th November 2013. http://www.social-europe.eu/2013/11/address-eurozone-problems/ fyi2 Fighting For A Socialist Six Pack 11/11/2013 by Paul Magnette Social democrats should oppose the austerity Six-Pack and mobilise around six reforms from the Left to change Europe Everywhere in Europe the scale of austerity measures leads to heated discussion and debate. What started as a financial and economic crisis quickly turned into a political crisis. Conservative parties from the Right hold on to the ultra-liberal recommendations of the European Commission: recipes and measures that have been presented to us over and over again during the past five years, but never seem to work. The European Six-Pack has become a synonym for recession, unemployment and a lost faith in the future. That is why the Belgian Socialists (PS) call for an alternative Six-Pack, a Socialist Six-Pack as a new project for Europe which makes a clear break from blind austerity measures. http://www.social-europe.eu/2013/11/fighting-socialist-six-pack/ @DOCM Ordoliberal prescriptives …. tiresome. from the Reuters article http://www.reuters.com/article/2013/11/09/us-europe-banks-germany-idUSBRE9A808320131109 “Behind Germany’s demands are two chief concerns. Berlin does not want to be told by Brussels to close a German lender. Neither does it want to be left on the hook for the clean-up of bank crashes elsewhere. The wishes of Germany, Europe’s biggest economy which has shouldered much of the cost of bailing out countries from Greece to Ireland, cannot be ignored. But Berlin can count on few allies for wholehearted support for its tough stance.” So Reuters is now in the business of disseminating German propaganda. It takes a very ill-informed or a very duplicitous journalist to make the following statement: “The wishes of Germany, Europe’s biggest economy which has shouldered much of the cost of bailing out countries from Greece to Ireland, cannot be ignored. But Berlin can count on few allies for wholehearted support for its tough stance.” So who was bailed out? And who paid for the ‘bail-out’. I hope the Irish government asked Reuters to correct its ill-informed propaganda. If the so-called deal ‘struck’ in Germany is what Schaeuble is going to bring to the EU meeting this week, he should stay at home. It is time for other EU countries to start planning their future without Germany. @ JR I just provide the link! Here is another! http://online.wsj.com/news/articles/SB10001424052702303661404579177873015074830 @DOCM No personal offense intended. The link was informative. The fault lies in reporters who peddle wrong information. The reality is that Germany has profited from Ireland’s crisis. Through its ECB capital Germany benefits to the tune of ~22% of the profit the ECB has made and stands to make on the purchase of Irish Govt bonds. Total profit in my estimate of about 2 billion, 22% being €440 million. Not small change in profit being made from a feckless country. Beyond that, as far as I can see, there have been no direct payments or indeed loans from any EZ country. The UK and I think Denmark? could argue that they are out of pocket, but not Germany. It was terrible and imho grossly misleading reporting by Reuters and you link gave this humble citizen an opportunity to say that. To say it twice in fact. Thank you for that. New From The Dept. That Likes To Say Yes. This was nice…can you get it in a brown envelope. “The Central Bank has now been granted a High Court order to resolve the difficulties in Newbridge Credit Union by way of a Transfer Order and as part of this process requested the Minister’s agreement for the payment of a financial incentive.” http://www.finance.gov.ie/viewdoc.asp?DocID=7897 http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankconfirmstransferofNewbridgeCreditUniontopermanenttsb.aspx Oh..a rather precarious situation,made US ed WSJ! So the chap who mid career,switched to the public sector would be in charge here. Tick tock… “The Irish central bank said it had no choice but to transfer ownership of Newbridge to the government-owned Permanent TSB Bank because the credit union would otherwise have faced “full-scale, immediate liquidation.” Any collapse would have threatened a potential run on the EUR7 billion in deposits held by credit unions in Irish banks, the central bank said.” http://online.wsj.com/article/BT-CO-20131111-705975.html?dsk=y … and ZERO accountability once again as the gaff is transferred to the citizen_serfs. Pathetic to see The Gov’nor so powerless ….. Seamus Coffey has a terrific piece in the indo on this,the cartoon is also excellent,however no mention off moral hazard…… The piece looks at the possible ‘loan’ loses,but is silent on the impact off the new personal insolvency thingy. http://www.independent.ie/opinion/analysis/seamus-coffey-more-credit-union-failures-are-inevitable-and-well-pay-price-29745846.html ah for f**ks sake evoking nelson mandela like really ! is that a dead parrot you have there…….. “Also, the impact of the new Insolvency Act has not yet kicked in and it is to be expected that loan loss experience will be amplified by the new debt settlement arrangements. Maturing legacy books are reducing interest income, and investment yields are on a downward sloping trajectory at a time when the investment portfolio continues to grow. This is most recently evidenced by a further interest rate cut by the ECB last week to an historic low. And all of this at a time when embedded costs in many credit unions continue to rise.” http://www.centralbank.ie/press-area/speeches/Pages/AddressbySharonDonneryLIAAwards.aspx cut and paste…. “David McWilliams: We just can’t afford to lose the vital services of credit unions” http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-we-just-cant-afford-to-lose-the-vital-services-of-credit-unions-29749623.html Indeed how was the gig…..perhaps a bit of disclosure here,was it a freebie? “The ILCU Chapter Officers’ & Insurance Forum to be held at the City Hotel on Saturday 12 and Sunday 13 October will bring together hundreds of representatives of credit unions from across Ireland. Under the theme ‘Working Together For Members’, delegates will explore key issues impacting the lives of almost 3 million members across Ireland North and South, with economist and commentator David McWilliams providing his take on where the British and Irish economies are currently headed.” http://www.creditunion.ie/communications/news/2013/title,7810,en.php Newbridge came out of the crisis on bad shape. The Kildare football stadium in the town missed the funding boat so they are stuck with 50s infrastructure and the CU hit the wall. Caught in a bad romance with property. The New York Times “deal book” has a webcast from its conf. and a supplement other day. “When the S.E.C. missed signs of the financial crisis, the agency acknowledged that it lacked the private sector expertise necessary to ferret out wrongdoing. The argument echoes statements that President Franklin D. Roosevelt supposedly picked the financier Joseph P. Kennedy as the first S.E.C. chairman because Kennedy “knew where the bodies were buried.” http://dealbook.nytimes.com/2013/11/11/slowing-the-revolving-door-between-public-and-private-jobs/?_r=0 Comments are closed.