Author: Karl Whelan

Daft Report for 2010:Q1

The latest Daft report is out, including a commentary from Brian Lucey. The analysis of asking prices is, as always, interesting and useful. However, given the evidence on how long it is taking units to sell, it seems clear that asking prices are still above what would be required to produce a normally functioning market.

The recent receiver-driven apartment sales in Mullingar that attracted considerable buying interest (Independent story here) perhaps provide an insight into the gap between asking prices elsewhere and what would be needed to attract demand. The two-bed units in Mullingar were priced to start at €82,000 and I seem to recall that the median two-bed in this scheme was selling for €90,000. For what it’s worth, a non-scientific comparison shows that the average asking price for two bed units in Westmeath in the Daft report is €162,000.

Greek Bond Yields

The yield on Greek government bonds has now crept up to more or less where it was prior to all the EU meetings of the past few months (see here.) I’m not sure why the various annoucements haven’t helped and newspaper reports like this one and this one don’t explain as much as I’d like.

If the high bond yields are a sign of doubts about whether a rescue is actually going to happen, and thus the debt may be defaulted on, then the eventual arrival of the cavalry (in the form of the EU) to keep the debt rolling over would end up bring the yields down to more sustainable levels and hopefully stabilise the situation. A less sanguine interpretation of current events offered to me by a colleague is that the terms of the deal being offered by the EU—in which any lending would be at current market rates—doesn’t really offer Greece a route out of insolvency because bond yields at this level are not consistent with stabilisation of the public finances.

I’m more inclined to believe the former intepretation and that the EU will prevent Greece defaulting. Whether it should is a different matter.

US Financial Regulation Debate

There is a broad international process underway, via the G20, the BIS and the IMF, to come up with new capital and liquidity rules to be applied around the world to replace Basle 2 (see here). However, beyond re-working these rules, the financial crisis has still left lots of knotty issues unresolved, such as how to intervene and unwind large complex financial institutions that are in trouble, how to regulate derivatives and whether more severe limitations should be placed on the activities of banks (perhaps through a return to Glass-Steagal style restrictions.)

Now that healthcare reform is off the agenda, there is a pretty serious discussion in the US now about financial reform: Paul Krugman has devoted his last two New York Times op-ed columns to it (here and here.) Here’s a nice summary of the current state of play. As always with US legislation, the process is bizarrely complicated and riddled with horse-trading, with a House bill and Senate bill, potential reconciliation, and a role for the White House and Treasury Department. But, to be fair to them, the process usually ends up forcing a serious discussion of all the key issues.

It seems that if this kind of thing is going to happen over here, it will need to be done at EU level, presumably with an active role for the European Systemic Risk Board (which comes into existence when?) Perhaps I’m missing it but I don’t get a sense that there is a parallel process at European level that mirrors the current US debate. It may be too much to hope for that Europe, with its patchwork quilt of different types of banks, regulations and regulators, will ever get its act together on this front.

AIB Watch: April 4th Edition

Super Tuesday turned out not to be so super at giving us a better picture of what’s going to happen to AIB. Indeed, I’ve been puzzling over some aspects of the announcements and coming up with a decent picture of what’s likely to happen requires a fair few calculations and assumptions. But here goes. I’ll break this up into two bits. Capital requirements and NAMA transfers first and then asset disposals second.

Continue reading “AIB Watch: April 4th Edition”

Lenihan Says NAMA Will Stop Houses Prices Falling

In an interesting prediction, the Minister for Finance, Brian Lenihan, has said that Irish house prices will now hit bottom thanks to the NAMA transfers. The Sunday Independent reports:

Yesterday, Mr Lenihan told the Sunday Independent: “One of the good things about the steep discount, averaging 47 per cent, is that the residential property market will now be stabilised at a realistic level.”

He added: “You can now buy in confidence that the price is realistic.”

Perhaps I’m being stupid here, but I’m having troubles linking (a) The setting of prices that the government is willing to pay to banks for non-performing property loans (largely backed by commercial or development property) with (b) Prices that people are willing to pay for residential properties.

The Minister reckons the NAMA transfers will act to boost the residential property market. Just playing devil’s advocate, one could point a large surplus of properties for sale, high unemployment, pay cuts, future tax increases, higher mortgage interest margins, and future increases in ECB interest rates as factors that could act against whatever positive effect the NAMA transfers are supposed to have.