Category: Banking Crisis

Haircuts

Here are the estimates from Davy Research for the different types of property loans held by Irish banks. (Access, however, limited to customers of Davy.)

Their summary:  “Gauging the appropriate haircut is a function not just of the asset value; rather, it also hinges on the original loan to value, the vintage of the loan and the provisions made. Our analysis suggests a range of mark to market haircuts: from as low as 5% for loans backed by UK commercial investment property to 44% in the case of loans backed solely by Irish development land.”

Bottom line in terms of state ownership:   The base case delivers ownership by the state of 78 percent for AIB and 69 percent for Bank of Ireland.

Sarah Carey on NAMA and Nationalisation

Sarah Carey’s article in today’s Irish Times is worth reading because it is perhaps the most articulate version yet of the key argument that tends to convince people that nationalisation is a bad idea and that NAMA and limited state ownership is the way to go.  The government has made a series of arguments against nationalisation but it’s hard for them to bluntly say “we don’t want to own the banks because we’re scared we’ll make a mess of them.”  But an opinion columnist can and this is the essence of Carey’s argument.

I think Sarah is too pessimistic about the long-term performance of semi-state bodies in Ireland and that, in any case, there’s little point in applying these analogies to businesses for which state ownership is an explicitly temporary measure. 

Beyond that, at the risk of making Sarah’s head hurt a bit more, let me put the case for why she should trust her instincts and support the college boys.

Continue reading “Sarah Carey on NAMA and Nationalisation”

Government Criticism of the IMF

Government ministers have been saying some pretty silly things about the IMF’s estimates of the fiscal cost of the measures taken to solve the banking crisis.

Continue reading “Government Criticism of the IMF”

The Valuation of Distressed Assets

Jon Faust of Johns Hopkins University writes on the distinction between current market values and long-term ‘fundamental’ values: you can read it here.

Calculated Risk on Liquidity and Solvency

The invaluable Calculated Risk has a couple of very useful posts on the analytics of bank solvency and liquidity here and here.  The discussion is framed around current US policy but is still very useful reading for those looking for a starting point for understanding the issues facing the Irish banks.