The cover story in this weekend’s FT magazine reviews the Irish banking crisis and features several current and former IE bloggers: you can read it here.
Category: Banking Crisis
An Taoiseach gives his views on the Irish Banking Crisis in this speech.
[This month will see much more on this topic, with the two scoping inquiries on the banking crisis due at the end of May.]
AIB have released an interim management statement. As expected, the bank has not been able to pay the state its cash dividend of €280 million, so they are issuing shares for this amount instead. The NAMA bonds are referred to “enhancing our contingent liquidity resources.”
As an aside—and sorry to bring up Frank Fahey twice in two days—I’d note when I appeared on the radio with Deputy Fahey in February, he told listeners that the government would definitely be getting its cash dividend from AIB in May. I noted at the time that the coupon stopper was in place “to prevent the reduction of own funds by financial institutions which are still reliant on State aid to fulfil regulatory capital requirements” and so this was highly unlikely. To my mind, the fact that government politicians are sent out to continuously over-promise in relation to their banking strategy ultimately ends up just undermining their credibility.
Update: I just noticed that the Department of Finance press release contains the following:
The Minister explained:
“The €280 million in ordinary shares issued to the Fund will count towards the additional €7.4 billion equity capital requirement determined by the Financial Regulator so that AIB will meet the new base case capital standards.”
I’m not sure I understand this. The state is not putting any extra funds in, just receiving shares that dilute the existing ownership. Can the issuance of these pieces of paper in exchange for no money really raise regulatory capital? If this trick works, why can’t the bank’s ownership just issue a few million more shares to themselves for free? Then reaching the €7.4 billion target will be no bother.
Governor Honohan reviews the current situation in relation to the Irish banking system and the Irish sovereign in a speech to the Small Firms Association: you can read it here.
Gillian Tett’s Financial Times column today praising the Irish government’s approach to fiscal adjustment relative to that of Greece, Spain or Portugal is welcome. Without doubt, the government has taken a brave approach to fiscal adjustment and the public reaction to it has been one of remarkable tolerance. However, I think we need to be careful about overdosing on external and self-praise and concluding that we’re somehow out of the woods on the fiscal front.