Goldman Sachs plays down fears over bank losses
Goldman Sachs, one of the world's most influential investment banks, has described concerns over Irish banks as "considerably overblown'' in a note that contradicts current worries about their capital levels.
Goldman analyst Nick Kojucharov said there was "more upside than downside'' in terms of the burden the banks will put on the Government's finances in the period ahead.
"As far as the collateral damage to the Government from bank credit losses goes, our estimates suggest that concerns at this stage are considerably overblown."
Other observers of the Irish banks were surprised by the tone of the note, but Goldman Sachs' views command a great deal of attention in the equity and debt markets.
The bank estimates loan losses from all the domestic banks amounting to €58bn in a worse case scenario, which it says includes mortgages, corporate lending and unsecured lending on credit cards. The US bank said the Irish banks had already made provision for a large chunk of their loan losses.
"This is important, because banks current capital position is calculated net of provisions, not actual losses," it said.
"If we are correct about the eventual loss rate being lower, this would add to banks equity and imply no need for additional government support," it added.
The bank also said it expected NAMA to make a profit on its loan purchases and the banks and the Government may have overreacted to the discounts on the first few tranches of loans.
"The Government will have significantly over capitalised the banks, perhaps by tens of billions of euros,'' it said.