Saturday 10 December 2016

Maeve Dineen: All eyes on NAMA as banks face into a year of living dangerously

Maeve Dineen

Published 04/01/2010 | 05:00

IT is a cliche of financial markets that the four most expensive words in the English language are "this time it's different". So it is with a queasy feeling that the country's bankers enter 2010. While bankers across the world are slowly starting to lift their heads from the floor, ours still face some serious torments.

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Their business has always been a cyclical one and only the foolish will have forgotten that. (As the saying goes, a banker is someone who lends you an umbrella when it is sunny, and asks for it back when it rains.)

But, yet again over the last 12 months, they have seen record profits crumble, their once-booming debt businesses blighted by substantial writedowns, and the troubles of some high-flying property developers have brought a number of banks to their knees.

Most financial crises are about the way people do business, and not just the deals they have struck. Yet this one goes deeper than most because we are still experiencing an almighty credit crunch.

Fresh obstacles now loom in 2010, mainly in the form of the €54bn Nama plan and the pricing of risky property loans that are currently worth €47bn at most.

Shortcomings are emerging even before the first loan is transferred. News that Finance Minister Brian Lenihan, one of the few government ministers to show real bottle during this crisis, is battling cancer has also left us a little unnerved.

There is still great uncertainty about the nature and extent of the support that the Government will end up offering our banks. But whether we like it or not, the Government is now set to embed itself deeper into our banking system.

Both AIB and Bank of Ireland have lost about half their value since the Government announced last September that they face an average 30pc discount as analysts have grown more pessimistic about the writedowns they now face. They expect Bank of Ireland to face a discount of 26-28pc on its loans, while AIB, which has a larger exposure to developers with higher loan-to-value ratios, will face a 33-35pc "haircut".

State-owned Anglo has the largest amount in loans moving to Nama, with €28bn in assets moving to the agency.

To date, the Government has injected €11bn into the country's banks, with up to €2.4bn more sought by the building societies. It's also estimated that AIB and Bank of Ireland will require an additional €7bn in capital, and though some of this may come from private investors and asset sales, the Exchequer is sure to end up footing some of the bill as well. Anglo will need several billion more to cover further losses and to fund its restructuring, if approved by the EU.

Government ownership of banks, either in the shape of minority or majority stakes, is always tricky. That should not be forgotten just because an injection of cash might provide a quick and easy way to keep a bank on life support.

It will be a year of living dangerously for the Irish banks and it will be a long time before our Government disentangles itself from the industry.

Yes, this time it is different.

The Irish banking system is set for radical change through 2010 and the State will have to fund its reshaping. Unfortunately, as we start this new year, the pain is nowhere near over for our banking system.

Irish Independent

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