Many stones yet to leap for safety of economic far shore
DEALING with the banking and financial crisis is beginning to feel like leaping over a series of stepping stones in a stream. If you can keep hopping from one to another, the far bank may yet be reached. One slip, though, and you're in it up to your neck.
The first stone may have been stepped already, with the easing of the borrowing crisis that almost overwhelmed the country last summer. Now, the next leap in the long and complicated bank rescue scheme begins.
Both were under examination at yesterday's annual report from the National Treasury Management Agency (NTMA). It now presides over an alphabet soup of agencies -- the main one being the National Asset Management Agency (NAMA). As it happens, the main conduit of cash for the banks -- the National Pension Reserve Fund (NPRF) is also a member of the NTMA stable.
The creation of NAMA means the NTMA will almost double from the tightly managed 170-strong operation run by the recently retired chief executive Michael Somers. That is the main reason Dr Somers was so upset about having the NAMA cuckoo thrust in the nest -- a feeling he famously made clear before an Oireachtas committee.
The cuckoo has been a long time hatching, but is now ready to swallow the first of its gigantic diet of property loans from the banks, once there is final approval from the European Commission.
The new NTMA boss, John Corrigan, seemed a bit impatient that he did not have a date for the decision. The head of NAMA, Brendan McDonagh, said Brussels had asked questions about "almost every paragraph" of the NAMA plan. He confidently expects approval, and the first €10bn in the top 100 property loans should start shifting over next month.
NAMA is not unique, Mr McDonagh was keen to say. Germany's "bad bank" will take on €840bn of dubious assets. Proportionately, that is still less than NAMA's €54bn, but the Germans are paying 90pc of original value, versus 70pc in the case of NAMA.
"Not everyone in Ireland realises that," he said. And it will be 70pc -- not the 65pc of value which the markets, and even the banks -- had come to expect. That means less need for fresh capital to cover bank losses, but probably more criticism of the scheme. The Department of Finance may prefer receiving criticism to handing out cash.
There should, however, be no need for more taxpayer money for the two big banks, AIB and Bank of Ireland, at this stage. There are hopes that much or all of the estimated €7bn will come from the markets. But even if it does not, any shortfall can be met by converting the existing €7bn of state loans in preference share loans to straight investment in shares.
The trouble with that, from the Government's point of view, is that it might lead to nationalisation of AIB at least. Private investors may yet make that unnecessary but, with capital needs put at six times AIB's present market value, and more than three times for BoI, it is a tall order.
It is possible to be a little more certain about the borrowing outlook. The difference in interest rates between Irish and German government debt is down to 1.5pc, which, Mr Corrigan conceded, may be close to where it should have been all along.
The NTMA had little trouble in borrowing for 15-year terms towards the end of last year and needs to borrow €20bn this year, having raised €35bn last year. So far, so good, then but there are many slippery stones still between here and that faraway shore.