Laura Noonan: Bad loans remain the issue at core of toxic money pit
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IT was a gallant effort, but Finance Minister Brian Lenihan's attempts to bring "certainty" to the Anglo Irish Bank debacle were always going to crumble at the first hurdle.
For, unpopular as it is, there can be no certainty on the final cost of Anglo or the timeframe for any wind-down. We simply don't know. And we can't be expected to.
Anglo Irish Bank began the year with a €72bn loan book -- €36bn of troubled developer debt that's being shovelled into the State's bad bank NAMA and €36bn of "other" loans.
We won't know the size of the hit Anglo will take on the NAMA-bound loans until they've all been transferred over, because we won't know how much the 'bad bank' gives Anglo for the loans until then.
NAMA is not due to complete its Anglo work until February, though Mr Lenihan yesterday hinted that the agency might beat that deadline "in the national interest".
The absolute best-case scenario is that NAMA gives complete priority to Anglo's debt and Anglo's staff work round the clock to resolve the NAMA-bound loans over the next few weeks.
Then, we'll know the cost of the €36bn of Anglo's developer loan book by the autumn. Hallelujah! But we'll still be none the wiser about how much Anglo will shed on its €36bn of 'other' loans.
That €36bn, now ear-marked for the new wind-down outfit, has already been written down to reflect market conditions at the end of June.
But the scope of future writedowns remains a great imponderable.
The loans are mainly secured on property assets, which the banks can seize if the borrowers stop paying up.
No one knows what those property assets will be worth this time next month, never mind this time next year or in 10 years' time. So no one knows how much of a shortfall the bank will be left with if loans turn sour. No one knows how many loans will turn sour either.
A pick-up in general economic activitiy could see more of Anglo's borrowers able to make their repayments. A further fall in Ireland's economic fortunes could see more borrowers buckle and default on their loans. Movements in currencies, global economic trends and interest rates all feed into the equation as well, making "certain" proclamations even more of an unreasonable demand.
Certainty on the timeframe of Anglo's winddown is just as elusive.
The 'recovery' outfit will have €36bn worth of loans to resolve for the maximum benefit of the taxpayer.
The only way to resolve loans in a defined timeframe is to fire-sell them to anyone who'll take them off our hands -- do that and you can forget about getting the "maximum benefit".
The other way -- the longer way -- is to work with borrowers who can repay you and sell off the seized assets of the borrowers who can't.
When those borrowers can repay their loans and when the market is prime to advantageously sell off assets depends on a myriad of economic factors both home and abroad.
The market, the public and the opposition are all demanding certainty on Anglo.
They might as well demand the numbers for next week's EuroMillions.
- Laura Noonan
Irish Independent
