It's the 'X' factor that counts in this whole banking fiasco
'X' marks the spot. In the report published yesterday on the bank rescue plan, it says the six guaranteed Irish banks have troubled property loans "of around €X billion (figure deleted -- market sensitive)". €X billion is the figure which matters, but we do not know what it is.
Nor would it be right for the Government to tell us. Firstly, it is still a bit of an estimate. Secondly, the figure which is finally agreed -- or even imposed -- upon the banks will be critical to the operation of the rescue plan and the final cost to the taxpayer.
It follows that all this comment about such costs, and the use of the dreaded 'bailout' word for banks and developers, is no more than hot air. Until we see the numbers, such talk is meaningless. Some of the statements from opposition TDs showed remarkable ignorance even of what had been announced, never mind their wilder speculative sallies.
True, the Government's complex communications methods do not help. It was only yesterday that the true scope of the plan was explained, and pretty breathtaking it is.
It would seem a pity, therefore, to ignore the things we actually know in favour of a huge round of arguments based on guesswork, and what might happen 15 years from now.
One thing we now do know, even though it was widely suspected and even commented upon, is that the State's bold guarantee of the entire €440bn banking system has not worked.
The summary report from consultant Dr Peter Bacon confirms that there is a recurring problem of deposits leaving the Irish banks, or being lodged only for very short periods.
Without access to European Central Bank cash, the banking system might indeed have failed. But ECB loans are not a solution. That can only be achieved when depositors, and investors, believe the risk of a bank failure has gone. The radical step to create a National Asset Management Agency is designed to remove that risk -- and do it all in one go.
This is the bit which so confused critics. The NAMA would not take over just the €40bn in property loans which are causing difficulty. It would take over the entire €80-€90bn in loans for the purchase of development land, loans for associated work on the lands, and some loans to big developers for investment in property.
The good, the bad and the ugly, one might say. It is easy to imagine legal difficulties over the compulsory transfer of loans which are being fully repaid, but Dr Bacon indicated why this is more attractive to the Government. Having a portfolio of different quality loans should make it easier for the new agency to get a fair price eventually for those loans and achieve maximum benefit for the taxpayer.
"Eventually" could be a decade or more away. But the immediate happenings will be dramatic enough. Those lands etc are no longer worth €80-€90bn. It is those unknown losses to the banks which have caused the loss of confidence. For the banks themselves, covering those losses from future profits elsewhere would take years -- years in which their ability to lend would be reduced. The bit which most people missed is that the plan will force the banks to incur those losses at once. The €X billion, whatever it turns out to be, will come off the banks' books and off the value of their shares. That is why the Taoiseach and Finance Minister object to the word 'bailout'.
Indeed, the losses could be so great that one or more of the banks are unable to absorb them. In that case, the State will become a full investor in the bank, holding shares in the same way as other investors.
Mr Lenihan says the State will become the majority shareholder if necessary. Most people will think he would not have said it if he did not believe it was a likely outcome. The taxpayer would have to provide the new capital, but few have ever believed that the €7bn committed so far would be enough.
The same again could easily be required. The prize is the immediate creation of new, smaller banks, with no unknown skeletons left in their cupboards, which can again carry out their vital role in the economy -- albeit under stricter, better regulation.
The cost is not pleasant but, ultimately, the country faces a choice between years of 'zombie' banks unable to operate as they should, or taking on the challenge and paying the price for fixing them. People are understandably angry about how it came to this, but that does not alter the choice.
The investment in new capital should return to the State in the end, probably with profit. On the other side, though, however well NAMA handles its portfolio, a disaster on this scale seems bound to leave a hefty bill with the citizen in the end.
That bill will be a lot easier to pay if the economy has returned to its potential rate of growth when this crisis is passed. Among many other tasks, the banks will have to be fixed for that to happen. If something is not done -- or what is done does not work -- the final bill will be even bigger, as well as less affordable.
bkeenan@independent.ie
