Business World

Monday 16 September 2019

Deutsche fears mortgage crisis to 'force second Irish bailout'

A man begs on a
street during a
demonstration in
Athens Greece is
close to breaking
point as it struggles
with austerity targets
A man begs on a street during a demonstration in Athens Greece is close to breaking point as it struggles with austerity targets

Laura Noonan

THE spiralling mortgages crisis could trigger another multi-billion recapitalisation of our banks and force Ireland into a 'second bailout', German banking giant Deutsche claimed yesterday.

The damning 120-page note from Deutsche came on the same day that Citi warned that the recession was likely to force Ireland to apply for a second bailout. London-based Citi also pointed out, however, that they expect a second European bailout to remain available to Ireland even if the fiscal compact treaty fails.

The 'surviving' Irish banks got another €24bn capital in a mega bailout last summer, while Irish Bank Resolution Corporation (including Anglo Irish Bank and Irish Nationwide) has repeatedly said it won't need more cash.

Experts increasingly fear that Irish banks may actually need to be bailed out again because mortgages in particular are shaping up worse than even the 'adverse' scenario the banks are capitalised to deal with.

In its note, Deutsche said AIB, Bank of Ireland and Permanent TSB could lose "€2bn to €4bn" more on mortgages than what was provided in the stress tests that underpinned last summer's bailouts.

Deutsche said some of these extra losses could be absorbed by "buffers" already in the banks, but stressed that "it is possible a specific institution" might not have enough capital to deal with the extra hit.

"If this capital requirement were to materialise in the new Irish bank stress test in 2013, it could compromise the sovereign's ability to reopen private fund markets," Deutsche said.

"Even though modest, any capital deficit could tip the balance in favour of a second loan programme being required for Ireland to finance its fiscal deficits from 2014."

A spokesman for the Department of Finance last night declined to comment on Deutsche's note, but pointed to Finance Minister Michael Noonan's assertion this week that the banks were well capitalised.

Asked about Deutsche's claims yesterday, Taoiseach Enda Kenny told reporters: "Clearly I haven't seen the note but it is the intention of this country to emerge from our bailout at the end of 2013.

"For us to do that, we have to be able to go back to the markets," he added, while Health Minister James Reilly said of the Deutsche note: "I wouldn't take much heed of that".

In a separate note, Citi said it "continues to expect that -- regardless of the referendum outcome over the fiscal compact -- Ireland will need (and get) a second bailout".


"I think that if the Irish Government continues to comply with the troika targets, then a second package probably would -- with agreement of other EMU (euro) countries -- be arranged through the EFSF, which would still have enough funds left," Citi's Michael Saunders told the Irish Independent.

The Government has insisted that European funding would be closed to us in the event that the referendum is defeated -- a point hotly contested by No campaigners.

Citi blamed the "weak" growth, the massive cost of the banks recapitalisation to date and Ireland's large budget deficit for the likely second bailout, noting that the "scope for Ireland to grow its way out of the public and private debt burdens is further eroded by the sharp slowdown in potential growth, which is closer to zero".

Irish Independent

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