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I warned that hard landing would kill off builders like Taggart

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The collapse of housebuilder and developer Taggart marks the biggest failure so far of the property bust. However, with the Irish-owned banks having lent tens of billions of euro to builders and property developers, there will be many more casualties in the weeks and months ahead.

Yesterday an administrator was appointed to the three companies owned by brothers Michael and John Taggart in Northern Ireland while the banks put a receiver into their company in the Republic. Between them the Taggart companies are estimated to owe the banks more than €150m.

Critical

This makes the Taggart insolvency the biggest failure so far of the Irish property collapse. Rest assured, as the Irish property bust deepens, the Taggarts will soon have plenty of company.

You don't have to be a financial genius to see that many builders and developers are in a critical financial situation. The signs of distress are clear to anyone with eyes in their head. Desperate builders have slashed prices as the increasingly nervous banks put the squeeze on them to start repaying their huge loans.

House prices have fallen by at least 13pc over the past 18 months with more sharp falls likely before the market bottoms out. Commercial property prices have fallen by at least a fifth.

This fall in property prices has put the banks under extreme strain. Between them the six Irish-owned banks have lent something like €165bn to builders and property developers. About €90bn of these loans are secured against Irish properties. Just for good measure the foreign-owned banks operating in this country have lent a further €20bn to builders and property developers.

As the property boom has turned to bust investors have taken fright and dumped the shares of Irish banks, which have fallen by more than 85pc over the past 20 months.

So just how bad are things? At the moment accountants PriceWaterhouse Coopers are conducting a detailed audit of the banks' loan books on behalf of the Financial Regulator.

The PWC team is likely to discover a can of worms. If the rumours are to be believed much of the bank lending to builders and developers is either interest-only, where the principal is only repaid at the end of the loan, or interest-roll up, where neither interest nor principal is repaid until the end of the loan term.

These interest-only and interest-roll-up loans are the Irish banks very own "toxic" assets. Just how much of these loans are out there? We won't know until the PWC team reports but the suspicion is that there are a lot more of them than the banks are letting on.

So why didn't this mess come to the surface long ago? What seems to have happened is that even as the property downturn intensified many of the banks, instead of facing up to the grim reality, resorted to "carrying" their builder and property developer borrowers.

Deception

Was this an honest business decision made on the assumption that the property downturn would turn out to be far less severe than has proved to be the case or something much more sinister? Hopefully PWC will provide us with the answer.

Regardless of the banks' motives, it is now clear that they are going to have come clean on the true state of their loan books. With the government likely to have to pump at least €15bn of fresh capital to keep them afloat the time for pretence has passed and many more builders and developers will follow the Taggart brothers into insolvency.


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