The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[muppet]

http://www.rte.ie/news/2011/0329/ilp-business.html

State set to take control of IL&P
Updated: 13:44, Tuesday, 29 March 2011

The State is now likely to take full ownership of Irish Life & Permanent following the stress tests of banks due to be published on Thursday.

Irish Life & Permanent - Permanent TSB likely to need up to €1 billion


The State is now likely to take full ownership of Irish Life & Permanent following the stress tests of banks due to be published on Thursday.
RTE News understands that the amount of capital required for the group's bank, Permanent TSB, is likely to be in the region of €600 million to €1 billion. At present, Irish Life & Permanent is valued at around €200m.
So a capital injection which would be required from the State is likely to force the organisation into full State control.
Irish Life & Permanent is made up of one of the State's largest life assurance companies, Irish Life, and the country's largest mortgage lender Permanent TSB.
Minister for Finance Michael Noonan is likely to make a statement which will include addressing the future structure of the banking system on Thursday.
The change in ownership of Permanent TSB would be likely to have significant ramifications for potential mergers in the banking sector.
Shares in IL&P were down almost 25% to 56 cent in Dublin this afternoon.

[Capt Pat]

What about Ulster Bank? Are they next to fall?

[muppet]

What about Ulster Bank? Are they next to fall?

They are Downing Streets problem.

[muppet]

http://www.rte.ie/news/2011/0329/portugal-business.html

S&P cuts ratings of Portugal and Greece
Updated: 18:12, Tuesday, 29 March 2011

Credit rating agency Standard & Poor's has cut its credit ratings for both Portugal and Greece.


S&P downgrades - New EU mechanism blamed for cuts

Credit rating agency Standard & Poor's has cut its credit ratings for both Portugal and Greece.
S&P lowered Portugal's credit rating by one notch to BBB-, saying debt restructuring may be a pre-condition for help from the EU's new bail-out fund.
S&P, one of the top three ratings agencies, said its decision reflected its concerns that terms to access the new European Stability Mechanism (ESM), agreed at an EU summit last week, would be to the detriment of creditors.
Investors fear that the bottom line of the new ESM, which comes into operation in 2013, means that they could see their investments restructured, either in terms of the amount they get repaid or the time they have to wait for repayment.
In either event, their investment in Portuguese government assets, primarily bonds, would be worth less.
S&P also downgraded Greece's credit rating deeper into junk status for the same reasons. It lowered Greece's rating two notches to BB- from BB+, and said it may lower its assessment again.
The news sent yields on Portuguese 10-year bonds to a new high of just over 8.2% this evening.

Does the bit in bold mean they are anticipating some pain for bondholders?

[orangeman]

This is truly frightening stuff :



The unbelievable truth about Ireland and its banks
Robert Peston | 00:00 UK time, Wednesday, 30 March 2011

Ireland's central bank and new government will confirm on Thursday that the hole in the country's banks is even wider, deeper and darker than seemed to be the case last November, when those bust banks forced the country to go with a begging bowl to the European Central Bank (ECB) and the International Monetary Fund (IMF) for 67.5bn euros (£59bn) of rescue loans.

Regulators at the Irish central bank have conducted a review of how much extra capital - as a buffer against future losses - is required by Bank of Ireland, Allied Irish Bank, EBS and Irish Life and Permanent.

Unless something unexpected happens in the next 24 hours, the total amount of additional capital that will need to be injected into these banks will be a bit less than 35bn euros - including 8bn euros that was supposed to be injected into them at the end of February, but was postponed because of Ireland's political turmoil.

Anyway, let's assume that the total amount extra that these banks need is circa 30bn euros. That would take the total quantity of state investment in Ireland banks to a breathtaking 75bn euros (actually a tiny bit more than that).

That is an almost unbelievably large number. When I think about it, I have a small panic attack - because it represents 45% of Ireland's GDP and 55% of its GNP.

(Irish GNP is usually thought to be a better measure of Ireland's useful economic output, because the GDP figure contains a sizeable chunk of profits exported abroad by all those multinationals that settled in Ireland for the exceptionally low tax rate).

Or to put it another way, if Britain's banks had gone bust to the same extent, British taxpayers would have invested something like £700bn in them - or more than 10 times what we actually invested in Royal Bank of Scotland, Lloyds, Northern Rock and Bradford & Bingley.

Nor is that the end of the exposure of the eurozone and the Irish state to these stunningly failed banks.

No financial institution or bank will lend to them. Ireland's banks can't borrow from anyone except the Irish people (who, poor souls, have nowhere much else to put their deposits). But even if they wanted to, Irish households could not possibly put money into the banks fast enough to allow those banks to repay all the institutions - such as German banks - which lent far too much to Ireland's banks in the boom years.

So when these wholesale lenders to Ireland's banks have been demanding their money back (as they have been in a run that has been huge and inexorable), the money has come from the European Central Bank and the Central Bank of Ireland - or, indirectly, from the taxpayers of Ireland and the eurozone.

To prevent Irish banks toppling over one after another, the European Central Bank has lent 117bn euros to them and the Central Bank of Ireland has lent them a further 71bn euros. So that's 188bn euros of loans from the eurozone's taxpayers to Ireland's banks - which makes the 67.5bn euros lent directly by the eurozone and IMF to the Irish government look like peanuts.

And a further 20bn euros of bank bonds - another form of bank debt - is still guaranteed by the Irish state through the Eligible Guarantee Scheme.

So that is 208bn euros of taxpayer loans to Ireland's banks - equivalent to a remarkable 154% of GDP.

To ask the inevitable dumb question, what on earth went so spectacularly wrong?

First, in the frenzied party years before 2008, the banks borrowed too much from other institutions - especially from German banks - and lent far too much to housebuyers and property speculators.

However, to date Ireland's banks have only properly owned up to the losses on the property developments.

On Thursday for the first time they'll be forced to admit that they also face colossal losses on residential mortgages. In February, for example, official Central Bank figures showed that 5.7% of Irish mortgage accounts were more than 90 days in arrears - which means Ireland banks then were owed 8.6bn euros in unpaid interest and principal.

It is pretty extraordinary that it has taken so long for the banks to be forced to recognise their mortgage losses - since house prices have more-or-less halved over the past few years, the economy was in deep recession after the 2008 crash and has subsequently been pretty stagnant, and unemployment has been rising.

Does the phrase "better late than never" apply in this case? Possibly not.

Second, the Irish government probably chose the worst of all strategies for propping up the banks.

By guaranteeing all their liabilities in the autumn of 2008, they turned the bloated liabilities of the swollen banks into public sector debt.

And because the Irish government didn't secure a bottomless borrowing facility from the European Central Bank, it then became impossible to force losses on any of the banks' creditors, even those which lent most recklessly: Ireland did not have the financial resources to pay back all those wholesale lenders that would inevitably have demanded their money back the moment any of them were instructed to swallow a loss.

So some of the guilty parties, namely the wholesale creditors of Ireland's banks - including banks and investors in Germany, France, Spain and the UK - have got away without taking their share of losses. All those losses have fallen on Ireland's citizens, who are not blameless for the mess (they didn't have to borrow too much) but aren't the only ones at fault.

And for the Irish people, there is a second source of possible injustice. The money they've been lent by the IMF and eurozone carries an interest rate of 5.8% on average - which is significantly greater than Ireland's economy and tax revenues can grow right now, and therefore forces Ireland into a potentially never-ending vicious cycle of public spending cuts and low growth.

What's more, the banks may also be trapped in a cycle of forced asset sales and losses, because they are paying out an estimated 2.5bn euros a year for the emergency loans from the ECB and Irish central bank, to finance mortgages and other loans which are falling in value and are not yielding interest.

Perhaps worse still, the 188bn euros of central bank loans could be withdrawn more or less at the ECB's pleasure. So Ireland's banks will continue to feel under relentless pressure to dump assets at punitive fire-sale prices, unless and until the ECB can be prevailed upon to deliver what its officials say it is cooking up, which is a new, longer stable lending facility for banks - such as the Irish ones - that need to reconstructed.

What will be the end of this sorry saga?

By default, it now looks as though almost the entire Irish banking sector will be nationalised.

Allied Irish is already in state hands. Anglo Irish and Irish Nationwide have been crunched together and are being wound up by the state. It will be tough for Bank of Ireland and Irish Life and Permanent to avoid being taken over by taxpayers too.

It will therefore be fascinating to hear what the Irish premier and finance minister lay out as their vision for the future of Ireland's banks. That will be presented at 4.45pm on Thursday, 15 minutes after the Central Bank of Ireland announces the precise, hideous amount of extra capital the banks will be forced to raise.

It will be another momentous day for Ireland and for the Eurozone. But whether it will be a day that sets both on the road to financial recovery, or nudges them nearer catastrophe, cannot yet be assessed.

[armaghniac]

Ireland's banks can't borrow from anyone except the Irish people (who, poor souls, have nowhere much else to put their deposits).

This is simplistic, Irish people moving funds from Irish banks to foreign owned ones (Uster, NIB, Rabo etc) is the cause of a lot of liquidity problems.

[gallsman]

Ireland's banks can't borrow from anyone except the Irish people (who, poor souls, have nowhere much else to put their deposits).

This is simplistic, Irish people moving funds from Irish banks to foreign owned ones (Uster, NIB, Rabo etc) is the cause of a lot of liquidity problems.

Plenty of advisors are recommending buying up guaranteed Irish bonds to anyone who has a bit of cash. Nice healthy return.

[Bogball XV]

Ireland's banks can't borrow from anyone except the Irish people (who, poor souls, have nowhere much else to put their deposits).

This is simplistic, Irish people moving funds from Irish banks to foreign owned ones (Uster, NIB, Rabo etc) is the cause of a lot of liquidity problems.

Plenty of advisors are recommending buying up guaranteed Irish bonds to anyone who has a bit of cash. Nice healthy return.

Great advice that, I might ignore it myself though.  As long as the advisors can show how they outlined the risk to the investor they should be able to avoid censure.

[muppet]

Just back from the beer I mentioned earlier.

Shouldn't have gone.

From what I hear Irish banking will not be the same by lunchtime today. Better stay in bed.

Beer on a Monday night is never a good thing unless you've just won the AI - In that instance, it's almost compulsory ! 

Good news for Irish banking ?

Will UK and other governments follow suit ?

I don't know the ins and outs of it yet, but it seems to be a massive piece of bluffing by lenno - if he were ever asked to pay up, he couldn't, i suppose it depends on how long it will be before the markets either test his promise or just decide to disbelieve him.  If he has to come up with the goods, it'll be a disaster for the taxpayer.  We're currently talking about the budget from hell coming up because tax revenues are short by 7bn on estimates (you have to wonder what idiot came up with the estimates), yet the minister finds it okay to guarantee over €400Bn of loans made by banks?  If 10% go bad (probably not an unreasonable assumption) that's €40 Bn, almost our total annual budget.
It would have been a better idea to force some mergers between the banks who appeared in serious bother yesterday and the ones who just appeared in bother.

Agreed. So far it is the greatest and probably the most stupid gamble in the history of the state. They should have nationalised one bank (or 2 if they could afford it) and let the others go. Now all it takes is another day or two in the markets like yesterday and we will have taxes like we have never seen before.

The above was the night before and morning after the bank guarantee.

The radio had similarly dramatic talk again today regarding the stress tests and the next couple of days. Some experts predicting that tomorrow's figures, added to the debt we already have, will clearly demonstrate that we are  beyond our ability to repay. Dan Boyle (I know) tweeted recently that the total debt could be more than total tax take in the history of the State. That would be quite something if true (I can't find any link to prove it).

The next 48 hours (& maybe up to Sunday night) should be very interesting indeed.

[muppet]

Irish Life & P shares were suspended earlier.

Now: BoI and AIB shares suspended

[Bogball XV]

I don't know the ins and outs of it yet, but it seems to be a massive piece of bluffing by lenno - if he were ever asked to pay up, he couldn't, i suppose it depends on how long it will be before the markets either test his promise or just decide to disbelieve him.  If he has to come up with the goods, it'll be a disaster for the taxpayer.  We're currently talking about the budget from hell coming up because tax revenues are short by 7bn on estimates (you have to wonder what idiot came up with the estimates), yet the minister finds it okay to guarantee over €400Bn of loans made by banks?  If 10% go bad (probably not an unreasonable assumption) that's €40 Bn, almost our total annual budget.
It would have been a better idea to force some mergers between the banks who appeared in serious bother yesterday and the ones who just appeared in bother.

Agreed. So far it is the greatest and probably the most stupid gamble in the history of the state. They should have nationalised one bank (or 2 if they could afford it) and let the others go. Now all it takes is another day or two in the markets like yesterday and we will have taxes like we have never seen before. [/quote]

The above was the night before and morning after the bank guarantee.

The radio had similarly dramatic talk again today regarding the stress tests and the next couple of days. Some experts predicting that tomorrow's figures, added to the debt we already have, will clearly demonstrate that we are  beyond our ability to repay. Dan Boyle (I know) tweeted recently that the total debt could be more than total tax take in the history of the State. That would be quite something if true (I can't find any link to prove it).

The next 48 hours (& maybe up to Sunday night) should be very interesting indeed.
[/quote]
It's unbelievable that we're still talking about this almost 3 years later, what's most unbelievable is that that hope tomorrow will put a final (estimated) figure on the total 'bailout'.  It's all a bit sad really, I don't know about the rest of you, but I've certainly become completely disillusioned with the lot of them. 

Our tax take then was about 55Bn, now it's 32Bn (if we're lucky).

[Bogball XV]

Irish Life & P shares were suspended earlier.

Now: BoI and AIB shares suspended

I asked this before on this thread, but how do aib shares have any value? 

The more I think of it, the more depressing the decision to guarantee becomes.

If the irish banking system had collapsed back then would we be in a worse position now?  Would it have collapsed the rest of Europe?  What were the real reasons behind the guarantee, did FF have ulterior motives?  Was the ECB behind it?  Did they just not understand what they were doing?  Did they really think it was a matter of short term liquidity?

[seafoid]

What a mess. All of the main banks and Irish Life are going to end up in foreign ownership.
The overpaid egos who ran these banks destroyed the native financial ecosystem. 

[muppet]

What a mess. All of the main banks and Irish Life are going to end up in foreign ownership.
The overpaid egos who ran these banks destroyed the native financial ecosystem.

I expect the media to be on about 'effective nationalisation' later but once the banks are sold on it will be 'actual' foreign ownership. I'm guessing it will be very hard (even harder than now) to stomach these banks in a few years, having large profits and huge salaries, all on our backs while we have a generation paying off their debt.

Big question is, can Noonan change tack now and put the taxpayer before the banking system?

[Declan]

Big question is, can Noonan change tack now and put the taxpayer before the banking system?

No