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Ireland was Germany’s Off-shore Tart – PART 2 – The US connection
Before I get stuck in, I want to make it clear. it is not my intent to paint Depfa as angels and HRE as devils. Depfa did stupid things. Their funding problems were not so dissimilar to Northern Rock’s. But Depfa had far better assets. And therein is part of the story.
So what went wrong? And why did HRE buy Depfa when it was already going wrong?
The fact is HRE bought Depfa and did so after the debt wave had already curled and started to break. But then again why shouldn’t the Germans be as thick as the Brits at RBS who at almost the same time bought ABN Ambro?
The question that always circles however, is did Depfa knowingly lie to HRE about their problems? Did they somehow withhold ugly problems? Well according to one of the very senior bankers, who was there and had full and complete access to the deal, and who agreed to talk to me on condition of anonymity, it would have been very hard for Depfa to hide anything. Inside the bank there was a secure room where ALL the bank’s data, all its books and accounts were available to the two boards of Directors during the months the deal was being negotiated. This room was run and controlled by a senior German employee. According to my source the HRE people looked VERY carefully at EVERYTHING.
This still leaves the possibility that there was a board within the board at Depfa and this inner circle was somehow concealing things even from the rest of the bank and board. The stuff of conspiracy stories which I am not much given to. Could there have been a board within the board? I have evidence there was; first hand testimony from someone who was there.
Interestingly this person does not believe the purpose of an inner group was to hoodwink HRE. If anything it was to keep some of Depfa’s own board slightly out of the loop.
All in all it does not seem as if Depfa lied to HRE or concealed any hidden debts. So if HRE didn’t buy Depfa because they were sold a pup, why did they? And particularly why did they pay 2 billion over its book value!
Depfa’s collapse was due to being unable to find funding. In other words the same idiocy as killed Northern Rock. But it’s the differences from Northern Rock that are important. Let’s look at the time line. Northern Rock collapsed in September of 2007. It did so because it could not get the short term funding it relied upon to keep its loans rolling over. The wholesale funding market locked it out. Why? Because the lenders in the market, other banks, were worried that Northern Rock’s assets were so dodgy that their ability to repay became highly doubtful.
Note that at the time the HRE/Depfa deal was being signed Depfa was NOT locked out of the markets; it was a whole year later that Depfa found itself unable to get funding. This document by the huge law firm Herbert Smith (see p. 8), written just after the bail out in 08, makes it clear Depfa was having problems. They had about 35 billion euros of debt that needed funding in the markets and those markets were seizing up. Both Depfa and HRE knew about this funding need before the merger. But crucially Depfa was NOT locked out. It did not collapse in 2007 but was a going concern for another year. Why was that? What made them different from Norther Rock and others who did collapse in 2007?
The reason is simple, its funding worries were off-set by the fact that Depfa had some of the best, most solid gold assets of any bank. As noted in part one as many as 80% of their assets were rated higher than the bank itself or the banks lending to it. THAT is why HRE were so interested in Depfa and were even willing to buy it for 2 billion over book value.
HRE knew exactly how Depfa funded itself. There is NO WAY those details could have been hidden. We know that both banks were aware of funding problems. Let’s just note in passing that advising Depfa on the merger/sale was Goldman Sachs. So Goldman too would have known all there was to know about Depfa’s funding problems. Hang on to this.
It is worth pausing for a moment to understand how Depfa funded itself. It becomes important later. Depfa’s business was making large loans to cities and states for public works. 100% pure gold assets. Government backed all the way. It funded them by selling Pfandbrief and later ACS (the Irish version of the Pfandbrief called an Asset Covered Security) which the Landesbanks and others bit their hand off to get hold of. The Pfandbrief typically is a bond for 5-7 years. But Depfa, like Northern Rock and ALL the big banks, swapped this long dated debt funding for shorter debt/funding. The idea seems foolish now, and I think it is foolish, but the risk managers I have spoken to still adhere to the holy writ of relying on short term market funding. I’ll explore this piece of banking some other time. But what is important is that Depfa’s reliance on short term wholesale funding was nothing unusual. It was the norm rather than the exception.
Back to the story.
Unlike Depfa, HRE had a legacy of poor quality assets, which I wrote about in Dominoes falling from the East. HRE had also been aggressively expanding its business in Real Estate and we know from the subsequent bails of HRE’s own collapsed debts that, as this article written in 2009 makes clear,
In reality, HRE was a ticking time bomb and this is the reason it had run into liquidity problems (By the way, this is much the way I see Northern Rock – which was also nationalized by the UK government). The company has massive commercial property (CRE) exposure and the CRE market is imploding in financial centers like Frankfurt, London and Dublin and elsewhere. HRE is highly leveraged to these places.
So it’s not just me who is saying that Depfa may have triggered events but the main blast was from within HRE. HRE was a ticking bomb and HRE’s board thought buying Depfa was the way to diffuse it. HRE also relied on wholesale funding, but unlike Depfa, didn’t have great assets. It was therefore more like Northern Rock than Depfa. HRE’s poor assets would have also, and this is my speculation, have meant HRE would have started to have problems on the Repo market. Remember repo is the oxygen of overnight funding. It is also what destroyed Lehmans. Lehman’s assets became distrusted and eventually other banks would not accept them as collateral for repo funding.
I think this is what HRE were worried about and why they were so desperate to buy Depfa. Depfa had what HRE didn’t – assets for the all important repo market. That is what they were trying to buy. Remember, funding problems are a threat to survival like starvation. But being unable to repo is not being able to get just one more breath.
My source tells me that HRE thought that by buying Depfa’s absolutely top quality assets, HRE would be upgraded by the ratings agencies and be able to breath again on the repo market. But instead, as my source said, “The minute HRE bought Depfa, the rating agencies downgraded Depfa.”
The merger ended with the worst of both worlds. Where each bank had exposure to one kind of risk HRE to credit risk, Depfa to funding (though I think HRE actually had both) by coming together they united the nitro with the glycerin. Sheer banking genius. Depfa brought funding worries to the marriage, HRE brought credit rating downgrades. I love you too darling.
So why did the whole thing wait a year until Oct ’08 to collapse? And what finally brought it all down?
So now we come to the nub of it. We have created the bomb with equal parts funding crisis and credit risk but even so nothing exploded for a year. During that year other banks went down. So what was it that jolted the container and set it off?
Well we know that Depfa’s funding was the trigger. So what happened to it? Turns out, while other banks like Northern Rock collapsed Depfa didn’t, because it had a sugar daddy funder. A big funder who was always happy to take Depfa’s Pfandbrief long term debt and fund it with shorter term money. Depfa’s sugar daddy was AIG’s Paris subsidiary, Banque AIG.
That should give you a bad feeling. AIG’s problems started as far back as ’06. Certainly by the 1st quarter of ’07 AIG had had to write down a 20 billion dollar loss. But the Dow was still going up. So there was still plenty of money around. By the time HRE and Depfa had kissed and exchanged vows, AIG had been downgraded and faced the first of what would turn out to be many Collateral calls. This first one was for $14 billion. Oops.
It was at this point that Northern Rock found there was no more funding. But HRE/Depfa survived.
Banque AIG in Paris was still in business, still funding Depfa’s needs. Banque AIG was not a small affair. It was systemically important for many banking clients in Europe for swapping one short of funding for another, for hedging and for derivatives. But it was also getting itself into a bit of a funding pickle. In part this was just its share of the over all implosion AIG was undergoing world wide. In part, I think, it was Paris’s own problem.
Banque AIG in Paris was an essential part of AIG’s funding mechanism. It was part of what was called AIG Financial Products (AIG-FP) whose notorious central office was AIG in London. This is where all the ‘losses were made’ and where the obligatory ‘rogue’ trader-type villain, Mr Joseph “Iron Hand” Cassano was in charge. What is a little less well known is that most of, if not all of London’s deals were routed through Banque AIG in Paris, where the deals were all supposed to be ‘reviewed’. And we know that as far as Depfa was concerned their funding was from Banque AIG.
So why tell you this? Well, on 31st of August 2007 a new branch of AIG-FP was set up in Ireland, AIG-FP Matched Funding (Ireland) Plc. Why? And why then and not before? I can’t know of course. But this is how it smells to me.
Why did any of the banks in our story end up going to Ireland? For access to money that liked the lax and laid back, ‘we have neither teeth nor balls’ regulatory atmosphere. AIG had been getting funds just fine for years. Suddenly, when AIG is in all sorts of trouble and its own funding is starting to get dicey it suddenly opens a brand new branch – in Ireland.
In under a month, on 25th September 2007 to be precise, AIG-FP Ireland issued a funding prospectus for $20 billion. AIG was already beginning to feel the heat by now and wholesale funding had already locked out Northern Rock precipitating a bank run 11 days earlier.
To me, the fact that AIG-FP opened a branch in Ireland is a hint that its normal funding was, at the very least, in need of reinforcing, if not replacing with ‘other’ sources which could be best found in Dublin. So now Depfa’s sugar daddy funder was alongside it in Ireland looking for the SAME money as everyone else, such as HRE, for example. This situation does not fill me with confidence.
But would Depfa or HRE have known of this development at the time it was doing the deal with HRE? I doubt it. AIG would not share any plans with customers. Even ones to whom it was a sugar daddy. So did anyone know? Well it’s just a little footnote but it turns out that none other than Goldman Sachs was arranging and advising AIG-FP Ireland on its funding adventure.
No way would Goldman have told one client (Depfa) what another (AIG) was doing. So Depfa did not know from Goldman about any troubles at Banque AIG. But Goldman knew. Goldman was advising Depfa on merging/selling itself to HRE for 2 billion over its book value while it also knew that Depfa’s main funder was probably in more trouble than the rest of the market suspected.
I would love to know, but never will, if Goldman had any short position on the new HRE/Depfa bank it had helped broker?
In short what I hope to have shown is that Depfa did not ‘bring down’ HRE. HRE was going to collapse anyway. And buying Depfa was an ruinously ill-thought out attempt to solve HRE’s credit crisis. The plan back-fired and made every one’s position worse than it had been.
The entity which actually brought down HRE was AIG. It was their implosion along with the general shock of Lehmans which cut off Depfa from funding which had kept it alive for a year after other banks collapsed. So it was the Americans who brought down HRE not the Irish if you really want a scape goat.
And the only people who perhaps knew the whole HRE/Depfa deal was destined to end in disaster and bankruptcy, were Goldman. Goldman knew both how Depfa was funded an WHO was their lynch pin funder, while also knowing the true state of that funder (AIG-FP).
SO to circle back to where I started. It is NOT as simple case of a dodgy Irish bank bringing down a solid German one. If anything the opposite is just as true. And therefore it is NOT the case that Ireland has some moral debt it owes to ANYONE to bail them out.
The threats are already coming thick and fast. The Irish people MUST defend themselves, their children and their country. Their leaders haven’t and won’t.
via Ireland was Germany’s Off-shore Tart – PART 2 – The US connection » Golem XIV – Thoughts.
What bankers don’t know
What I am concerned with, is what hard working bankers really didn’t know, when with hindsight, we can see it was astounding that they didn’t know. Because that points the finger at the whole system. To gaol a few of the more flagrantly repulsive bankers, while invigorating, leaves the system untouched. It allows the guilty-but-uncaught to heave a sigh of relief and be able to talk of ‘a few bad apples’ and ‘lessons learned’ and ‘by the way, where’s my bonus?’
I want to look at the truely breath-taking extent of what bankers really didn’t know and show that the banking system itself ,was and still is so genetically malformed that not only is it a breeding ground for the cancerously corrupt, the vicious, the venal and the morally stunted, but that the system itself, in its entirity, would have collapsed even without them. The problem is not the corruption of a good system but the flourishing of a thoroughly bad one.
The Stupidity that was.
Let’s start with some of the most astonishingly stupid things that were done in the early days of the bank crisis:
2007 (October) Royal Bank of Scotland (RBS) bought a very large part of Dutch banking giant, ABN Ambro for an eye-watering £49 billion.
2007 (October) German bank HypoReal Estate bought another German Bank Depfa for €2 billion ABOVE what even Depfa itself thought it was worth (personal communication from a former Depfa director).
2008 (July) Bank of America (BoA) bought CountryWide Financial.
2008 (Sept) Bank of America (BoA) bought Merrill Lynch
2009 (May) Commerzbank bought Dresdner Bank.
There are many others of course, but these are the recent ones, which were clearly commercial decisions and not, like the 2009 Lloyds Bank purchse of HBOS (Halifax/Bank of Scotland) or the ‘rescue’ of Bear Sterns, a government backed TBTF operation.
Each and everyone of these deals ended in bankruptcy and a vast public bail-out. How could they have been so stupid? Let’s ask them.
Here is an email (taken from p. 197 of the Consolidated Class Action filed in NY District Court against Citi) sent on 3rd March 2007 from a senior Bear Stearns Fund Manager Ralph Cioffi to his fellow Fund Manager Matt Tannin.
“…the worry for me is that subprime losses will be far worse than anything people have modeled”
Yet four days later on the 7th March Mr Cioffi wrote to another colleague,
Matt [Tannin – Cioffi’s fellow Fund Manager at Bear Stearns] said it’s either a meltdown or the greatest buying opportunity ever.
And there you have it. In 2007 Matt Tannin, senior Hedge Fund Manager at one of Wall Street’s oldest banks, Bear Stearns, didn’t know if it was going to be a meltdown or the greatest buying opportunity ever. And this is despite the fact that Tannin and Cioffi and everyone on Wall Street, had already had a couple of years worth of clear evidence that asset values were collapsing and the securities based on those valuations were becoming unsellable. Don’t take my word for it, you can read page after page of first hand testimony from the dealers and senior executives themselves, in every section of the financial industry, in the Class Action linked above.
Thus this isn’t the corruption of a good system by a few crooks. This is clever, though probably morally stunted people, hard at work in an utterly dysfunctional and destructive system. The same system we still have. No matter what evidence was piling up the priests of global finance just could not believe it was all a disaster or that there was anything fundamentally wrong with what they were doing or the system in which they were doing it. They just could not see that it could be anything more serious than a massive market ‘correction’ in which case there would be equally massive rewards for those greedy enough to take the gamble. As late as 2009 RBS, BoA, Commerzbank and Hypo Real Estate all still thought it was the perfect moment to borrow tens of billions in order to buy hundreds of billions worth of another banks’ loans, assets and libilities.
But back to Mr Cioffi who has more to teach us. By 23rd March 2007 Mr Cioffi had come to a personal conclusion and started to move his own money ($2 million) OUT of the funds he was managing. By 19th April, Bear Stearns had commissioned and received a report on its CDO Sub-Prime holdings. Matt Tannin emailed Ralph Cioffi and said,
…the subprime market looks pretty damn ugly… If we believe the [CDOs report is] ANYWHERE CLOSE to accurate I think we should close the funds now. (My emphasis)
But he and Mr Tannin did not close those funds nor advise investors to get their money out. To the contrary, in a conference call to the fund’s clients Mr Cioffi said,
”there’s no basis for thinking this is one big disaster,”
Sadly it was for the investors who listened to him. Those people stayed in until the funds imploded as did the entire bank shortly after. Matt and Ralph were charged with fraud by the SEC and taken to Federal Court. Where they were aquitted.
Why were they aquitted? Were the jurers knobbled? I don’t think so. One of the jurors Serphaine Stimpson, said afterwards,
“They were scapegoats for Wall Street.”
I think Ms Stimpson was correct. Cioffi and Tannin were revolting creatures who protected themselves from a looming disaster but ‘honestly’ (On Wall Street it’s a relative term) couldn’t bring themselves to believe that the entire Wall Street, global financial edifice was a suppurating pustule. They also knew full well that if they advised clients to get out and closed their funds it would reveal the truth and that in turn would unleash panic. So they didn’t.
They no doubt felt that while there would be a disaster for some, there would still be money to be made for a few of the, luckier or ‘smarter’, ones. I suspect they would still count themselves as among the ‘smarter’ and acted accordingly.
What’s more, no matter how massive the losses that would be inflicted, I suspect our loathsome twosome also thought there had to be someone who had to take the risks and suffer the losses, in order that the system itself be preserved to profit another day. Only they wanted to make sure that that ‘someone’ was not them personally. On this, the rest of the Global Financial class agreed with them. Today, five years in to the cataclysm, it is clear that that ‘someone’ was only ever going to be you and me. Someone had to be frogmarched up to ‘save’ the system but it was never going to be the wealthy. Those senior bond holders are oh so sacrosanct. Whereas depositors, well they can be bailed in can’t they.
I have dredged Mr Cioffi and Mr Tannin back into the light not simply to pour more scorn on them but to make it clear they were not unusual. They were not guilty of anything that the whole of the global financial system was not guilty of. The larger point about them is not their personal repulsiveness but their averageness. They were two Mr Normals in the workings of the financial and banking system. They did nothing ‘wrong’, nor even unusual. They were not rogue traders. What was wrong is the normal working of the system.
The wider picture.
Let’s go back to that roll call of takeovers. What we need to keep firmly in mind is that these takeovers were done by people who were earning millions and who insisted they were so clever, so ‘smart’ they were worth every penny and cent. They did what they did at their own pace with no constraints or outside pressures.
What this means in practice is that all the buyers, RBS, Hypo. BoA and Commerzbank had full and unfettered access to all the information they needed to understand fully what they were going to buy. For example when Hypo bought Depfa I know from a someone who was at board level at the time, that a special room was created which contained all the information DEPFA had. The books were open for scrutiny. Hypo executives had full and unfettered access. There were experts on hand to answer any question. I wrote about it in the second part of ‘Ireland was Germany’s Off-shore Tart.’
And yet, they paid €2 billion over the odds and it led very quickly to the absolutely titanic collapse of both and a bail out of Hypo to the tune of something in the region of €180B.
I have talked of Depfa because I have been told what happened by someone who was involved. But the same, or something very similar, would have happened in all the takeovers. It is required by law. It is Due Diligence. You cannot spend share holders money without being able to tell them you know what it is you are buying. Thus we know that Commerzbank executives looked at the opened books of Dresdner. That RBS experts looked closely at ABM Ambro’s assets and loans and came to the highly paid view that this was worth spending £49 billion on, and that BoA top brass pored over the inner most secrets of Merrrill Lynch and CountryWide. To suggest anything less would be to accuse them of dereliction of their duty, of something very near to fraud, and that would be libelous would it not? And yet each and every one of these deals ended in disaster on a global scale.
So where does this leave us? To my mind there are only two possible scenarios. Either DEPFA, ABN Ambro, Merrill, Dresdner and Countrwide executives all lied and concealed and thus all the information Hypo and the other buyers were seeing was a pack of lies, in which case the Hypo et al bankers did their jobs but were misled by crooks. Or, Depfa and the other sellers did faithfully lay bare the truth but the buyer bankers were either too stupid to see or did not care. You tell me is there a third, happier scenario I am missing? I know many banks log on and read this blog so one of you write in and tell us what the third, missing scenario is. Write to me confidentially. I really would like to know if I am missing the obvious.
But before anyone suggests that everything was honestly revealed by the sellers and all competently understood by the buyers, but that both were foxed by unforseen events which so changed cirumstances that a few deals did go bad – before you try to tell us anything like that – please refer back to the Tannin and Cioffi emails above and in fact to the rest of the evidence in the Citi indictment. Events were certainly NOT unforeseen. And please also remember that it wasn’t just a few deals that went bad, it was in many cases 100% of whole groups of securities and thousands of deals which went bad and turned out not to be anything at all like they were supposed to be -as the paperwork claimed they were. Citi lied. It’s there in the indictment. So did Merrill. So did all of them.
So am I saying it was all the sellers fault? No I am not. We cannot know that for sure in every case. We only know it for sure in some cases. In the rest we don’t know who was more to blame buyers or sellers. But it doesn’t matter does it? That is the point. Stand back and what do we have? Either we have banks full of bankers who are corrupt liars or we have banks full of the slow witted and guillible who do not understand the financial deals it is their job to understand…or both. Either way we are left with an industry that did not and – unless everything has magically improved – cannot and will not do its job. We have a financial system which in very important ways, critical ways, is staffed and run by people who, whether by criminal and moral degeneracy or simple stupidity, are not fit for their jobs.
It seems a terribly sweeping statement I know. But run back over how we got here and tell me where we, I, went wrong. Unless you can find the place we lost the thread, then what else can we conclude other than that we have a banking system which is not fit for purpose? Or perhaps I should say, is not fit for the purpose we were expecting. It does leave the possible conclusion that our bankers and regulators are all very fit for purpose it ‘s just a rather different purpose from the one we expected.
What one banker didn’t know.
Before I conclude, I want to return from the general to the specific. Let us hear from another insider, this time the Chief Risk Officer of Bank of America during the time it was buying Merrill and CountryWide. Please welcome Amy Woods Brinkley. She was once considered one of the 25 most powerful women in banking (according to US Banker magazine).
BoA bought CountryWide in July 2008 and Merrill Lynch in Spetember 2008. In Late September 2008 just as the ink of both deals was about dry, Amy Woods Brinkly gave an extensive interview to Forbes Magazine. In it she was asked why BoA bought Countrywide. She replied,
Our company did very extensive due diligence. I’ve been involved in a lot of our acquisitions and I don’t recall one that was more thorough. During that process I became increasingly comfortable; the problems at Countrywide were real, but they were also manageable.
Forbes pressed the point asking surely she was worried about the estimates of the write downs on Countrywide assets which were already being talked about as being between $8 -$30 billion. I should also mention that in March 2008, five months before BoA bought it, The FBI announced it was investigating CountryWide for fraud on mortgages and home loans. It didn’t stop BoA going ahead and buying, but presumably it did make them even more diligent. Ms Brinkley’s reply –
As we said a number of times, we did very extensive due diligence on the transaction, not only before signing but going back in before closing the transaction, and we believe the economics made sense and the market-share opportunity is worth the risk…So again, just before closing the transaction we revisited the economics and we are comfortable with what they tell us.
Brinkley was rated by her peers as one of the best. Was she lied to? Were the lies so clever, so convoluted that she just missed them – all the many thousands of them? Or was she actually quite a stupid person seen as a genius by other fairly thick people? Or were they all, collectively, so cock-sure of themselves and the system which had made them rich and powerful, that none of them could see clearly any more? I think it is this last explanation which rings true. I am sure lies were told. We know from court documents and extensive anaysis of thousands of deals which were done and sold in the bubble years, that there was systemic fraud. What we don’t know is if everyone could see it was fraud or if they all had become captured by an ideology which said fraud is just ‘good’ business.
It’s worth bearing in mind that however senior and clever Ms Brinkley was, she was not the only one who was responsible for vetting the deal and doing the due diligence. Every deal has ranks of lawyers and experts who are handsomely paid to pour over the details and make sure the deal is sound. In the case of BoA and CountryWide the Washington DC law firm K&L Gates advised. Just as in the Depfa/Hypo case Goldmand advised.
However, it was Ms Brinkley who was thrown under the bus. She lost her job. She was replaced by Mr Greg Curl who had been the senior deal maker for the Merrill deal. The Merrill deal has cost BoA $30B and counting. He too has now left the bank though he’s still in finance.
Today.
Is this all history? No it’s not. Most of the people who lied and/or “didn’t know” back then are still in the financial system, still lying to us, the regulators or themselves. Just this week one of the only really ethical banks in the UK the Co-operative Bank has had to come clean about the scale of losses it inherited when it bought the Britiannia Building society (at the time the second largest in the UK) …in April 2009.
I may be biased, I bank with the Co-operative, but I don’t think they are a fraudulent organization. I think they really do operate more ethically than most. Possibly running second, among UK banks, only to Triodos bank. But the fact is the Cooperative bought Britannia at the height of the crisis after doing its due diligence. And yet the losses the Cooperative bankers didn’t see are so large the Coop bank has found its debt downgraded to junk.
I suggest, if you are willing to consider that the Co-operative bank and its bankers are a little more honest than most, that this indicates that it is the system itself, the origination of loans, how they are structured, how securitization works, how bankers are trained, how complex the financial products and deals are, that is the problem. Beyond even corruption, of which there is no shortage, the system itself is crap. It is not fit for any positive social purpose. It enriches the few while systematically endangering and then impoverishing the many. It concentrates power in a few hands who then insist that democratic power should be taken out of the hands of the many and given instead to technocrats drawn from the ranks of the few.
In conclusion.
Our financial system would have collapsed simply because IT DOESN’T WORK, not as an open and equitable system. Sure it makes profits… for some. But so does riding around in a Mongol Hoard sacking cities. The present financial system is NOT a fair and open system where by dint of hard work, insight, research and expertese anyone can have a reasonable chance of prospering. It has not and will not NOT work as a repository for hard earned savings and pensions. Both are being systemaitcally pillaged for the ‘good’ of the major banks.
Whether one believes the capitalist system is a good thing or not, or even a potentially good thing, what we can perhaps all agree on is that it – our financial system – is NOT at the moment good for the many, and will not be in the future, if left in the hands of the repulsive elite who presently run it, defend it, facilitate it and profit by it.
Is there about to be a stampede for the door by foreign-owned Irish banks?
During the Christmas 2004 tsunami in Asia, it was remarkable that there were so few mass animal deaths, and there is a long-held belief that animals can sense disaster ahead of human beings. Likewise, banks with their fingers on the pulses of households’ and businesses’ financial performance and prospects might be expected to have an unusually perceptive grasp on the economy; with a pattern emerging of banks exiting or considering exiting the State, this doesn’t augur well for our medium term economic prospects.
Next week we should get the Q3, 2012 results from Belgian-owned KBC bank which just a few weeks ago was strongly protesting that it didn’t have plans to exit from the Irish market. Industry speculation however is that KBC has had a lousy Q3,2012 in the Irish market and that its residential mortgage book in particular continues to deteriorate at an alarming rate. Insiders thought there was something of the bank “protestething” just a little too much recently, and that a partial or total exit may also be on the cards. The single reference to Ireland in KBC’s presentation to analysts on 8thOctober 2012 was noted with curiosity by some.
Towards the end of last week, there was unverified speculation in Dublin that Ulster Bank, owned by troubled British banking giant, Royal Bank of Scotland was considering an exit from the Irish market. Ulster Bank has already been flogging loan portfolios in an obvious bid to reduce its exposure in the Irish market, but the fear is that a more substantial action is afoot. Nothing came of the speculation, but the bank’s actions will be scrutinised closely in future, to see if a more radical exit is on the cards.
Today however, we actually get a definite announcement. Danske Bank, whose local bank brands are called Northern Bank in Northern Ireland and National Irish Bank in (the Republic of) Ireland, has published its Q3,2012 results which continue to show severe deterioration in its Irish loan book, though the pace of decline has eased. Danske has announced today that “the non-core Ireland portfolio will be divested” Looking through the Danske Irish financial statement for Q3, 2012 it looks as if there’s about €3bn of non-core lending in Ireland plus €2.5bn of core in the Republic and €4.8bn in Northern Ireland. There are €1bn of non-core deposits and €2bn of core deposits in the Republic and €5bn in Northern Ireland. So today’s announcement represents a major disposal though we await details of how and when the disposal will be made.
Bank of Scotland (Ireland) and Halifax are already in the process of running down their Irish loans, partly using the asset manager Certus. This follows the announcement of the exit from the Irish market of the two Lloyds-owned units in 2010.
ACC Bank, the Irish unit of Dutch-owned Rabobank said in June 2012 that it had no plans to exit the Irish market, this despite running up four years of losses, and needing a bailout of €930m from its parent operation in Holland.
We will shortly get mortgage arrears data from the Central Bank for Q3,2012 and for the first time should get detailed information on Buy-To-Let mortgages alongside the traditional data on Owner-Occupier mortgages. BTL is especially expected to show signs of crisis, the picture with Owner-Occupier mortgages is less clear with a slowing-down in the rate of deterioration recorded in Q1 and Q2, 2012. Commercial property continues to decline at an annualised 10% and it may be too early to claim the residential market is stabilising. Unemployment remains elevated at close to 15% and economic forecasts for 2012 and 2013 are trending downwards.
Maybe some banks do have a sixth sense.
via NAMA Wine Lake.
via NAMA Wine Lake.