FT - UK weighs billions in loans to Ireland

michaels

Thanks very much for this - however given the Irish Govt apparently stands 100% behind the banks I'm not sure it is worth making any distinction between exposure to Irish bonds and Irish banks (eg the Barclays numbers only include Govt debt?).

Ireland does seem to be different from Iceland and Greece and in a way more like the US. The Greek problem is unsustainable govt debt and govt deficit. Iceland's problem was a classic mismatch in maturities between banking assets and liabilities both of which dwarfed the local economy and its ability to provide liquidity.

Ireland's problem is a burst speculative bubble in housing, although unlike the US the scale of the losses compared to the size of the economy are unsustainable. On both Govt debt and govt deficit they are not too bad and are able to make the required adjustments.
Important lessons for the UK here I think - although we do not look to be close to a classic debt crisis on the lines of Greece if we were to see our housing market collapse we could well look like Eire despite our ability to run an independent monetary policy.

Mr_Mumble wrote: »

For the big UK banks:

1. RBS own Ulster Bank (despite the name 80% of business is in Eire) and have already taken a £5.6bn hit over the past 30 months on Irish investments. RBS are undoubtedly the UK bank with the most to lose according to equity markets. I took a look at the Asset Protection Agency annual report last week (virtually nothing on geographic exposure) and, after charges/fines, there is a £10-12bn buffer before the UK government has to pay out on extra writedowns for RBS. Whether this is relevant given that the UK government owns 84% of RBS is another matter. IIRC analysts think a worst case scenario for Ireland would see RBS lose another £8-10bn.

2. Lloyds have £27bn in outstanding loans, have set aside £5bn in provisions and have no sovereign exposure. It's a healthier bank than RBS with more private ownership so I don't think this is a reason to bail out Ireland.

More detailed analyst comment on RBS and Lloyds exposure to Ireland in this FTAlphaville markets live.

3. Barclays, made very clear in their recent results they have little exposure (£503m) to Irish government debt, unless their investment banking arm are playing games Ireland is of little significance.

The other two big British banks (HSBC & Standard Chartered) shouldn't have serious problems with Ireland or frankly the whole EU periphery falling.

RBS, RBS and RBS are the reason for the British government to bail out Ireland. IMHO its a bad idea because it may set a precedent for if/when Greece needs a further bail out or Portugal gets into trouble. If we get that far we'd be looking at Spain and Italy too.

Mr_Mumble

michaels wrote: »

Thanks very much for this - however given the Irish Govt apparently stands 100% behind the banks I'm not sure it is worth making any distinction between exposure to Irish bonds and Irish banks (eg the Barclays numbers only include Govt debt?).

A condition of any bailout should be that the Irish government stops backing its banks to such an absurd degree then! A point made by numerous recent commentaries. (The FT has an op-ed (£) by Philippe Legrain on this matter today).

British banks only have minor exposure to Irish government and Irish bank debt. British banks' exposure is via their own operations:

There have been jitters over the scale of Royal Bank of Scotland's (RBS.L) exposure given that it holds about 5 billion euros worth of Irish government debt and has over 50 billion pounds ($80 billion) on loan to homeowners and businesses in Ireland and Northern Ireland.

Analysts at UBS have said the fears are overplayed, however, describing RBS' direct exposure to Irish government debt as "very modest" while Credit Suisse believes any further deterioration in its loan book is manageable and has already been priced in by investors.

(link)

&

RBS has the most exposure with around $86.4 billion and Lloyds has the second largest with about $42.8 billion of Irish loans outstanding. HSBC and Barclays don’t have significant retail operations in the country and their sovereign exposures are minimal.

(link)

This would make RBS and Lloyds accountable for 87% of all exposure based on Bank of International Settlements data:



The Irish government want to bail out their own banks with the money being handed out, not the sovereign:
FT Alphaville --Bailing out Ireland, bailing out banks

How does the British government giving £7bn in capital to Irish banks help British banks compete with Irish banks?! 'Our' government have promised funds and we currently have no idea how this money will be used, it could easily be used against the British taxpayers best interests.

Ireland does seem to be different from Iceland and Greece and in a way more like the US. The Greek problem is unsustainable govt debt and govt deficit. Iceland's problem was a classic mismatch in maturities between banking assets and liabilities both of which dwarfed the local economy and its ability to provide liquidity.

Ireland's problem is a burst speculative bubble in housing, although unlike the US the scale of the losses compared to the size of the economy are unsustainable. On both Govt debt and govt deficit they are not too bad and are able to make the required adjustments.

Eurostat came out a couple of days ago with the official numbers for last year and Ireland's deficit to GDP was 14.4%, 23bn Euros for 2009. With an assumption of a deficit to GDP of 12% in 2010 (excluding the one-off bank financing that takes it to 32%) Ireland still needs to cut/tax by an extra 15bn Euros to meet Maastricht targets. Ireland's deficit, ex-financials, is second only to Greece's amongst first world countries.

Ireland gave itself breathing room with low debt to GDP coming into the crisis but every country in trouble is being felled by having a high deficit not high debt. Folk were pointing to Greece's 120% debt to GDP as a reason they wouldn't need a bail out because Japan's is >200%!

Important lessons for the UK here I think - although we do not look to be close to a classic debt crisis on the lines of Greece if we were to see our housing market collapse we could well look like Eire despite our ability to run an independent monetary policy.

Our housing market has collapsed! Nominal prices have been kept up by devaluing the currency. Take the trade-weighted index of Sterling and apply it to UK house prices and there has been a 40% drop in UK residential housing. About the only thing I agree with Hamish on is that the government will do anything in its power to keep nominal house prices from crashing, if that requires hundreds of billions more of QE and continual devaluation of the currency then so be it. The Irish can't do that.

Generali

de1amo wrote: »

i see İreland as an actual parasite feeding off the uk because of it language! We were once the country of choice of the Americans to gain access to the EU markets--the İrish used its tax policies to entice these corporations away from us and still use English as the common language. These policies were obviously flawed by the current state of its finances and now we are expected to help a competitor--They may be one of our current 'major' trading partners but given the state of their economy i cant see it lasting past this year---they will export people and corporations to us i believe!

Low corporation tax receipts are the least of Ireland's worries!

worldtraveller

purch wrote: »

I dunno just how deep this hole in the Worlds credit is, but I have a feeling that it won't matter how much cash we shovel into it, we will never fill it :eek:

Can't afford to fail, can't afford to bail......it's lose lose.

Succinctly & accurately put, IMHO.

vivatifosi

purch wrote: »

Can't afford to fail, can't afford to bail......it's lose lose.

I got the strangest feeling while reading this that purch has morphed into Eeyore.

tomterm8

vivatifosi wrote: »

I got the strangest feeling while reading this that purch has morphed into Eeyore.

How did you spell "Eeyore" correctly?

Anyway, even Eeyore can be right as often as a broken clock:D

I think he is right... we can't afford for the eurozone and irish banks to go to /dev/null and if we bail them out it will cost a fortune and we run the risk of getting into bed with Moral Hazard, and bailing out people regularly forever.

vivatifosi

tomterm8 wrote: »

How did you spell "Eeyore" correctly?

Because I have never grown up. And have no plans to do so for the foreseeable future.

Generali

purch wrote: »

I dunno just how deep this hole in the Worlds credit is, but I have a feeling that it won't matter how much cash we shovel into it, we will never fill it :eek:

Can't afford to fail, can't afford to bail......it's lose lose.

The way I see it there are 3 massive problems with what is happening.

1. If someone else will bail you out if you make bad decisions, why make good ones? Spend spend spend and someone else sorts it.

2. If the solvent keep taking on the debts of the insolvent then the solvent won't stay that way.

3. QE/printing money to fill a hole is all very good but if the hole is suddenly filled, the excess money may well spill out into the economy and cause a very sudden and rampant inflation.

FWIW I think I have a solution. I'll post it another time though.

vivatifosi

Generali wrote: »

FWIW I think I have a solution. I'll post it another time though.

Please do. For while I can see your three massive problems very clearly, I have absolutely no idea what the solution will be.

Generali

vivatifosi wrote: »

Please do. For while I can see your three massive problems very clearly, I have absolutely no idea what the solution will be.

I'm getting there anyway. Once you identify a problem you can solve it.