The Irish Minister for Finance, Brian Lenihan, is on his feet in the Dail at the moment stating that the Government is planning to pay €54 Billion for toxic bank loans with a book value of €77 Billion and a current market value of €47 Billion. This represents an average “haircut” of 30% on the Book value, and a 15% premium on market value. The Government also expects to have to take additional stakes in the banks for them to achieve adequate capital reserves and regenerate liquidity within the system.
This is against a backdrop of an average 50% decline in property prices since peak in 2007 and no guarantee that prices may not fall much further – particularly with such a large overhang of non-performing assets in the property market.
40% of the loans are “performing” at the moment, and the Minister expects such interest income to be sufficient to cover ongoing interest costs incurred by the state in funding the bail-out. The Government must be praying that the ECB doesn’t raise interest rates substantially any time soon. Certainly the ECB is expected to be the main source of Government borrowing to cover the cost.
67% of the assets covered by the bail-out are located in the Republic of Ireland, 6% in Northern Ireland, and 20% in Great Britain. The bulk of the toxic loans will be bought from AIB (€24 billion), the nationalised Anglo Irish Bank (€28 billion), Bank of Ireland (€16 billion), EBS (€1 billion) and National Irish Bank (€8 billion)
€54 Billion represents c. 10K for every man, women and child in the country. Thus my family is now a net 50K further in debt as a result of this bail-out. We have been transformed into a nation of property speculators. Of course Nama may ultimately cover its costs, or even make a profit. Certainly we all now have a vested interest in bubble property prices returning. What impact this will have on ongoing competitiveness and economic growth, I can only guess.
I will update this diary as more details emerge…