One of the striking features of a really slap-up financial disaster is the immense scale on which those hackneyed old stages of grief (Shock, Denial, Bargaining, Guilt, Anger, Depression, Acceptance and Hope) are worked out.
With an eye to illustrating this progression one more time, my last post on Ireland was just a snapshot of the dubious official story about the state of Irish banks. I had a little feeling that the snapshot would soon be out of date; in the most important respect, the likely Irish loan losses (initially touted as 30% of EUR 70Bn, though the first set of loans were transferred in at 50% haircuts), it was already bordering on stale. When one observes that those loans were ~50% “investment property” and ~28% land, 50% haircuts look pretty darned optimistic, too. Any guesses on appetite for investment property and development land in Ireland, for the foreseeable future? Those loans look like zeroes, on any reasonable timescale.
Based on the latest news, for the Irish government, the stages of Grief seem more likely to be Denial, Bargaining and Oblivion. Two years into the Irish crisis (for the Irish banks, the music stopped, dead, in September 2008) we may be glimpsing the end of the Bargaining phase.
First of all, the second set of transfers into NAMA, at haircuts around 60%, pretty much extinguishes any hope that the average losses will be anything like 30%, even bearing in mind that after the second transfer, only one third of the loans (23Bn of EUR 70Bn) have been transferred.
Also, since NAMA has changed its mind about what to disclose (the first summary report included a breakdown by categories, the second doesn’t), we don’t really know what’s backing the loans in that second tranche; it was supposed to be yet more development land. One hopes they will catch up with a separate disclosure and confirm that.
But the real killer is the scale of new losses coming out of Anglo-Irish Bank. It just keeps getting worse, justifying the gloomiest suspicions. Perhaps the most alarming thing is this glimpse of Anglo-Irish Bank’s balance sheet. Why is the cost of immediately closing Anglo-Irish calculated to be EUR70Bn? That must be based on firesale valuations of its assets. Why would the EU commission suggest such a course of action: is a firesale valuation the best that can be hoped for? Unfortunately, that sounds very possible, looking at the NAMA valuations, and with so many other recent precedents (Lehman, and Iceland’s banks, for instance).
That won’t be the last time Lenihan has to reassure the markets, and it will get harder each time.
In the mean time, sleuths are discovering new ways to portray just how tiny the pool of Irish business talent is, and by implication, how well-connected with the Government. The more of this mess is dropped in the laps of tax payers, via ‘austerity’, by the very politicians who corruptly facilitated its creation, the angrier those taxpayers will get; a sampler in the article and comments here.
Oblivion for the Irish Government, in due course. Not much Hope for Irish taxpayers for the foreseeable future. And continuing Shocks for the Eurozone, whether triggered by political instability in Ireland, or some final admission that the Irish economy simply can’t guarantee the Irish bank losses.