The Irish authorities priced the third and apparently final batch of bad loans to be transferred from maimed Irish banks into NAMA, in exchange for some nice, clean, heavily haircut NAMA bonds. Since that announcement, ten days ago, Irish bond yields have dropped a tiny bit (20bps) from their all time highs at the beginning of the month, and it’s time to take stock.
The discounts on the toxic loans have got bigger (again), from 47 to 56 to 67 per cent. This partly reflects the difference in loan collateral, partly a growing recognition that development land in overbuilt Ireland really isn’t going to be worth very much at all for a long time. In the name of administrative efficiency, the authorities are leaving 6.6Bn in smaller toxic development loans on the balance sheets of AIB and Bank of Ireland. So, not a complete clean-up then. Expect more writedowns from the banks and (in future years) the possibility of some shortfall confessions from NAMA, which would be embarrassing.
So what happens now? With the bulk of the banking confessions now done, it’ll be down to politics and economics for a bit: Ireland has borrowed all it needs up to the middle of next year and the banks are stabilized.
But the transfer has to be agreed in parliament by the end of the year and the coalition government has a majority of just two. So: it isn’t actually that long until Ireland will have to visit the bond markets again, and the politics are still squeaky.
Same goes for the economy, which must grow at a cracking pace for Lenihan’s target of a 3% deficit by 2014 to be achieved: we have this startlingly cheerful take from Ambrose, but gloom about the prospects of another jobless recovery mitigating the morale boost of splendid turnaround here.
What could mess up both the politics and the economy is the further round of cuts still to come, to be announced next month. And with the Euro so strong, Ireland’s non-Eurozone exports (60%) of the total have got a headwind to contend with already.
Lastly, we have this from the FT
Ireland has opened the door to a renegotiation with senior bondholders of its two nationalised banks despite previously opposing any such move for fear of drawing the wrath of creditors around the world.
Brian Lenihan, Ireland’s finance minister, told the Financial Times while on a roadshow in New York that he still opposed senior debtholders having to accept any losses as part of the €50bn (£43.7bn) bail-out announced two weeks ago . But if Anglo Irish Bank and Irish Nationwide building society wanted to enter into “amicable discussions” with senior debtholders he would back the talks.
Is that a sign of strain, or just a sensible effort to improve the terms for the Irish taxpayer? Hard to tell, but it looks as if there is plenty of tightrope left to walk, in either case.