Tuesday, December 30, 2008
Newgrange and Bank Recapitalisation
December 21st 2008 was noteworthy for two reasons. Firstly, the winter solstice, normally observed in Newgrange by the light of the sun illuminating the passage and chamber of the 5,000 year old mound. Unfortunately it was a dull damp morning at Newgrange on December 21st 2008. Cloudy skies prevented the sun's rays from illuminating the passage and chamber.
At the same time, the Government were announcing the recapitalisation of the banking sector. Despite the bank chiefs saying that they did not need any funding, their share price had continued to head south as no investors believed them! The lack of funding has been all too evident at ground level, where few mortgages or business loans have been approved in recent months.
I do not think that the €7 billion promised by the Government will be enough. The bank loan book is €450 billion. If 10% of that is bad debt, they will be down €45 billion! The banks will re-visit this in time to ask for more. The fact that the same people who got the banks into this mess are being allowed to stay in their highly-paid jobs is unbelievable.
The management of the Irish banks has played our Government. At the beginning of this process when the guarantee was announced, the Government could have had full control of the banks. Lenihan could have directed policy as he wished. Instead he dithered and the sharper bank management beat him silly. Not only have they kept their jobs but they negotiated a huge subsidy from the taxpayer as well. People on the minimum wage will be paying for the bank managers multi-million euro salaries!
To make matters worse, Lenihan is telling us that we have got a good deal. He is either lying or stupid! The taxpayer (us) has lent €4bn to the two main Irish banks at an interest rate of 8pc, in return for 25pc voting rights. According to the market, both main banks were only worth €3bn on Sunday, 25pc less than the government’s loan to them. And the banks’ management and boards are still in place. Anglo has been given €1 billion for a share of 75%. The market value of the whole lot is €220 million! We have been stitched up by Lenihan and his advisors.
When we awoke on the 21st to hear that the Government was finally recapitalising the banks, we hoped it would be the start of the recovery. I am afraid that like events at Newgrange on the same morning, it is a false dawn.
Happy New Year to everyone.