Central bank statistics indicate no slowdown in deposit flight

Yesterday the President of the ECB, Jean Claude Trichet gave the usual press conference following the monthly decision on interest rates and in the subsequent questioning from gathered journalists, Ireland featured prominently. He was directly asked “have Irish banks asked for extra Emergency Liquidity Assistance since the end of November?” and whilst he responded to the other part of the question put to him by the journalist he didn’t answer that part of it and he said that he had nothing to say on the extraordinary measures. He later claimed as “absurd” the suggestion by one journalist that the ECB might be facing insolvency. All of this is from about 23 minutes in the video of the press conference.

Today the Central Bank of Ireland released some information on our banks for the end of December 2010. And it appears that the CBI advanced an additional €6.4bn to the banking system in special liquidity measures (up to a balance of €51.094bn at the end of December 2010 from a balance of €44.674bn at the end of November). Reuters and the Wall Street Journal are claiming the CBI also released information today on ECB Emergency Liquidity Assistance to the end of December 2010 and both claim that ELA dropped from €136bn to €132bn but the CBI apparently did not provide a breakdown in ELA between the 20-odd domestic banks (which include the six embattled State-guaranteed banks) and the 430-odd banks in the IFSC which don’t service the Irish economy. This looks troubling because (a) the ELA totalled €138.199bn at the end of November 2010, not €136bn and (b) given the concerns over deposit flight from domestic banks, you would have thought the CBI would have gone out of its way to provide ELA figures for the domestic banks.

We must wait for the end of January for the release of deposit statistics for December 2010 but the betting is that deposits continued to fly out the door (if that wasn’t the case I would expect the banking authorities to break with any formal report schedule and calm depositors’ nerves with assurances that the massive flight of capital in 2010 had reversed.

There was an entry here last week which tried to examine how a continuing deposit flight would eventually undermine the banking system (both central bank and other). The conclusion was that although there wasn’t a theoretical limit to the support that could be given because ultimately the six State-guaranteed banks have only €150-200m in deposits. And although that’s a huge sum, it could theoretically be substituted by funding from the ECB. However practically that is not likely to be the case. So have the figures today confirmed that we have moved a step further to default, deposit controls and/or deposit writedown?

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Did Brian Lenihan get mugged in Belfast yesterday?

Yesterday was a weird old day for political parties on both sides of the border. The DUP was coping with some hackers that had changed the appearance of their website and replaced the home page with a photo of Peter Robinson alongside the caption “Is mise Peadar Robinson agus tugaim tacaiocht don Acht na Gaelige” (“I am Peter Robinson and I support an Irish Language Act”). And on the other side of the border, embattled Taoiseach Brian Cowen was fighting for his political life following revelations of hitherto undeclared meetings with the now-pariahs from Anglo Irish Bank. The weekly Fianna Fail parliamentary party meeting was scheduled for midday but was moved to 3pm which allowed deputies to be whipped into line and also allowed Minister for Finance, Brian Lenihan to return from his regular meeting with the North’s Finance and Personnel Minister, the DUP’s Sammy Wilson at Stormont.

The Belfast Telegraph today reports comments made by Sammy Wilson after the meeting and Minister Wilson claims that he received assurances from Minister Lenihan that there would be no fire sales of assets by NAMA in the North. The North of course is suffering a property recession not too dissimilar to the Republic’s and the outlook for commercial and residential property is choppy – an Ulster Bank/RICS report today paints a gloomy outlook for both prices and transactions and although there are few commercial property reports on the North I take the assessment to be that prices are at risk. There is also the overarching threat to the North’s economy in the shape of budget cuts from Westminster.  And although Minister Wilson doesn’t record Minister Lenihan’s response it seems that he also stressed his concerns for employment in the North’s banking sector (AIB’s disposal of its UK arm could result in redundancies at local Northern Ireland subsidiary First Trust bank and Irish banks operating in the North are generally retrenching) and credit availability (the North doesn’t have the equivalent of our Credit Review Office which examines lending decisions/rejections at our five NAMA Participating Institutions – AIB, Anglo, BoI, EBS and INBS).

NAMA will have €4-5bn of loans under its control relating to significant commercial and residential property assets in the North. NAMA has a target of disposing of 40% of its loans in the next three years (either through redemption of the loans, selling the loans on to third parties or through liquidation of underlying assets). With the outlook for property in the Republic every bit as bad as the North, I’m not sure that NAMA can keep to its commitment to avoid fire sales even if they are not billed as such. And it wasn’t for nothing that the controversial Credit Institutions (Stabilisation) Act was rushed through the Oireachtas before Christmas and that Act allows Minister Lenihan to restructure banks and intervene in their operations on an unprecedented scale, both north and south of the border. So Sammy might have wrung concessions from Minister Lenihan yesterday but economic needs may overtake non-binding commitments and as yesterday’s political intrigues this side of the border demonstrated, it might be that Minister Lenihan won’t be in the driving seat in a few months anyway.

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