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How many state-owned bad banks does Ireland need?

May 8, 2012 by namawinelake

“Not all of them have yet abandoned the extravagant mindset of the 2003-2007 era” NAMA chairman Frank Daly speaking in May 2010. He was talking about developers but could the same be said of politicians and civil servants?

We’re not a huge country, but Officialdom has a tendency to think we are – 166 TDs representing an average of 28,000 constituents, 34 local authorities each having city or county managers on close to €150,000 per annum and some earning nearly €200,000 plus an expensive Seanad which contrasts with the political system of one of the donors to our bailout Denmark which abolished its second chamber half a century ago. But the empire building and expansion extends beyond the strictly political withIreland set to have not one, not two but three official bad banks. Each with its own management, systems, premises and best of all, they will be dysfunctionally competing with each other.

First up we have NAMA, the custom-built “bad bank”, though it should be said that a fraction of its loans are performing so it’s not all “bad”. NAMA has 210 staff employed directly, plus 400-500 staff working at the banks plus an army of professional firms providing legal, accounting, insolvency and other services. NAMA has new personnel, teams, systems and operates under new legislation.

Secondly we have IBRC, the entity that emerged from the merger of Anglo and INBS last year. Now IBRC was not custom-built as a bad bank. When its CEO, the very handsomely-rewarded Mike Aynsley was recruited in late 2009, it was intended that Anglo would continue to operate and grow as a bank. However, despite what looked like intense resistance from within Anglo, the Government was eventually forced to fall in line with European Commission wishes and wind down Anglo and INBS. And so IBRC also became a “bad bank” with a 5-7 year lifespan to wind-down its loans.

So now we have two official bad banks, both asset managing loans, mostly based on property lending. We have two expensive sets of management and we have political oversight over both institution. Not only do IBRC and NAMA compete together for staff and resources, which is bad enough, they also compete with each other when flogging off loans or underlying property. Dysfunctional? You betcha, though Officialdom has so far avoided any examination of the cost.

So if two state-owned bad banks weren’t enough, we are now to have a third official state-owned bad bank. Enter the Permanent TSB where it is expected to produce an  outline plan to create a bad bank by the end of June. Thereafter we won’t just be duplicating, but triplicating management, systems, premises, staff, procedures and political oversight. And of course Permanent TSB will be competing with NAMA and IBRC as it seeks to wind down its loan book. Arguably most of its loans will be personal such as loss-making tracker mortgages and impaired mortgages, but nonetheless the core competencies are the same across each of the three institutions.

And finally we should remember that AIB, which is practically state-owned is doing its own deleveraging though it hasn’t formally created a “bad bank”. Quadruplication?

Is it not high time to call a stop to the empire-building, cost and dysfunction and have our well-paid politicians and civil servants design a single state-owned bad bank? Or are they too clinging on to the extravagant mindset that prevailed in the 2003-2007 era?

[There is a blogpost here which compares NAMA with IBRC, and highlights the duplication of costs/function in those two institutions]

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Posted in Banks, Developers, Irish economy, Irish population, NAMA, Politics | 7 Comments

7 Responses

  1. on May 8, 2012 at 8:35 am paddy19

    Dead right NWL.

    Why not wrap all this rubbish into NAMA and see what the extent of the real carnage is?

    One could suspect that the elite so called professionals who caused this problem are not interested in showing just how big the mess is. Anyway, as you say, why would all these folks throw away these nice pensionable jobs?

    Not going to happen.


  2. on May 8, 2012 at 10:51 am Kevin Daly (@kevinfdaly)

    Well at least with 3 or 4 bad banks natural market forces will naturally determine which is best bad bank and which is the worst bad bank!


    • on May 8, 2012 at 11:53 am paddy19

      Respectfully disagree Kevin.

      This is not a competitive market where different suppliers vie for customers and hopefully make a profit for their shareholder investors.

      1. The government is not a normal shareholder.
      Normal shareholders have an option to buy into or cash out of companies they like/dislike. The government is stuck with these bad banks.

      2. Normal companies are profit driven. There ain’t no profit here only various levels of losses.

      3. Normal companies are not subject to social interference like the clerics looking for free land to build an industrial park.

      4. Banks are not normal companies more akin to oligarchies pretending that they are actually competing while working in unison for the benefit of their managements.

      5. Mortgage customers cannot move between banks eliminating any competitive force in this critical area.

      So I’d hold that the market forces will not apply.


  3. on May 8, 2012 at 11:18 am What Goes Up...

    I’ve said it before…

    http://www.thepropertypin.com/viewtopic.php?p=441252#p441252

    It’s a goddamn pyramid scheme!


  4. on May 8, 2012 at 12:18 pm John Gallaher

    How’s that sale/recap/spin off/merge it/deleverage then sell it,Irish Life doing ?


  5. on May 8, 2012 at 1:24 pm Dennis

    NWL,

    Well said. Your later post about Nama’s negative equity product being matched by a PTSB 80:20 highlights the duplication of effort without a competitive landscape.


  6. on May 9, 2012 at 10:32 am News 9 May – Collapso – Tracking Irish property prices

    […] PTSB to cut variable mortgage rates 30 Apr ‘House prices undervalued by up to 26%’ How many state-owned bad banks do we need? Lower oil prices fail to halt rising energy costs PTSB seeks executives for ‘good […]



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