It’s a real pity that junior minister at the Department of Public Expenditure and Reform, Brian Hayes’s opinion piece in yesterday’s Evening Herald is not online. In it, he claims that what he calls “Chicken Licken types” and “failure addicts” do “drag people down and undermine our confidence and ability to deal with difficult and complex issues” Brian seems to have a bit of an obsession with “Chicken Licken” and although a Google search won’t return his Evening Herald article yesterday, you can find previous occasions which Brian deployed the fabled chicken to illustrate what he sees as unfounded hysteria.
Now, when referring to “Chicken Licken” and “failure addicts”, you might be thinking that the €130,042-a-year junior minister was indicating opponents in Fianna Fail or Sinn Fein, or perhaps economists like national treasure Dr Constantin Gurdgiev or Michael Taft or even the infernal meeja with its all pervasive negativity, but no, Brian tells us “some of the most prominent Chicken Lickens are on the backbenches of Dail Eireann where their message of doom would make a hell-fire preacher proud”.
So, who could Brian be referring to, at all, at all? The Oireachtas website has a glossary of political terms and says “backbenches (backbenchers) – the backbenches are the seats where TDs or Senators sit if they are not Ministers or spokespersons for their party”.Given that all of the Opposition is on “the front bench”, that is, they are spokespersons for their parties or independents who speak for themselves, Brian can only be referring to those in Labour and Fine Gael. But who?
Of course the finger will inevitably be pointed at Deputy Peter Mathews – pictured above – who has crusaded since 2009 to warn of the cost of the banking crisis, and who, as recently as a month ago was repeating his message that the banks still hold hidden losses and that the cost of the bailout will increase. Deputy Mathews has also been critical of the decision to sell 35% of Bank of Ireland to a group of North American businesses.
For many, junior Minister Hayes is himself a Chicken Licken who has been warning the sky will fall in if there is any default on banking debt. And unfortunately for us, Foxy Loxy in the guise of the ECB has succeeded in luring Chicken Licken to its demise by getting it to convert flimsy and illegal promissory notes into sovereign debt.
You mightn’t be familiar with junior Minister Hayes, so this is a reminder via Japlandic, of the junior minister after he challenged us all to contribute ways in which we might solve the yawning budget deficit.
NAMA Wine Lake 
Brian Hayes using children’s fairy tales in order to express government policy. I’d say that figures. Seems appropriate.
http://fairytales4u.com/story/chicken.htm
It is a pity that minister Hayes is such a dedicated fugitive from reality. Brian could educate himself by asking Mathews and Gurdgiev for a few grinds, he risks becoming the Willie O’Dea of his party. Actually, he is the Willie O’Dea of FG.
Maybe if Hayes was to sit down with Mathews he could get him to explain the contradiction of these two recent statements:
Deputy Peter Mathews: “They gave Wilbur Ross 35% of the bank for €1 billion, when our State paid €5 billion for 15% of the bank. A junior certificate student would know that is stupid.”
Deputy Peter Mathews: “I think the survivor bank system needs further capitalisation. In the case of Bank of Ireland it could be €10 billion minimally to get its provisions right so that it can start the sort of work that would follow from the insolvency stuff. I think that AIB will need more, too, as will Permanent TSB. The IBRC issue is being lumped onto the main national debt. In all, we are talking about a minimum of about €60 billion.”
Either the bank is a valuable asset that was undersold or it is bust and needs to be recapitalised (wiping out the shareholders). They cannot be used simultaneously to explain why the sky is falling.
The State didn’t pay €5 billion for 15% of BOI. For €5.8 billion the State held around 50% of the ordinary shares, €1.8 billion of preference shares and €1 billion of contingent capital notes.
Sale of ordinary shares returned €1.1 billion, the sale of the contingent capital notes returned €1 billion while €0.5 billion was received for warrants when preference shares were converted to ordinary shares in 2010. Interest (at 10%) on the contingent capital notes and dividends (at 8.75%) on the preference shares.
The remaining holdings in BOI are 15% of the ordinary shares and €1.8 billion of preference shares.
@seamus
Technically thorough as the facts you refer to are regarding BOI, it hardly addresses the question, is Peter and co crying wolf? or is there significant substance to their claims? do you agree that further recapitalisations of the banks will be at or close to the magnitudes Peter refers to? Put simply, is a national default necessary to stop the rot?
A requirement for a further €60 billion seems very very unlikely. At the peak in 2008 the covered banks had lent around €250 billion into the Irish economy. Using rough approximations this can be broken down as:
Residential Mortgage €80 bn
BTL Mortgage €25 bn
Construction & Developer €80 bn
Consumer Lending €25 bn
Business Lending €40 bn
with around another €100 billion or so of lending outside Ireland. The losses are concentrated in the Irish lending, though not exclusively so.
What level of losses have been allowed for?
The NAMA transfers crystalised around €42 billion of losses across the six banks. The 2011 PCAR exercise set out €40 billion of “lifetime” loan losses under the stress case (with recapitalisation for €28 billion allowed for under a “three-year horizon”). This was for AIB, BOI, EBS and PTSB. Separately there was a further €15 billion of losses expected on the non-NAMA loans in Anglo and INBS. The banks themselves had some [small] provisions on their balance sheets were the banking collapse began.
All told, something around €100 billion of losses have been recognised in the original six ‘covered’ banks. The means to meet these have been provided through a combination of shareholder equity (€25 billion), haircuts to junior bondholders (€15 billion) and contributions from the State (€65 billion).
Where will the losses come from that require another €60 billion be provided to the banks? It is hard to see how this would arise unless there is a seismic collapse in mortgages meaning that not one cent of the €100 billion or so of Irish mortgages they hold are repaid and all are defaulted on. Assuming the repossessed properties are equal to 40% of the defaulted loans then the losses would be €60 billion.
Absent such a meltdown it is impossible to see how a further €60 billion recapitalisation is required – and if there is such a meltdown leading to zero mortgage repayments it is likely we would have far more serious problems to deal with than whether the banks are adequately capitalised.
The banks may need some additional support. It cannot be ruled out. Figures of €60 billion seem fanciful though. So no, a national default is not required to stop the rot.
Seamus
The reported net of reserve ‘loans to customers’ figures at June 2012, taken from the consolidated balance sheets of the banks are as follows:
BOI 97 billion
AIB 78 billion
PTSB 32 billion
Total 207 billion. This does not include the 16bn IBRC loan book.
While Peter Mathews figure of 60bn seems extremely high, it is clear that a future requirement to reserve a further 10% of the above loan books would still be a very big number.
I should add, and not wishing to be too negative, that anecdotal evidence for February is not good and this is very much mirrored in the industry I work in. (NACE 2312).
Imho, the reality is that the robustness of a bank’s loan book seems to be much more dependent on the strength of the national economy than had previously been thought. A lot of focus has been on the mortgage sectors, but the commercial and SME sector loan books must also be really struggling.