Saturday, 13 November 2010

The Irish Black Hole

On the 30th of September, I posted a long post relating to the dire situation of the state of the Irish public finances in general and the Irish banks in particular. The post was called "Ireland in a need of a lucky shamrock...".

From Credit Market Analysis Ltd:, please find below an update on Ireland CDS, the spread level and number of quotes comparison, for the 5 year CDS level:

CMA's CDS Market Activity identifies increasing and decreasing activity around single name CDS, based on the total quantity of quotes observed by CMA Datavision's consortium over a given week. The biggest weekly changes in quoting volumes are identified above for Ireland.

As we can see below from the same source CMA, Ireland Sovereign CDS is moving in the same direction as Irish Banks CDS. As I stated previously in relation to the Greek situation(The Hangover...Some guys can't handle credit...; A run up to the second leg down...and no this time it is not different): "Always remember that the banking industry is a leveraged play intensively correlated to the economy it is operating in and given the GDP contraction Greece has experienced and the state of the public finances, their fate is linked."
The difference between Ireland and Greece is quite simple, in Greece the country sunk the banks, in Ireland (and Iceland...) the banks sunk the country.

The Irish Black Hole in 2010 represents a scary 32% of GDP.

We discover more and more on how the Irish Banks sunk Ireland with them.
the below article published today in Bloomberg by Alan Katz and Joe Brennan is a good illustration of the large scale fraud, lack of accountability and still non existent legal claims on the people responsible for the horrific situation of the Irish financial black hole:

“It was the banks doing crazy loans, it was borrowers taking crazy loans and a failure by government and regulators to do their jobs properly,” said Sean Kay, a professor of politics and government at Ohio Wesleyan University in Delaware, Ohio, who spent three months this year in Dublin interviewing officials for a book. “There was no adult supervision.”

The credit binge party is definitely over and the taxpayers are left on the hook to bear the costs as well as the massive hangover, which is threatening even the sovereignty of Ireland (IMF and European Stability Fund bail out down the line?).

In my article relating to the Zombie state of the Irish Banking system, I pointed out there were some Zombie Hotels as well in Ireland linked to the Zombie Banks.

Banks in Ireland are facing increasing difficulties in funding due to deposit outflows. The deposit outflows are linked to the uncertainties of the financial situation of these institutions. In order to face these outflows, Irish banks are depending more and more borrowing from monetary authorities.

Irish banks sub debt are trading at distressed level currently. Reflecting the difficult situations of the Irish Financial sector.

"Anglo Irish Bank Corp.'s subordinated debt is being priced below the value offered as part of a government-backed exchange offer, as contagion from Ireland's sovereign situation spreads.

The bank's Lower Tier 2 paper, which was valued at 20% of face value through an exchange offer made three weeks ago, is now indicated in the market at around 18%, according to Markit."

"Allied Irish Banks' 12.5% 2019 bonds are trading at 44%-46% of face value, a drop from its price of around 81% at the beginning of the month. In the same period, Bank of Ireland's 10% 2020 bonds have dropped from around 96% of face value to 60%-62%."

There will be a restructuring and sub debt bondholders will take a haircut on the existing debt.

Given the extensive damages created by the housing bust on the deeply impaired balance sheet of the Irish banks, the Irish Government will have to ask for some help from the IMF and/or the European Financial Stability Facility.

The Irish banks are taking the public finances of Ireland down the drain. Ireland, after Greece. Who will be the next to fall? Portugal? Spain?

Irish 10-year bond spreads widened to a fresh all-time EMU high at +720bps above the benchmark German Bund on the 12th of November which is aroun d to Irish 10-year bond yielding 9.3% !
As for Greece earlier this year, time is running out for Ireland and they will need to seek external support in 2011, because Irish banks are becoming more and more dependent on borrowing to the European Central Bank to stay afloat. The zombie banks are indeed taking large chunks of flesh from the Irish public finances.

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