jueves, 31 de marzo de 2011

Irish banks stress tests results due

 Houses on the Beara Peninsula, Republic of Ireland The latest stress tests will take into account the emerging meltdown in the residential property sector The latest estimate of the cost of the Irish banking crisis is expected to be revealed later on Thursday with the release of bank stress test results. They are expected to show the banks need an extra 30bn euros (£26.3bn).
The Irish Central Bank has tested four lenders - Allied Irish Banks, Bank of Ireland, Educational Building Society (EBS) and the Irish Life & Permanent.
The latest capital injection is expected to leave all four institutions in majority government ownership.
Dublin already owns most of Anglo Irish Bank, Allied Irish Banks and the EBS following previous rescues of the banks.
Trading in the banks' shares has also been suspended for the day pending the stress tests results, which are due in the late afternoon.
Mortgage meltdown Money set aside from the EU-IMF bail-out money agreed in November is expected to be used to fund the latest recapitalisation.
The 85bn-euro bail-out deal at the end of last year was in response to the massive losses run up by Irish banks as well as the government's own swelling budget deficit. The deal divided the money into 35bn euros for propping up the banking system and 50bn euros to fund day-to-day government spending.
Until now, losses in the Irish banking system have stemmed from the collapse of a speculative bubble in the commercial property sector, where billions were borrowed from the banks to fund hotels and shopping malls.
However, the latest stress tests will focus instead on an emerging meltdown in the residential sector.
Mortgage-lender Irish Life & Permanent (IL&P), which has escaped the crisis thus far, had to suspend trading in its shares on Wednesday amid speculation it is about to be nationalised.
Some 5.7% of homeowners are at least three months behind with their mortgage payments.
The stress tests will assume a cumulative collapse in property prices of 62% - a level already reached in some parts of the Republic.
It will also assume the unemployment rate peaking at 14.9%, a projection criticised by some economists as too weak, given that the latest data puts the rate at 14.7% already.
Irish Taoiseach, Enda Kenny Newly-elected Taoiseach, Enda Kenny, wants the banks' lenders to take a share of the losses
However, the Irish Central Bank has hired US hedge fund manager Blackrock to review this year's stress tests to increase their credibility.
It comes after a previous round of tests failed to spot serious problems at the banks shortly before some of them required financial support.
Haircuts If the latest bill determined by the stress tests is indeed 30bn euros, it would take the total amount poured into the Irish banks since the financial crisis began to approximately 75bn euros.
That is equivalent to almost half of the Irish economy's annual output, or about 17,000 euros per Irish citizen - a burden that the government sees as unacceptable.
The newly-elected Taoiseach, Enda Kenny, has been calling for the banks' lenders to share in the losses, but this is likely to be resisted by other European countries.

Counting the costs

Republic of Ireland's 2010 bail-out:
  • 85bn euros total, of which:
  • 45bn from EU
  • 22bn from IMF
  • 18bn from Irish state pension fund
  • 35bn earmarked for banks
  • 50bn earmarked for budget deficit
Support for Irish banks:
  • 76bn euros recapitalisation, of which:
  • 46bn to date
  • 30bn expected
  • 150bn euros short-term funding, of which:
  • 70bn from Irish central bank
  • 80bn from ECB
In the early stages of the banking crisis in 2009, the government issued a blanket guarantee of its banks' debts.
The Republic's European partners feared a default by Irish banks could trigger a Europe-wide banking crisis.
They insisted that Dublin continue to honour the guarantee as a condition of last year's bail-out - much to the anger of opposition parties that have now taken control of the government.
However, only about 21bn euros of the banks' remaining long-term debts are still covered by the guarantee, according to the Irish Central Bank.
That leaves some 40bn euros of debts that could potentially be given a "haircut", forcing creditors - including UK, US and German banks - to take losses.
The country's biggest mortgage lender - Permanent TSB, part of IL&P - is not covered by the guarantee, and is expected to be the first institution for which the government will try to negotiate debt relief.
As well as the government guarantee and capital injections, the Irish banks have also been the recipient of over 150bn euros of short-term financing from the Irish central bank and the European Central Bank (ECB).
The ECB is expected to convert some 60bn euros of that financing into more manageable medium-term financing following the stress test results.