So now we have the UK government using its tax-payers' money to bail-out a sinking Irish bank. GolemXIV writes this afternoon:
RBS bailing out Bank of Ireland
The Bank of Ireland saga continues.
Here is an article from the Irish Independent from Saturday. It begins,
Several questions beyond the simple WHY? First what does RBS get from this deal? Why does the British Government (for their proxies would surely have been consulted) think this is a good thing to spend money on at a time when our banking sector is not healthy enough to stand on its won feet and our public spending is being cut with a savage glee?
And why does the Irish Government prefer this solution plus selling stakes to unidentified investors in New York, to nationalizing via further Irish State support?
The broad details of the deal are that BoI will pay RBS 2.76% above the Libor rate which banks usually charge to lend to each other. The duration of the loan is for 2,2 years. So this is short but not very short. It is the kind of debt that before the crash risk managers smiled upon. Swapping out longer loans for shorter ones of this sort of length. But that was then. These days the banks are a little less sanguine about the brilliance of being dependent on short term loans that have to be rolled. So this is probably the longest RBS would settle for.
The rate speaks for itself. So this could just be RBS thinking here is a way of placing 2.9 Billion in a profitable deal. But I don't think that explains it. BoI is not a great bet and neither is Ireland as a whole, The implicit government guarantee of not letting 'to big to fail' banks go down has to be questioned by the very fact that the Irish government is now hitting bond holders of Junior and unsecured debt for 80-90% losses. (Not that those holding the debt will lose that much since many will have bought the debt more recently at a discount when they [purchased. But this is still making the private bond holders share the pain. So there is no blanket guarantee. So why would RBS want to get involved at such a volatile time?
I think we have to entertain the possibility that RBS is lending to cover larger losses if BoI was to fail. RBS is one of the British banks I have long suspected was heavily exposed to Ireland. I think RBS is trying to save itself via this deal. The banks call it a loan. I see it as a bail out. The two states are using private banks as cover.
The larger question is what the position of the Irish government is and its debt sewer NAMA. NAMA is the Irish 'bad bank' which has previously bought up a river of effluent from the Irish Banks. More recently it has been buying less. Why? You could argue, sound business sense. But why would we get an outbreak of that where it has never been seen before.
I think NAMA is hiding its own rising pressure of troubles. This BoI deal suggests to me pressures are growing and options for addressing them are dwindling.
Germany is trying to control an explosive pressure in Greece. The UK is dealing with something so far smaller but potentially larger in Ireland. In Germany the voters are aware of what extra debts and risks they are being forced to shoulder. And they are angry and getting angrier. In the UK the voters are unaware. Unaware of what RBS is doing and what extra risks that exposes the UK tax payer to.
Here is an article from the Irish Independent from Saturday. It begins,
BANK of Ireland (BoI) yesterday raised €2.9bn in fresh short-term funding, believed to be from Royal Bank of Scotland(RBS), as the bank fights to stay out of state control.And of course RBS is owned by you and me. So a British bank which was nationalized to save it from insolvency, is now lending to an Irish bank to save it from insolvency and being nationalized.
Several questions beyond the simple WHY? First what does RBS get from this deal? Why does the British Government (for their proxies would surely have been consulted) think this is a good thing to spend money on at a time when our banking sector is not healthy enough to stand on its won feet and our public spending is being cut with a savage glee?
And why does the Irish Government prefer this solution plus selling stakes to unidentified investors in New York, to nationalizing via further Irish State support?
The broad details of the deal are that BoI will pay RBS 2.76% above the Libor rate which banks usually charge to lend to each other. The duration of the loan is for 2,2 years. So this is short but not very short. It is the kind of debt that before the crash risk managers smiled upon. Swapping out longer loans for shorter ones of this sort of length. But that was then. These days the banks are a little less sanguine about the brilliance of being dependent on short term loans that have to be rolled. So this is probably the longest RBS would settle for.
The rate speaks for itself. So this could just be RBS thinking here is a way of placing 2.9 Billion in a profitable deal. But I don't think that explains it. BoI is not a great bet and neither is Ireland as a whole, The implicit government guarantee of not letting 'to big to fail' banks go down has to be questioned by the very fact that the Irish government is now hitting bond holders of Junior and unsecured debt for 80-90% losses. (Not that those holding the debt will lose that much since many will have bought the debt more recently at a discount when they [purchased. But this is still making the private bond holders share the pain. So there is no blanket guarantee. So why would RBS want to get involved at such a volatile time?
I think we have to entertain the possibility that RBS is lending to cover larger losses if BoI was to fail. RBS is one of the British banks I have long suspected was heavily exposed to Ireland. I think RBS is trying to save itself via this deal. The banks call it a loan. I see it as a bail out. The two states are using private banks as cover.
The larger question is what the position of the Irish government is and its debt sewer NAMA. NAMA is the Irish 'bad bank' which has previously bought up a river of effluent from the Irish Banks. More recently it has been buying less. Why? You could argue, sound business sense. But why would we get an outbreak of that where it has never been seen before.
I think NAMA is hiding its own rising pressure of troubles. This BoI deal suggests to me pressures are growing and options for addressing them are dwindling.
Germany is trying to control an explosive pressure in Greece. The UK is dealing with something so far smaller but potentially larger in Ireland. In Germany the voters are aware of what extra debts and risks they are being forced to shoulder. And they are angry and getting angrier. In the UK the voters are unaware. Unaware of what RBS is doing and what extra risks that exposes the UK tax payer to.