Your Country Your Call looks like a good idea, and it is, and a lot of effort is going into it. However, there are also clearly some big, serious problems with it. Read the rest of this entry »
The reality of the Irish banking sector is beginning to hit home. Bed rest and tender loving care are not going to be enough to save it. The bank is not in a position to pay a dividend on the State’s investment in it. The banks need to be restructured to get them operating effectively again.
Most interesting are Michael Soden’s comments on RTE Radio’s News at one yesterday:
The Irish banks have run into some serious problems. The core of these problems are quite simple. But eight months forward from the official emergence of the crisis, there is no sign of an answer. There is serious criticism of the possible solutions that are coming up.Everyone is afraid that we will end up with a bunch of zombie banks, and that the people who caused the problem, property developers and bank officials, will end up being rescued from their sorry situation by the taxpayer.
Most of the objections are still tactical, rather than strategic. Zombie banks or a few rescues aren’t the biggest problem. The real problem is that we are going to end up with a zombie banking system, and that the government will end up as its political guardian.
So the problem is simple: the banks’ net assets are less than zero. The loans they have given out, for which they borrowed money from depositors and other lenders, are no longer considered likely to be repaid in full, or anything near it.
Solving the problem is far from simple. The following issues arise.
J.C Flowers is one of the companies apparently interested in investing in and restructuring Irish banks, in particular, Bank of Ireland. The same company took over Long Term Credit Bank of Japan and restructured it into Shinsei (‘rebirth’) Bank which according to Joichi Ito describes as ‘an example of how legacy companies in Japan can be turned around with good management and smart methods’.
A lot of people are concerned that foreign investors will do something radical with the Irish banks. But the reality is that this is what is required. Our banking is not anything like as efficient as it could be and our bankers are nowhere near as smart as they thought they were. If the sector does not restructure itself now, it will have restructuring forced upon it by competition from across the eurozone within a few years. It is worth reading what former Bank of Ireland CEO Michael Soden has said. Leaving things the way they are is just not an option.
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