Translated material
Terrible lending
The National Asset Management Agency, which was set up by the Irish government in 2009 to combat the crisis, said it would require a 47% discount on the first batch of loans bought from banks. This operation was part of the anti-crisis plan. The agency, an analogue of the American TARP fund, is designed to cleanse banks of problematic assets that formed after the collapse of the real estate market and the deepest economic recession. In total, it intends to buy back loans worth 80 billion euros ($107 billion) - almost half the size of the country's entire economy. After which the Central Bank of Ireland established new capital requirements for Allied Irish Banks and Bank of Ireland: the former needs to raise 7.4 billion euros, the latter - 2.66 billion euros. Anglo Irish Bank Corp., which was nationalized last year, will need 18.3 billion euros, while private banks Irish Nationwide and EBS will need 2.6 billion and 875 million euros respectively. Moreover, if Allied Irish cannot find funds on its own, the state will have to help it. “Then perhaps the government will receive a controlling stake in the bank,” warned the head of the Irish Treasury.
“Regulators have the banking system by the collar,” James Forbes, a strategist at Irish Life Investment Managers, told Bloomberg. “Allied Irish needs to work hard to avoid nationalization.” Meanwhile, the banks themselves are ready to comply with the new requirements. Allied Irish said it would sell stakes in US and Polish banks, representing a "substantial portion" of the funds needed. In addition, the bank intends to sell its own shares. Bank of Ireland said it was trying to raise capital after posting a €1.46 billion loss in the last three quarters of 2009. The bank expects to raise the bulk of the additional capital from the market, said its head Richie Busher. Against this background, shares of Allied Irish rose by 10%, and Bank of Ireland by 26%.
Economists believe Ireland cannot continue to nationalize banks and inject liquidity into the banking system. Last year, the budget deficit reached 11.7% of GDP, almost four times the EU norm. Under these conditions, it is difficult for the state to convince investors that the financial situation is under control.
“The terrible losses of banks are still a one-time problem. The main concern among investors buying government bonds is the budget deficit, says Societe Generale strategist Ciaran O'Hagan. "Tackling chronic overspending and raising tax revenues are vital for Ireland." Politicians and economists say that the budget deficit has become the main problem of the European economy.
The main victim of the budget crisis is Greece that has already significantly reduced spending and is now actively raising funds on the market. In April-May, it intends to place $11.6 billion in dollar bonds to pay off debts by the end of May. According to the head of the state agency for debt management, Petros Christodoulou, Greece needs to find about 32 billion euros in total this year. The previous placement of dollar bonds in June 2008 raised $1.5 billion. In addition, Greece intends to reissue 20-year government bonds, expecting to raise up to 1 billion euros. Greece could pay 13 billion euros ($17.5 billion) more after being forced to increase bond yields amid the crisis, according to a study by Credit Agricole Corporate and Investment Bank. "Greece needs to get over its undercapitalization and start improving it by setting normal bond interest rates so the country's huge debts don't snowball," said Credit Agricole strategist Peter Chatwell.
Iceland, which avoided default only thanks to help from the International Monetary Fund, is also experiencing difficulties. Yesterday, the international rating agency S&P downgraded its ratings on obligations in the national currency. Thus, the country’s long-term rating dropped from BBB+ to BBB. According to the agency, "prolonged currency regulation will limit Iceland's financial flexibility and investment prospects."
German banks may have to contribute 1-1.2 billion euros annually to a special fund to prevent financial crises, Finance Minister Wolfgang Schaeuble said. The exact size of the fee will be "carefully discussed, including with the participation of banks," he said, and the tax will be "moderate" to ensure that banks continue to lend to the economy. “We want to help, not harm, the economic recovery process,” the minister said. “At times there is talk that lending is starting to weaken.” The German parliament could approve a law that would create a special fund to help banks hit by financial turmoil in 2010. The reform project, in particular, stipulates that the amount of tax paid by a particular financial company will depend on the bank’s exposure to risks and its place in the country’s financial system(see Vremya Novostei, March 23) . Savings and cooperative banks, as well as insurance companies, oppose the idea of their participation in financing the anti-crisis fund. According to the bill, regulators will have more powers to restructure problem institutions, including the right to split up and sell parts of banks' businesses. The tax system of the German financial sector in order to prevent crises in the future is likely to differ significantly from the similar system in France, experts say. In France, this tax will most likely go directly to the budget. INTERFAX-AFI