I posted the following comment in answer to another commentator, to the interesting discussion board, AskAboutMoney.com, today. My fundamental feeling is that the shareholders of the two main banks are being unfairly villified by Irish media these days, and have been neatly passed responsibility for the States own mismanagement of our finances, which represent a far bigger problem for us all than the banks recapitalisation needs.

(At most the banks need a one-off €10 billion in new capital, and they’ll find most or all of that from own resources or private investors: Compare that to the State’s need for €25 billion annually, for many years to come !). But in the public mind, the bankers are the cause of all our misfortune, thanks to very effective re-direction of our anger by the politicians and many media commentators who can’t think straight. My post today:

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@ darag : NAMA is borrowing at the special rate set for Euro Zone banks plus a half percent, making 1.5%. This compares to the Irish sovereign rate these days of c. 4.5% and likely to rise. It is therefore a gratuitous rip off of the banks. And, that gap alone- even when all rates are revised upwards later- represents billions of hidden benefit for the State at the expense of the two main banks’ shareholders. (In the case of Anglo, the State is just taking from its own bank, albeit quite improperly)

Further, the banks property is being valued at very distressed market values- almost a “no market” value. And, while the State envisages a ten year life for NAMA it has in fact as much time as it will take to sell that property at a profit, in aggregate. Until then, the banks shareholders will not be fully repaid. The State has an incentive to hold on to the property, and any cash it gets from its sale, for a very long time, given its interest rate benefit. Meanwhile, the banks will be unable to resell the bonds for anything approaching their (distressed-market) par value.

I have no idea what the final proceeds of the liquidation of the banks’ property will be. Nor do you. I threw out a figure of 96 billion, because it is highly likely that over ten years or more values will rise that much, as they always do in gently inflating western economies. In fact, there is a real prospect that shareholders, when they eventually receive their final pay off, will have received in total only a small fraction of the value of what the State has taken from them in NAMA.

Yet, they are told in no uncertain terms that if NAMA fails to earn enough to pay them 47 bn (plus a nominal interest), then the risk is on the shareholders. Yet, their participation in the (much more likely) profit that NAMA could make–where “profit” is defined as surplus after selling the State bank’s (Anglo’s) rubbish also, and after paying enormous billions out in fees – is to be limited to 2 billion or so. That is simply immoral. That’s the State–at no risk to itself–the taxpayer does not have to lay out a penny up front !- setting out to bully 150,000 ordinary Irish citizens out of their money and rights. How other citizens of a democratic society can let that happen–even cheer the State on- is quite astonishing.

In reality the State is using the resources of AIB and BOI to help bail itself out !. And without a thank you. The politicians have very neatly fooled most of the population: they have passed publically perceived responsibility for the State’s own desperate fiscal crisis to the banks. “How can we give 54 billion to the banks and then turn around and reduce the workers’ wages…?”, etc. Even star media commentators believe this garbage. The banks, who may need up to 10 bn more in capital, as a one time payment, mostly from own resources, are the cause of the problems afflicting the State, which needs c. 25 billion per annum, maybe 100 bn. in total !. This is how Mr. Lenihan has very successfully spun the reality of the State’s desperate financial mismanagement, blaming the evil banks, while quietly taking billions from them in NAMA, on top of 6-8 billion for bailing out Anglo, more billions for regular State funding, and, in fact profiting greatly from the guarantee and preference share injection. (In fact, he should put his preference shares on the market now..and apply his instant profit towards his upcoming budget)
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