More good news for the banks not mentioned !

This is a post I sent to the IrishEconomy.ie blog today. The discussion followed a recent speech by CB Governor Paddy Honohan

When the Governor raised the matter of accounting practices, I thought he was going to tell us some good news. He said:

I have already railed elsewhere against the backward-looking loan-loss provisioning practices encouraged by International Financial Reporting Standards (IFRS) and still all too pervasive in the reporting by most of the Irish banks. …”

But he should know that IFRS is to be changed !!.

Firstly, though, it seems to me that the losses being incurred by our main banks are related NOT to already crystallised losses, but to estimates–including overestimated NAMA figures- related to “marking to market” of tens of billions of euros worth of loans still with many years to run. (Many of the properties, we can be sure, will over time be inflated out of their current loss status). It is for this – estimates of future losses which must be debited to P&L account now – that we must shove out the shareholders and let the State take over the banks. (Uniquely in the world, of course !)

But, IFRS is to be changed. The Governor should have reminded us that the G20 two years ago asked the International Accounting Standards Board to develop a more realistic and less catastrophic accounting treatment for banks’ impaired banking assets (i.e.loan book losses as opposed to equity trading losses). They did, and proposed their solution to governments a year ago. Their solution basically would permit many banks to re-estimate their loan losses every year and write them off gradually over the remaining maturity periods of the loans (in certain circumstances). This will be enormously helpful to Irish banks and to the capital requirements/ Basle ratios situation. But the EU has refused to agree the new proposals as yet–they probably will agree a version in early 2011- because it doesn’t suit the French/German banks, who derive much of their profit from trading activities, as opposed to banking.

Why didn’t the Governor talk about this, since he raised the topic of accounting treatment of impaired assets?? What’s he trying to hide??

I also dealt with this prospect previously ..http://brianodoherty.ie/wp/featured/2010/11/stop-committing-economic-suicide..-as-follows/

– or scroll down a few posts to see it.

1 Comment(s)

  1. …by Karen Maley….Australian banks could face hefty losses on their 4 billion of loans to Ireland as part of the restructuring of the country s failed banking system..On the weekend Ireland finally capitulated to pressure and officially requested emergency financial assistance from the European Union and the International Monetary Fund..In exchange for providing this assistance the EU and IMF will insist on Ireland implementing tough austerity measures such as cutting the minimum wage and reducing the size of the public sector..But the EU and IMF will also pressure Dublin to shrink the size of the oversized Irish banking system. As a result Irish banks are likely to speed up their current plans to off-load their foreign operations and reduce the size of their balance sheets even if this means that they have to dump assets at a steep discount..But bankers and investors in Irish bank bonds are terrified that the EU and the IMF will go further and force the Irish government to wind back its open-ended commitment to guarantee the senior debts of the Irish banks..These fears were fanned by comments by Dutch finance minister Jan Kees de Jager overnight when he warned that the restructuring of the Irish banking sector was likely to result in pain for the banks shareholders as well as holders of subordinated bonds in Irish banks..At the same time financiers are keenly aware that there is growing disquiet in Germany at the seeming never-ending nature of the bailouts and the ever-escalating costs of rescuing debt-laden eurozone countries. They argue that providing countries such as Ireland and Greece with emergency bailout funding is only delaying the unavoidable end-game when banks and bond holders will be forced to take a haircut on some of their loans to these countries..And this could mean lenders to Ireland including Australian banks facing hefty losses on their Irish loans..According to figures from the Bank for International Settlements Australian banks had a combined exposure of US3.72 billion to Irish borrowers at the end of June this year..This is a relatively minor exposure compared with some of the country s biggest lenders.

    monex.com | Dec 22, 2010 | Reply

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