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Government failure to nationalise banks is causing further harm to the economy – Ó Caoláin

1 April, 2010 - by Caoimhghín Ó Caoláin TD


Speaking in the Dáil this afternoon during statements on the banks Sinn Féin Dáil Leader Caoimhghín Ó Caoláin TD said the Irish people are sick of the myths and mistruths being peddled about the economy by the Fianna Fáil/Green Government.

Deputy Ó Caoláin said the sad reality is that the Government’s failure to nationalise the banks is dragging out the problem and hurting this economy potentially beyond repair. He said:

"We have been told repeatedly that it would be more expensive to wind down the zombie Anglo-Irish Bank than pursue this current course. Leaving aside the fact that what we are, in all likelihood, witnessing is a protracted wind-down – where is the cost-benefit analysis that shows this is the more cost effective option? So far €4 billion has gone in. Another €8.3bn is needed immediately. Then another €10 billion. Then what? Where does the splurge on Anglo-Irish end?"


Statements on Banking Crisis 1.4.10
Caoimhghín Ó Caoláin TD, Sinn Féin Dáil leader
The Irish people are sick of the myths and mistruths being peddled by this Fianna Fáil/Green Government about the economy and especially about the banks to suit their own political agenda.

Just this very morning I was speaking to a customer who just received a letter from Bank of Ireland. Her home insurance premium is about to increase by more than 50%. Despite her never making any claim on the policy, her premium is going up from €375 per annum to €577. On top of that they are increasing the excess on the policy from €152 to €350 and even €600 for many circumstances covered.

Surely this is an April Fool Joke!

Bank of Ireland have been instructed to raise some of their own capital but gouging and screwing ordinary customers who are already bailing this bank out via their paycheques is not the way to do it. This is happening in a situation where property values have dropped significantly and therefore the cost of replacement or repair in the event of claims has also decreased. Is it any wonder that the Minister in his speech on Tuesday singled out Bank of Ireland as the most profitable of the banks that “has a strong future” and that in recapitalising Bank of Ireland we will “support our economic recovery”. Tell that to the customers who are trying to recover from the shock of these arbitrary increases in their home insurance premia.

The consumer price index notes an increase in insurance premiums of 13% over the year. Why is Bank of Ireland, in which the tax payer has been forced to take a growing share, hiking their premiums by over 50%? What control over the banks, to stop this kind of robbery, have the taxpayers been given in return for their massive subsidies? The answer is ‘nothing’ thanks again to the incredible incompetence of this Government.

We have been told repeatedly that it would be more expensive to wind down the zombie Anglo-Irish Bank than pursue this current course. Leaving aside the fact that what we are, in all likelihood, witnessing is a protracted wind-down – where is the cost-benefit analysis that shows this is the more cost effective option? So far €4 billion has gone in. Another €8.3bn is needed immediately. Then another €10 billion. Then what? Where does the splurge on Anglo-Irish end?
Anglo is clearly insolvent. It owes approximately €2 billion in subordinated debt. AIB is being described as a ‘dead-bank walking’ by economists. Rather than declaring both banks insolvent, the Government is doing everything possible to protect bond-holders who provided equity at their own risk. That is the nature of their business. Allowing them to take a hit on their risk would not entail the end of Ireland as we know it. Throwing €80 billion into a black hole, while inflicting it as debt on the Irish people, will devastate this state’s economy.
The Minister argues that he has moved as fast as he could on this issue and needed to put relevant pieces in place. However, as Financial newspapers have pointed out, our banking system is one of the last to be recapitalized and we are recapitalizing zombie banks. As the Central Bank report showed yesterday, the rate of lending fell again in February. These banks have paralysed the economy for over 18 months, while the Government has stood by and watched.

The figures being discussed by the Department of Finance regarding the amount the state will spend on recapping are misleading. For example, of the €7.4 billion needed by AIB – that we know of, and for now – the Government says it hopes money can be raised from the sale of AIB’s foreign subsidiaries. This is nonsense. Sale of a subsidiary that is considered an asset turns the asset into cash. It does not increase the bank’s assets, particularly if that subsidiary goes for less than what it is valued at. The bank might shrink, making its relative capital requirement smaller as a percentage. It’s not a magic solution.

There is also the myth that the Government is hard-balling the banks and their management. Well let’s take Anglo. It shows on their annual accounts released yesterday that last year they made the largest corporate loss in Irish history. Most of this loss was incurred from the writing down of loans. Among these was a total of loans of €85 million to its former chairman Sean Fitzpatrick. The bank expects it will never see €68 million of those loans.

The figure for former chief executive David Drumm was just over €8.3m, with the bank setting aside €6.7m for possible non-repayment. Most of this is linked to a loan given to Mr Drumm to buy shares in the bank. William McAteer, former finance director, owes the bank €8.5m, of which more than €7.6m is not expected to be re-paid. This €7.6m figure also relates to a loan given to buy shares in the bank. The figures also show that almost €13.9m was jointly lent to Mr FitzPatrick and former director Lar Bradshaw to facilitate an investment in oil exploration. The bank has set aside €11m to account for possible non-repayment of this. €3.1m was also lent to Mr FitzPatrick to fund a hotel investment. Anglo has made provision in its accounts for the possible non-repayment of almost €22m of the €27.3m in loans to Mr Bradshaw.

The government is writing down these loans via NAMA and recapitalizing the bank. And where are these men who benefited from the loans? Sean Fitzpatrick spent 24 hours in a police station in Bray. Is that the going time for someone who has effectively stolen €65 million from the citizens of this state?

If this is the Minister and this Government’s notion of ‘hard balling’ – well, I ask you.

The Minister has a lot of questions to answer. For instance – how much in hard cash – that is, how much money will be added to the Budget sheet this December as a result of draw-downs on the recapitalization ‘promissory notes’ in 2010? I ask this because this is a budget the Minister will once again start preparing us for in September with his usual salvos of ‘tough times’, ‘we must tighten our belts’. So when the Minister is making sounds about social welfare being cut further, nurses and teachers wages being cut, hospital wards being closed – because we know he has promised the EU to take a few billion more off the deficit this year – how much will be going onto the deficit for the banks? Will it be one billion? Two? Three? The public deserve to know how much pain they will be asked to take while the government, supported by the EU, spends Irish taxpayers’ money on the likes of Anglo-Irish bank.

The Minister also needs to answer the question being raised by several economists regarding the discount on NAMA loans. We know the first tranche is being discounted at 47% - but that only applies to €16 billion of the €81 billion total to be transferred. What will the discount be across the board? It will hardly be 47% on average across the rest of the loans, because surely that would require higher recapitalization in certain banks. How certain are we that the sums being done on AIB’s sheets for instance completely and adequately reflect the write down of their bad loans?

And finally – the Minister will know that people are holding their breaths to see if this is it – if the shocking figure of €80 billion more or less in total announced yesterday, is the total amount to be put into the banks. I fear greatly that it is not. It does not allow for further falls in property prices, nor for further defaults (and we are witnessing with AIB’s interest rate hike the beginning of the squeeze on residential and business loan holders).

The sad reality is that the government’s refusal to nationalise so we can put everything on the table for once and for all is dragging out the problem and hurting this economy, potentially beyond repair.

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