Monday 18 December 2017

REGULATOR: Did banks lie over hit from mortgage losses?

THE crippled banking system faced the prospect of yet more instability last night after the financial regulator admitted he did not know whether lenders had lied about the size of their property loan losses.

The admission by Matthew Elderfield came as Fitch, the ratings agency, downgraded Ireland's credit standing by one notch from AA- to A+.

The agency said it was worried about the high cost of bailing out the country's banks - approaching €50bn - and that the cut reflected concerns about the time it would take for the economy to recover.

Moody's, which downgraded the country to Aa2 in June, said this week that the parlous state of its finances might force another cut.


Standard & Poor's has also cut Ireland's rating.

Adding to the gloom, a survey found that consumer confidence slumped last month from a 30-month high in June.

The monthly index from KBC Ireland/ESRI registered a reading of 52.4, down from 61.4 in August as households reined in their spending.

Austin Hughes, chief economist at KBC Ireland, said: "The normally remote world of bond markets has become all too familiar to Irish consumers in the past month and these usually 'unknown unknowables' prompted an element of panic among Irish consumers about their future."

Mr Elderfield made his comments while being questioned by a parliamentary committee.

When asked whether banks had lied to the National Asset Management Agency (Nama), he replied: "I honestly don't know."

The Government said last week that the cost of bailing out its banks, which ran up huge losses after speculative property lending, could reach €45bn. That includes a €32bn bailout of the nationalised Anglo Irish Bank.

The state is also likely to take majority control of Allied Irish Banks, which needs to raise €10.4bn by the end of the year.

Finance Minister Brian Lenihan said last week that the enormous cash injections to four lenders meant that the country's budget deficit would surge to 32pc of GDP.

Frank Daly, the chairman of Nama, has already said that he is "extremely disappointed and disturbed" by the poor quality of loans data provided to the agency by the banks.

Having poured €81bn of toxic loans into Nama earlier this year, the banks indicated to the agency that timely repayments were being made on about 40pc of the portfolio.

However, after carrying out its own analysis, the agency said that it had found that only 25pc of the loans were "performing".

Mr Daly said the bleak assessment meant that Nama could plunge to a loss of as much as €800m during its ten-year life.

It had hoped to record a profit of €4.8bn.

At the hearing yesterday, Mr Elderfield held out the prospect of reaching agreement on a deal with senior bondholders in Anglo Irish and Irish Nationwide Building Society to cash in their debt investments for less than face value.

Junior noteholders, including Russian billionaire and Chelsea FC owner Roman Abramovich, are angry at Mr Lenihan's call for them to make a significant contribution towards meeting the costs of the bailout.

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