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Friday 17 August 2018

Dan White: I got it right (unfortunately) about 08, 09 and 2010, now here are my 2011 predictions

The sale of at least two Irish banks to foreign owners, rising mortgage defaults, more Government cutbacks and a further fall in house prices... our business correspondent Dan White predicts 2011 will be another fiery year

1 AT LEAST TWO IRISH-OWNED BANKS WILL BE FOREIGN-OWNED BY THE END OF 2011

With EBS virtually certain to be off-loaded to the Cardinal Capital consortium soon, the Government will be desperately seeking to find buyers for some of the other Irish-owned banks as its tries to reduce the taxpayers’ exposure to the bankrupt Irish banking system. Ideally the Government would love to get AIB, of which it now owes almost 93pc, off its hands but there may not be any takers. That leaves Bank of Ireland, which will almost certainly fall into majority State ownership early in 2011, as the most likely candidate for sale to a foreign buyer.

2 THE ECB WILL HAVE TO ACCEPT A HAIRCUT ON THE MONEY IT HAS LENT TO THE IRISH BANKS

By lending the Irish banks up to €136bn, €70bn of which went to repay to senior bondholders over the past two years, the ECB has effectively ended up carrying the can for the losses of the Irish banks. The notion that the Irish taxpayer is going to shoulder the full burden of these losses is fanciful. Having bailed out the mainland European and British banks who so irresponsibly lent to the Irish banks, the ECB will now have share some of the pain.

3 INTEREST RATES WILL RISE IN 2011

In 2010 all of the Irish banks raised their variable mortgage rates. This was because, even when the Irish banks could persuade overseas banks to lend them money, they had to pay rates way above official ECB rates. Now, with the German economy growing like the clappers, the ECB is almost certain to increase its official interest rate, which currently stands at an all-time low of just 1pc, in the New Year.

This will result in a further increase in Irish mortgage interest rates.

4 HOUSE PRICES WILL CONTINUE TO FALL

Higher interest rates are only one reason why house prices will keep falling in 2011. With up to €35bn of fresh capital going into the Irishowned banks, lenders will now have more capital to absorb losses on mortgages. They will then be far more ruthless in forcing financially distressed homeowners to sell, regardless of price. This will translate into another tumble in house prices early in the year.

5 SOARING MORTGAGE DEFAULTS WILL TRIGGER A SECOND PHASE OF THE IRISH BANKING CRISIS

According to the latest figures from the Financial Regulator, 40,000 mortgages – about 5pc of the total – are now more than 90 days in arrears. With all due respect to the Financial Regulator, these figures are hooey. With the ESRI estimating that almost half of all homeowners are now in negative equity and house prices set to fall further, a large chunk of the Irish banks’ €117bn mortgage loan book will go bad in 2011 triggering a second phase of the Irish banking crisis.

6 THERE WILL BE A SECOND 2011 BUDGET

The December 2010 Budget was notable more for what it didn’t rather than what it did contain. No move to scrap the Croke Park deal, pensions left untouched, minimal reduction in public sector numbers, no property tax and no water tax. That’s going to change as soon as the election is out of the way. When the new Minister for Finance takes office the first thing in his or her ‘in’ tray is likely to be a list of “suggestions” from the EU and the IMF.

7 BANKS WILL MOVE TO FORCE HOMEOWNERS TO GIVE UP TRACKER MORTGAGES

Almost 60pc of Irish residential mortgages – over 450,000 – are trackers where the interest rate is capped at a fixed margin over the official ECB rate. Unfortunately the Irish banks haven’t been able to borrow at anywhere close to the official ECB rate since the credit crunch first struck in August 2007 and are now paying three, four or even five times the official ECB rate. This means the banks are losing money hand over fist on tracker mortgages. Expect the banks to find some way of trying to escape trackers in 2011.

8 ONE MAJOR IRISH RETAILER WILL GO BUST

With the value of retail sales having fallen by a fifth since the end of 2007, Irish retailers were desperately hoping for a good Christmas. They didn’t get one. Instead the cold weather kept shoppers at home, leaving retailers with mountains of expensive stock which they will now have to shift cheaply in the January sales. This will almost certainly prove to be the last straw for one or more major Irish retailer.

9 IRISH MEMBERSHIP OF EURO WILL BECOME A RED-HOT ISSUE

By mid to late-2011, with the EU/IMF bailout failing to improve our economic situation and public anger mounting at the penal 5.8pc interest rate we have been forced to pay on the money advanced to us under the “rescue” package, the wisdom of Irish membership of the euro will be increasingly called into question.

10 NAMA WILL EITHER BE BROKEN UP AND/OR LARGE CHUNKS OF ITS ASSETS WILL BE SOLD OFF

Almost two years after it was first unveiled in the emergency April 2009 Budget, it is now clear that NAMA is too big, too bureaucratic and simply too unwieldy to do its job properly. If the property market is ever to get moving, NAMA must either be broken up or large chunks of its €30bn asset portfolio sold off.

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