Wednesday, March 31, 2010

Now The Irish: Banks Need $43B; Ireland's Deficit is 4X Eurozone Maximum

Those who think the crisis in Europe was finished with the supposed "bailout" of Greece are getting a dose of reality today.

It turns out Irish banks need $43B in new capital "after appalling lending decisions left the country’s financial system on the brink of collapse."

Long time readers will recognize the stock AIB, Allied Irish Banks, in the report, and, unfortunately not in a good way.

According to Bloomberg, as part of a plan to revive the financial system, the National Asset Management Agency said it will apply an average discount of 47% on the first block of loans it is buying from lenders . The central bank giving them 30 days to say how they will raise the funds.

Irelands's Finance Minister said in the parliament “Our worst fears have been surpassed,” “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

Allied Irish needs to raise 7.4B euros to meet the capital targets and Bank of Ireland will need 2.66B euros. Anglo Irish, long ago (last year) nationalized needs about 18.3B euros. And the list goes on.

Banks Will Have Majority Government Stake

If Allied Irish can’t raise enough funds, the governmet will have to provide aid. The government will then end up with a majority stake.

The banks “are in a better position today, but we also have to be cautious about thinking we are done and dusted here,” Forbes said.

Ireland Cannot Afford It

Ireland may not be able to afford to pump more money into the banks. The budget deficit widened to 11.7% of GDP last year, almost four times the European Union limit (where have we read this before?).

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