IL&P: next in line? Update

And so the papers today follow our lead...

Tribune (here) starting to smell a rat:
"Irish Life & Permanent (IL&P) and Anglo Irish Bank could be facing fines of €5m each if the Financial Regulator determines the two banks engaged in market abuse by executing €8.2bn in circular transactions to make Anglo's customer deposit base appear more robust. ...which it has called 'completely unacceptable'."
It might be not a smoking gun for IL&P's 'new' sins, but it should keep markets on its trail.

That said, the article has a hint on balance sheet questions for IL&P (and others):
"...banks will either have to demand significant equity from developers or renegotiate loan terms. Most loans were given on the basis of a loan to value ratio, meaning that if the sites are revalued downwards the developer has to come up with the difference. This is viewed as unrealistic. As a result, banks have again moved to avoid formal valuations and there are claims some are setting up special vehicles to move loans off their balance sheet so they can amortise them over time, rather than writing them down."
Well put, boys, revaluing on the balance sheet

• land banks that are virtually worthless
  
• sites that are nearly worthless and
  
• buildings that saw their value decline by 30-50%
  

is 'unrealistic' indeed. I have shown the Anglo Irish Bank's annual results as being clearly indicative of some of this engineering going on (see here). And, since the beginning of 2008, virtually every developer plc has 'renegotiated' its loans covenants. Does anyone seriously believe that the rest of the banks posse is somehow above this Anglo practice?

Ireland is inching closer and closer to the 'Bad Bank' solution that should have been enacted some months ago. At the very least, to repair the repairable - household loans and mortgages - thus providing more room for addressing the developers loans.

The difference today is that we are out of cash to get such a bank going, thanks to a rushed re-capitalization and the Government's unwillingness to extract real value out of public sector waste. And private money is already smelling the roses (here): €10bn outflows out of Ireland in one week - some 5.6% of our GDP or 3.2% of all main banks deposits gone in smoke. What is the downside to the Exchequer on this? Should the outflow continue unabated, within a week or two we will be facing the need for a new round of banks recapitalization, this time around - ca €10bn... and the money will come from?..

The minute the markets recognize this reality - Mr Lenihan with an empty policy gun and the bear still charging undeterred - things are going to get rough.