Posted by inthesenewtimes on December 21, 2010
Own goal! Osbourne may have intervened to protect City/Wall Street bondholders, including the ubiquitous Goldman, but tipping Ireland over the edge imperils the recklessly exposed British banks who led the way in the Irish property bubble. The moment of truth approaches, the moment of the second bailout of the City. This time it has to be stopped.
21st December, 2010
Lloyds shares closed down 3.6pc at 66.5p, while RBS’s fell 5.7pc to 37.82p as the market took in the impact of the new write-downs.
In a statement, Lloyds said it had seen a “further significant deterioration in market conditions” in Ireland and that a further 10pc of its £26.7bn portfolio of Irish loans would be impaired by the end of the year.
“We are concerned that any economic recovery in the Republic of Ireland may take longer to achieve, and that asset prices will remain depressed for longer than previously anticipated,” said Lloyds.
Provisions to take account of the worsening in the portfolio will amount to an additional £4.3bn this year and total provisions now cover about 54pc of the entire loan book, effectively meaning Lloyds does not expect to get back at least half of its Irish loans.
The huge write-offs have largely been driven by the collapse of the Irish property market and 90pc of the bank’s loans against commercial property in Ireland are impaired, meaning that the borrower is either behind on payments or unable to service the debt.
Friday’s warning comes just over six weeks after Lloyds released an interim management statement in which it said it expected Irish impairment levels to remain unchanged on the amount seen in the first half of the year.
Ireland’s austerity budget and the continuing uncertainty in the country over its political situation were cited by Lloyds as the two main reasons for its increasingly pessimistic outlook on its Irish portfolio.
Despite the announcement, analysts at Nomura retained their “buy” recommendation on Lloyds shares and said the new write-offs were not significant enough for them to change their view on the bank.
Nomura warned, though, that the charges against problem loans were likely to rise and that additional provisions could be made in the years to come.
The broker also said that the implications of the Lloyds writedown could be more significant for RBS.
“We believe RBS remains more geared to the negative read-across, given its apparently larger Irish portfolio of £52.5bn and what we believe to be a lower coverage ratio [some 10pc of Ulster Bank loans, compared with 28pc now at Lloyds],” wrote the analysts.
Last month Ireland was forced to go to the European Union and International Monetary Fund, which together with support from non-euro countries, including the UK, provided the country with an €85bn (£72bn) emergency bail-out package.
Earlier this week the Irish government passed a new budget and agreed to accept the bail-out despite widespread condemnation among opposition politicians