Irish banks – truth leaking out.

Immediately the cost of insuring Irish bonds started to rise.

The probable cause of Mr Gilmore’s statement was a report by Barclays Capital. The report looked at how Ireland’s forecasts for paying off its debt would fare under different growth assumptions. The conclusions were that Ireland was OK as long as there weren’t any ‘unforeseen’ deterioration in financial conditions. Pardon? That’s like looking at a man in front of a firing squad and assuring everyone his prospects are great, unless something ‘unexpected’ happens.

The report went on to suggest that in the unlikely event that financial conditions did deteriorate just a little, the Irish government would have to ‘seek outside help’ from the IMF and EU and also talk to bond holders about taking some losses. Light’s started flashing.

The report did also say the Irish might not have to take these drastic steps. It could avoid them by raising taxes further. Slight smell of sulphur about that caring suggestion.

And the reason for the smell of sulphur is that one of the authors of the report is Antonia Garcia Pasqual who until recently worked at the IMF. Hired earlier this year by Barclay’s Capital at the same time as it also hired a former Federal Reserve man, Micheal Gapen. So you see there is no close link between the banks and the financial authorities. Not at all.

Anyway, sections of the Irish press started to jump up and down about how unwise it was to even suggest such a thing. Apparently they think lose talk sinks banks. Doesn’t matter what the situation is, just don’t talk about it in front of the children/voters.

Luckily we don’t have to rely on the press nor politicians to know some salient facts. Anglo Irish is terminally exposed to death level debts. It has still not declared all its losses. It’s losses are so huge relative to Irish GDP that the Irish CANNOT bail it out on their own.

So Barclays did have the truth even if it massaged it a little. The Irish Government will have to, if it isn’t already, talk to the IMF and the EU about a further bail-out facility. I think it will also have to talk to Anglo-Irish’s bond holders. Who are largely OTHER BANKS and NOT, as often claimed by weaselly Irish politicians lots of small Irish savings groups and pension plans. There maybe some but not the bulk.

BUT here is the ringer not yet being talked about. However dire Anglo Irish’s debts and finances are, and they are DIRE, Ireland would be laughing if Anglo was the only one. BUT THEY ARE NOT.

Corresponding recently with someone who knows what the situation in Ireland’s banking system is, who asked to remain anonymous, the fact is Anglo is no longer the problem. It is now only the most infamous part of the problem. “AIB and BofI between them have the same exposure to developers (and worse ones) than Anglo.”

So if Anglo might need to ‘discuss’ losses with its bond holders, I think the bond holders at the rest of Ireland’s big banks might want to be thinking of an exit strategy.