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Thread: Developer Sub Prime threatens Banks

  1. #1
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    Default Developer Sub Prime threatens Banks

    The rock that will smash one or more of the Banks will not be the Credit Crunch nor the American Sub Prime, it will be Developer Sub Prime.

    Developer Sub prime are lending advances, to Developers on Development Lands on high LTVs, on over optimistic valuations of Future property price and price growth, to individuals whose repayment capacity is linked to a perpetual appreciation of the property market.

    To Date the peak paper values in the market are sustaining roll overs of interest,simply because there is neither income nor cash flow to make interest payments.

    The Value of the land banks fall while the amount borrowed against them increases. The dealing cost on acquisition of development land is 9% plus fees so even to break even after a year you need to sell for 116% to 122% of the purchase price to cover Stamp Duty and interest from 7% to 12%

    The Nature of Development Land price increase and decrease is such that because of the relatively fixed nature of the construction cost the land price takes the pain or the gain on any price movement.

    The only salvation for Land Banks with high levels of borrowing would be inflation out striping the cost of borrowing for a number of years, but even that is a forlorn hope.

    From the peak of the boom to the trough of land value that in my opinion has yet to come probably after 2009, as the banks will play chicken with the recession for another while, the value of the National Land Bank will probably decline by 50 Billion to a 100 billion.

    The strange contradiction at the moment is that banks and valuers and owners are maintaining that the land retains its peak value while the borrowing on the lands increase. At the same time no one is buying as there is no finance to buy. ( The banks dont think its worth the peak value or the half of it if you are buying)

    Even if prices stood still highly borrowed developers would still make a loss as the cost of dealing and interest would require appreciation of 16% to 22% just to break even.

    Banks are lending huge multiples of their own capital up to 15 times.

    What would happen to a bank if it lost 50% of its capital?
    Fianna Fail will allow the Irish People, to me milked like Milch Cows, by the CIF through high house prices, rents, and land prices, at the expense of competitiveness,and quality of life. FF+CIF=1

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    Default Re: Developer SubPrime

    Have a look at today's IT prop section.
    Truth has finally arrived.
    Numerous properties marked down by over 50% from the peak.

    And still we let the like of Dan mc Laughlin on our airwaves ands say unchallenged that the drop from peak is just 15%.
    Still we let Permo/TSB tell us the drop this year is just 5.2%.

    We had freedomlover at his imbecilic best telling us just days ago that the 60% fall in our stock market was almost irrelevant, just spivs and chancers bad mouthing and shorting stocks.
    It wasn't. It was astute foreign investors looking in from the outside and seeing how out of control the whole thing had got and they moved in their billions.
    They gambled that a 50% property crash was imminent and if arrived would likely incinerate our banking institutions.
    Well guess what, they were right on the property crash, all that remains to be seen is whther the effect on our financial institutions will be as dire as they have gambled it will be.

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    Default Re: Developer SubPrime

    A 50% crash would wipe every Irish Bank out of existence.

    No having a go, but do you expect the financial Institutions and their Crystal ball gazers, to admit to anything more than the most minimal fall in value. To do otherwise would be like burning their deposits.

    It is a little like watching a duckling swimming. From above (outside) all is calm while from below ( inside) the legs are paddling furiously.

    Banking is a confidence trick and the crystal ball gazers, are merely doing what they are paid to do, spin and spin, and pretend that they can see the magic clothes. You can't blame them, its their nature, just as it is the nature of a carnivore to eat meat.

    It is a little like playing texas holdem the lads will only play when they have to cover the big or small blinds, and will wait it out hoping for the royal flush, to go all in.
    Fianna Fail will allow the Irish People, to me milked like Milch Cows, by the CIF through high house prices, rents, and land prices, at the expense of competitiveness,and quality of life. FF+CIF=1

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    Politics.ie Member HarshBuzz's Avatar
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    Default Re: Developer SubPrime

    Quote Originally Posted by mairteenpak
    Banking is a confidence trick and the crystal ball gazers, are merely doing what they are paid to do, spin and spin, and pretend that they can see the magic clothes. You can't blame them, its their nature, just as it is the nature of a carnivore to eat meat.
    I attended a meeting with some representatives of one our local leading institutions yesterday and the level of denial was truly frightening.

    When we discussed the propspects for our local economy and, more specifically our banking sector, they just kept repeating 'international factors', ' we have no sub-prime here in Ireland', 'share price falls completely overdone' with vacant smiles adorning their faces as they inwardly contemplated the plummeting value of their nest egg of bank shares.

    I suggested to them that Irish banks weren't being hammered because of sub-prime, they were being hammered because they had engaged in utterly reckless lending. I also suggested that I would be surprised to see more than two independent Irish banks at the time of our next annual tete-a-tete.

    The look of pure fear in their eyes was very illuminating.
    “'retail deposit flight, I don't see that as a great danger. Ireland is an island” - Brian Lenihan - to hundreds of international investors

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    Default Re: Developer Sub Prime threatens Banks' Profits

    A lot of development land has been bought at prices at which it cannot be developed profitably, since a development would only end up in negative equity, if it were built, and increase the loss.


    Banks know that to foreclose on loans that are being rolled over would simply crystalize massive losses. The banks will try and carry the loans forward, on their books as to do otherwise would be like pressing the self destruct button.
    Fianna Fail will allow the Irish People, to me milked like Milch Cows, by the CIF through high house prices, rents, and land prices, at the expense of competitiveness,and quality of life. FF+CIF=1

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    Politics.ie Member HarshBuzz's Avatar
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    Default Re: Developer Sub Prime threatens Banks' Profits

    Quote Originally Posted by mairteenpak
    A lot of development land has been bought at prices at which it cannot be developed profitably, since a development would only end up in negative equity, if it were built, and increase the loss.

    Banks know that to foreclose on loans that are being rolled over would simply crystalize massive losses. The banks will try and carry the loans forward, on their books as to do otherwise would be like pressing the self destruct button.
    I wonder will their auditors force them to recognise this reality?

    hmmm, probably not
    “'retail deposit flight, I don't see that as a great danger. Ireland is an island” - Brian Lenihan - to hundreds of international investors

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    Default Re: Developer Sub Prime threatens Banks

    The best outcome the weaker banks can hope for is to be taken over.

    Unless there is a audit of the current values of the land banks which is credible no suitor will be keen to look at a take over rescue situation.

    The strategy at the moment is to hope for better times. The best prospect on the horizon is the Government first time buyer scheme, a poor prospect though still the best on the horizon, as the prospects are not good.
    Fianna Fail will allow the Irish People, to me milked like Milch Cows, by the CIF through high house prices, rents, and land prices, at the expense of competitiveness,and quality of life. FF+CIF=1

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    Politics.ie Member HarshBuzz's Avatar
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    Default Re: Developer Sub Prime threatens Banks

    Quote Originally Posted by mairteenpak
    The best outcome the weaker banks can hope for is to be taken over.

    Unless there is a audit of the current values of the land banks which is credible no suitor will be keen to look at a take over rescue situation.

    The strategy at the moment is to hope for better times. The best prospect on the horizon is the Government first time buyer scheme, a poor prospect though still the best on the horizon, as the prospects are not good.
    otherwise known as the 'stick your head up your own arse and believe your own bullshit' strategy

    both the government and the banks excel at this

    anyway to ramble on some more on this topic: predictions re. the future (or lack of) for Irish banks

    1. Continued sharp falls in the price of houses and commercial property (despite whatever half-baked scheme the FF\CIF government try to dress up 'helping the hard-pressed FTB). We eventually end up at 2000 prices, despite much weeping, wailing and denial along the way. Hundreds of thousands of people stuck in negative equity for decades. Tens of thousands more financially wiped out on their oh-so-canny buy to let 'investments'

    2. A major Irish developer to go spectacularly busto within six months (I'm sure you can all think of your favourite candidate for this). This will cause a chain reaction amongst the banks as they pull the plug on the idiot developers who bought land at 2004 onwards prices.

    3. Two small Irish institutions that are heavily over-exposed to the commercial property market to be taken over for a pittance by this time next year.

    4. The Government to enforce at least one major 'merger' in the Irish banking sector in the next 12 months.

    5. Thousands of financial services workers to be laid off

    6. We end up in a situation where we are left with one Irish bank operating and the remainder of the market taken up with other EU banks.

    How's my crystal balls?
    “'retail deposit flight, I don't see that as a great danger. Ireland is an island” - Brian Lenihan - to hundreds of international investors

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    Politics.ie Member katy brock's Avatar
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    Default Re: Developer Sub Prime threatens Banks' Profits

    Quote Originally Posted by HarshBuzz
    Quote Originally Posted by mairteenpak
    A lot of development land has been bought at prices at which it cannot be developed profitably, since a development would only end up in negative equity, if it were built, and increase the loss.

    Banks know that to foreclose on loans that are being rolled over would simply crystalize massive losses. The banks will try and carry the loans forward, on their books as to do otherwise would be like pressing the self destruct button.
    I wonder will their auditors force them to recognise this reality?

    hmmm, probably not
    What the Irish banks need is an "Arthur Anderson" type company of auditors. Then, full steam ahead!

  10. #10
    Politics.ie Member HarshBuzz's Avatar
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    Default Re: Developer Sub Prime threatens Banks' Profits

    Quote Originally Posted by katy brock
    What the Irish banks need is an "Arthur Anderson" type company of auditors. Then, full steam ahead!
    it worked for Enron

    oh wait...
    “'retail deposit flight, I don't see that as a great danger. Ireland is an island” - Brian Lenihan - to hundreds of international investors

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