High Ratio in Ireland

Calculated Risk points out an interesting number in a Bloomberg report: A public authority will soon be managing a portfolio of bad non-residential real-estate loans whose nominal value is about half of Ireland’s GDP. Probably all sorts of shoes waiting to drop in commercial real estate markets across Europe.

Finance Minister Brian Lenihan will detail tomorrow how much Ireland will pay for about 90 billion euros ($131 billion) of real estate loans now crippling what as recently as 2006 was one of Europe’s most dynamic economies.

The National Asset Management Agency, known as NAMA, will buy 18,000 loans at a discount from lenders led by Allied Irish Banks Plc and Bank of Ireland Plc. The agency will manage the loans, which amount to about half of Ireland’s gross domestic product. … Most of the property-related loans of the biggest Irish banks are being taken over by the agency, excluding residential mortgages.

The office vacancy rate at the end of the second quarter was 21 percent in Dublin, compared with 8 percent in London and 10 percent in Berlin, according to CB Richard Ellis Group Inc. As many as 35,000 new homes are now vacant, estimates Davy, the country’s largest securities firm, up from 20,000 18 months ago.

This entry was posted in A Fistful Of Euros, Economics and demography, Political issues by Doug Merrill. Bookmark the permalink.

About Doug Merrill

Freelance journalist based in Tbilisi, following stints in Atlanta, Budapest, Munich, Warsaw and Washington. Worked for a German think tank, discovered it was incompatible with repaying US student loans. Spent two years in financial markets. Bicycled from Vilnius to Tallinn. Climbed highest mountains in two Alpine countries (the easy ones, though). American center-left, with strong yellow dog tendencies. Arrived in the Caucasus two weeks before its latest war.

3 thoughts on “High Ratio in Ireland

  1. And you know what is the strangest thing of all about this Doug. How they plan to pay for it. They will give the banks government bonds, which the banks will then take for discount at the ECB. So the ECB isn’t directly funding this – but it is at one step remove.

  2. Also notice Doug that this only addresses one part of the problem, that of the banks and the builders/developers. Then there will be the second part, which is the capital loss the average homeowner will take as house prices and wages sink as the internal devaluation takes place. Thus domestic consumption will plummet, even while everone will have to start to work to pay down all that extra national debt. The projections for the recovery in asset values in NAMA are rather unrealistic, I think, and certainly over the next decade, which may well largely be a lost one.

  3. Don’t know if you read Atrios, Edward, as he’s generally US politics. But occasionally his economics side shows through, as here:

    “How’d That Recession Happen Anyway?

    Shrink household net worth by $12.2 trillion, and presto.”

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