Grim outlook for Irish banks

 

DUBLIN — Ireland’s stress tests on its
four surviving banks are expected to force all of them to come under state
control and raise the cost of the banking crisis sharply to a total of some
$63,000 per tax-paying worker, analysts have warned.

Ireland is contractually obliged to
take on the massive losses of its banks but its weak growth prospects, hobbled
by years of spending cuts and tax hikes, mean there is no way it can handle the
cost.

 The country has taken a bailout to manage the
losses but the new government has been arguing that is still not enough — and
that investors in Irish banks will have to bear much heavier losses.

The true magnitude of the problem
is expected to be revealed today, Thursday when Ireland publishes its latest
tests on Allied Irish Banks, Bank of Ireland, Irish Life & Permanent and
the Educational Building Society.

The results are widely expected to
confirm that last year’s estimated potential losses — $76 billion — were far
too low.

Economists said the new total would
likely approach or exceed $110 billion, about half of Ireland’s entire economy.

A new bailout bill of $113 billion
would represent nearly $25,000 for every man, woman and child in the Republic
of Ireland — and $63,000 for every worker paying income tax.

As tensions rose ahead of the test
results, Irish Life & Permanent, the only bank so far to avoid state
intervention, halted trading in its shares after a record 45 per cent plunge
fuelled by rumours of imminent nationalization.

Irish media reports say the bank
needs at least $2.8 billion but, it has a market value of just $155 million and
cannot raise even a fraction of that cash.

Shares in Bank of Ireland, which is
already 36 per cent owned by the government, fell 7 per cent in expectation
that its stress test would leave the bank no option but to surrender to
majority state control.

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