A reformed banking culture must emerge from the ashes

THOSE who believe the banking crisis is under control may have to think again.

The valuations of the toxic assets to be transferred to the National Asset Management Agency still have to be argued over.

Up to €90 billion worth of loans will move and the view is that a substantial part of the total book value will not end up as bad debts.

That’s generally accepted, but so far the Government has been unable or unwilling to spell out what additional exposure taxpayers are taking on.

If the state wants a reference point on how to value those troubled loans they might look to Berlin.

One man who did on behalf of clients in 2005, ran a slide rule over a 30-storey building well located on four acres of ground.

It had sold at the peak of the boom for €180m and was on the market for €11m. They declined to buy it because of the uncertainty still in the market that boomed after the fall of the Berlin Wall in 1989.

Based on this our source suggests it could take 10 to 15 years for our property mess to resolve itself.

The Government has also made clear it will impose a levy on banks if the agency ends up with serious losses at the end of the process.

Some argue that leaves the banks in a bit of a quandary because their balance sheets, still face the threat of substantial losses down the line.

Sceptics argue we have this the wrong way round.

Banks forgot their basic reason for existing and turned into money making machines for themselves and their shareholders.

Brian Lenihan, the finance minister, is annoyed at the description in the media of the current process as a bank bailout, but with €7bn already committed to the two main banks, on top of the massive underwriting of €400bn of bank loans and deposits, the banks are in hock to the state.

This is at the kernel of the sceptics’ view. They believe the banks have been nothing other than self-serving.

The vulgar salaries, massive pensions and other incentives tagged on through the boom years cleary support their view. And by bailing out the banks, the state is underpinning that culture all over again so that it can do the same all over again in another few years.

But the arguments could go on for ever. We have to move on, and the one thing that has to come out of the rescue deal is a total change in the banking culture, where the banks will be there to serve customers and not the other way round.

Banks are essential to the future of the economy.

We need them more now than ever before, but we need a new model with a toxic free attitude.


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