Bailout of banks could reach €33bn

THE total cost to the taxpayer of bailing out the banks could be a massive €33 billion, a leading economist has warned.

That represents 20% of GDP and “is significantly more” than the figure previously estimated by Goodbody Stockbrokers, chief economist Dermot O’Leary said yesterday.

That figure is also well ahead of the “average” cost of banking crises in developed economies over the past 40 years of 11% of GDP, he said.

The biggest proportion of the Irish figure is a direct result of the bailout of Anglo Irish Bank, which could cost the taxpayer €22bn, he said.

Meanwhile, NAMA said it has completed the first tranche of Allied Irish Banks’ toxic debt at a slightly lower discount of 42% (43%) than previously indicated.

It bought loans with a nominal value of €3.29bn for €1.9 billion, the bad bank said.

Commenting on the group’s latest economic review, Mr O’Leary said the economy was heading into “calmer waters” as some core issues such as the banking crisis are finally being dealt with.

In a generally positive assessment of the crisis facing the country, he said “there has been further progress on the three challenges that Goodbody has talked about for 12 months – improving competitiveness, reducing the budget deficit and restoring the banking system to health”.

He said the higher capital requirements demanded by the regulator would deliver a more stable banking system and added to the prospects of getting the banks back lending to business and the consumer.

On the banks, he said: “It is clear from last week’s announcements that the Government is intent in drawing a line in the sand in relation to the Irish banking system.

Last week’s announcements should deal with the banking crisis in a “once and for all” manner, he said.

In its latest economic review, Goodbody has left its growth forecast of -1% for 2010 unchanged, but it has lifted its 2011 forecast from 2.4% to 2.8%, on the back of a higher net trade contribution.

The report, which has also focused on expanding Goodbody’s previous analysis of the vacant housing stock, concluded that this is “very much a regional issue”.

The brokers estimate that the gross vacancy rate currently stands at 15% across the country and is at 10.5% in Dublin, but at a much higher 19.9% in the border counties.

The broker believes the market in the Greater Dublin area will recover first with price adjustment in this area to date as high as 40%.

Goodbody’s expects overall prices to decline 50% from their 2007 highs.