Talking Property

Former bankers are coming out strong in the property market says ISABEL MORTON

THE EXPRESSION “doctors differ and patients die” comes to mind when I think of the diverse opinions offered by economists on the beleaguered state of our nation’s affairs.

Bankers normally stay relatively quiet. Indeed those currently holding high office in the banking world are keeping a particularly low profile these days. But recently a few former bankers have crept out of the woodwork and are showing their hands and joining the fray.

Mike Soden, former chief executive of Bank of Ireland and now an independent financial consultant and commentator, wrote in The Irish Times last Friday that he believes that the construction and property industries need investment in order to get the economy up and running again.

He suggested that, should the industry be ignored, it would decline further, which in turn would mean less income for the Government’s coffers, more unemployment and a deeper and longer depression, which would delay any recovery. “The single biggest sector that requires investment is construction and property. This sector is on its knees and is parched for liquidity,” wrote Soden.

I, for one, am delighted that any banker (even a former banker) is admitting that banks are just not lending to anyone, particularly not to those in the construction and property sectors.

Some innocently believe that the construction and property sectors should not be encouraged, let alone financed, and before they go off the deep end with rage at the mere notion of a former banker suggesting that the construction and property industries should be resurrected and refinanced, it may be worth noting, as Soden reminded us, that these industries employed around 400,000 people (both directly and indirectly) which equated to around 19 per cent of all those employed in Ireland.

We’ve all learnt that having tantrums about irresponsible bankers is all very fine, but we still need banks to lend money in order to keep the economy moving. Just because they lent far too much at one stage does not mean that lending nothing at all now is going to solve the problem, quite the opposite in fact. Equally, we can have hysterics about the construction industry, including the “greedy” property developers, but we still need them to keep building, albeit at a more controlled level than before.

However, Soden then went on to query whether, even after Nama had injected liquidity into the banks, these newly funded financial institutions would “rejuvenate” the economy.

He questioned whether banks would “put the national interest ahead of the perceived best interests of the shareholders” and whether they would lend to the corporate and consumer sectors in Ireland.

If the former chief executive of Bank of Ireland has his doubts about whether or not the banks will start lending again to anyone, let alone to the construction and property sector, we should all be very concerned.

After all, the banks are supposedly being saved “by the people, for the people”. And the people won’t be too thrilled if the banks don’t keep their side of the bargain.

What was really interesting was the reason Mike Soden gave for the banks’ possible reluctance to inject much needed cash back into the economy. He believes that banks will now be over regulated and that their balance sheets will be monitored to such a degree that they will only want to lend to “safe” areas, such as those associated with exports, which are unlikely to need their funding.

And as the assets once used as security for loans for much needed working capital are now worth considerably less than they once were, lending in turn will be further reduced.

However, just as one might despair of Ireland’s recovery plan and of Nama in particular, came the announcement of the creation of a copycat Nama-style company, ARC (Asset Recovery Corporation). This has seen set up by yet another former banker, Mark Duffy, former chief executive of Bank of Scotland (Ireland) and fund manager Kevin Warren. Together they have, via blue chip investors such as pension and insurance funds, created a large fund (exact figure not known) to buy up some of the €61 billion of property loans from foreign-owned banks operating in Ireland which do not come under the Nama umbrella. (ACC, NIB, KBC, Ulster Bank and Bank of Scotland (Ireland).)

Although based on the same principles, ARC differs from Nama in that it has no responsibility for the banks it will be purchasing from and has only one motivation, to make a healthy profit for its private investors whereas Nama’s primary focus is on saving Irish banks from failing and, although it fully believes that it will make a profit for Irish taxpayers, it would be considered a secondary benefit of their investment.

If nothing else, ARC has given us faith in the resurrection of the Irish property market, although the resumption of buying and selling of baskets of assets (toxic or otherwise) all sounds frighteningly familiar. Here we go again. Hold on tight.