"Fear Stalks the Market"

The diagnosis of the banking pandemic may be clearer, but the prognosis remains wholly uncertain.

In the UK, investors in Barlcays and Lloyds are betting that the government will have to step in to nationalise the institutions, while in Ireland, mandarins have been talking up the strength of the two main players – Bank of Ireland and Allied Irish Banks, as they stress that no moves will be made to bring the pair into public ownership.

Their current share prices “are not indicative”, according to Irish Central Bank governor John Hurley, of their true health, who also said today in Dublin that “fear stalks the market”.

But the banks still have to be shifted to the MRI scanner to obtain deep insight. Until they lay their cards on the table, investors can’t take Hurley’s view as gospel, even if it is actually true.

Last summer, speaking to journalists following Bank of Ireland’s AGM in Dublin, now outgoing chief executive Brian Goggin brushed aside suggestions that the blame for the on-going collapse of the domestic property market should be laid squarely at the feet of Ireland’s banks.

He “completely and utterly” rejected the notion.

His objections would hardly convince a jury.

The property rollercoaster had been fuelled by the banks: cheap finance and a too-cosy relationship with property developers were important ingredients in the boom.

So too, the laissez-faire attitude of the government, whose coffers were swelled by property taxes that fuelled its public spending spree. The government, said one leading Irish economist recently, should have been taxing mortgages to cool the market, not offering borrowers tax relief. It should also have been patently obvious that its over-reliance of property-related taxes was a highly dangerous strategy.

And as Anglo Irish Bank, the poster-boy institution for the boom years, heads for nationalisation, the true extent of the fallout won’t be clear for some time.

And even at Anglo, where new chairman Donal O’Connor is now navigating a course through the rapids without even a paddle, plenty of more nasty surprises could lay in wait.

But O’Connor, a former managing partner at PriceWaterhouseCoopers, may already have some insight in that regard.

He replaced Sean FitzPatrick before Christmas following the revelation that his predecessor had hidden €87m in loans from auditors.

O’Connor and FitzPatrick had been firm acquaintances. Mr FitzPatrick recounted to the UK’s Daily Telegraph back in 2002 how he and his wife Triona had spent one of their recent evenings attending a play in Dublin with O’Connor and his wife, Vera.

No doubt FitzPatrick tried to imbue O’Connor with some insight into Anglo Irish Bank.

Maybe he just didn’t listen.

http://www.telegraph.co.uk/finance/2835628/Early-starts-and-busy-days-achieve-the-right-results.html

http://online.wsj.com/article/BT-CO-20090121-708628.html

http://www.rte.ie/business/2009/0121/financial.html