A US FINANCIAL expert in restructuring troubled banks has said the Government should consider propping up land values and that solving the banking crisis was essential for economic recovery.
Ron Greenspan, a senior managing director of US firm FTI Consulting, said the Irish banks had to be “candid about the magnitude of their losses” which, he said, was going to be “very costly”.
He told The Irish Timesthat there was "no magic bullet" to solve the crisis, but there needed to be "better communication" as governments would have to invest further into the banking sector.
“If the Irish banks really do have to take a 7 per cent loss on their assets, then that means all their capital will wiped out,” he said.
“They have been too optimistic on some expectations so far.”
FTI, which has worked on the restructuring of troubled financial institutions such as AIG, Washington Mutual and Northern Rock, has been retained by the Irish-led Mallabraca consortium of international private-equity firms, which has expressed an interest in buying into the Irish banks.
Mr Greenspan declined to comment on FTI’s dealings with Mallabraca. Meetings took place this week between representatives of Mallabraca and FTI executives.
Mr Greenspan advised on the first private investment into distressed Japanese bank debt, by the country’s then biggest lender, Bank of Tokyo. US private-equity firm, Lone Star, was the buyer.
He said there were buyers for impaired Irish property loans and development land, but until the banks’ capital reserves improved, the lack of bank lending would depress the value of these assets.
“There are numerous buyers for these assets at the right price, but there is very little, if any, financing for these assets, which means that the equity component is so much higher that it has depressed the value of these assets,” he said.
FTI has recommended the creation of a “clearing house” or public exchange for transferring distressed assets, and that the Government should distinguish between assets worth keeping for the long-term and assets which have a social and economic value for the short-term. Mr Greenspan said that impaired bank assets in Ireland were easier to deal with than the toxic assets weighing down the international banks because they were “tangible” assets, but it would take time to address them.
“Not only is there the difference between the higher developmental value and the agricultural value [on land banks], but the period of time needed to absorb that due to slower demand is stretched out.”
Mr Greenspan said that bank assets described as toxic were essentially losses on loans that had not yet been addressed.
He said fixing the banks was essential to economic recovery.
“You are not going to have economic growth unless you have a proper, working banking system.”
