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Dissecting Irish Zombie Banks

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RGE Strategy View by Jennifer Kapila: The final quarter of 2010 looks quiet for most Irish banks, with the exception of Anglo Irish, which faces maturities totaling €1.6 billion. The balance sheets of the major banks have been sliced and diced to reflect transfers to NAMA, disposal groups and the longer-term continuing business. Market risk remains high, and near-term volatility will have a severe adverse effect on Irish names. Liquidity may be plentiful but margins are thin, interest-generating assets are shrinking and regulatory solvency is increasingly meaningless amid regulatory forbearance and regulatory change.

  • The macroeconomic backdrop for Irish banks is weak at best, with risks to the downside. RGE’s forecast for real GDP growth in 2011 is 1.3%, 1pp below the IMF’s WEO projections. Sovereign leverage remains high and unstable while policy tools are limited. Financial sector deleveraging will continue, placing downward pressure on available credit.
  • Liquidity is abundant but reliance on central banks is increasing. NAMA transfers permanently reduce the amount of refinancing obligations and the banks safely passed September’s refinancing hump.

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