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ECB Bank Lending A Safe Bet - Borrow Cheap Lend For More But Irish Banks Still Manage To Fail Like Clockwork. Why?


YouKnowWhatIMeanLike

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ECB Bank Lending A Safe Bet - Borrow Cheap Lend For More But Irish Banks Still Manage To Fail Like Clockwork. Why?

Irish banks get access to cheap money from the ECB at historically low interest rates. Their entire existence is based on lending this money to their customers at a higher rate. This is a safe bet but Irish banks still manage to fail like clockwork to be profitable. How can this be? This is incomprehensible. What's going on in Irish banks? What am I missing?

Current ECB lending rate stands at 0.75% and mortgages go for around 4.5%. Leaves Irish banks with 3.75% a whapping profit for almost no productive work.
 

IbrahaimMohamad

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Loan oft doth lose both itself and friend!

If some who borrow do not pay the loan back then those who do pay will have to pay too to pay for those who do not!
 
D

Deleted member 17573

Irish banks get access to cheap money from the ECB at historically low interest rates. Their entire existence is based on lending this money to their customers at a higher rate. This is a safe bet but Irish banks still manage to fail like clockwork to be profitable. How can this be? This is incomprehensible. What's going on in Irish banks? What am I missing?

Current ECB lending rate stands at 0.75% and mortgages go for around 4.5%. Leaves Irish banks with 3.75% a whapping profit for almost no productive work.
My attention was first drawn to this when the ECB printed, I think a half a trillion last year, and loaned it to commercial banks who then used it to buy sovereign bonds at 4 or 5%. Why was the money not loaned direct to the sovereigns at the reduced rate. Would this be considered normal practice or was this another hidden bank bailout?
 

Taxi Driver

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Irish banks get access to cheap money from the ECB at historically low interest rates. Their entire existence is based on lending this money to their customers at a higher rate. This is a safe bet but Irish banks still manage to fail like clockwork to be profitable. How can this be? This is incomprehensible. What's going on in Irish banks? What am I missing?

Current ECB lending rate stands at 0.75% and mortgages go for around 4.5%. Leaves Irish banks with 3.75% a whapping profit for almost no productive work.
Most of the mortgages are typically low-cost tracker mortgages at ECB +1% of lower. Also most of the money doesn't come from the ECB.

Today PTSB has published its annual report. In 2012 the interest figures are:

Payable: €1,065 million
Receiveable: €1,200 million

There is no way they can run a profitable bank with a net interest income of €135 million. Their admin and pay bill is €261 million.

PTSB has around €40 billion of funding. Of that €10 billion comes from the ECB. The rest mainly comes from customer deposits (€17 billion) , interbank deposits (€4 billion)and bonds (€7 billion).
 

IbrahaimMohamad

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Irish banks get access to cheap money from the ECB at historically low interest rates. Their entire existence is based on lending this money to their customers at a higher rate. This is a safe bet but Irish banks still manage to fail like clockwork to be profitable. How can this be? This is incomprehensible. What's going on in Irish banks? What am I missing?

Current ECB lending rate stands at 0.75% and mortgages go for around 4.5%. Leaves Irish banks with 3.75% a whapping profit for almost no productive work.
What about banks operating costs in your calculations?
What about their bad loans?
 

Iarmuid

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My attention was first drawn to this when the ECB printed, I think a half a trillion last year, and loaned it to commercial banks who then used it to buy sovereign bonds at 4 or 5%. Why was the money not loaned direct to the sovereigns at the reduced rate. Would this be considered normal practice or was this another hidden bank bailout?
You should check out what the FED have been up to. Yes this is a bailout of the banking system. In the case of US, because they are defacto reserve currency, countries around the world are paying for that particular bailout. Check commodity prices post 2008, driven up, by cheap Fed funds, lent to investment banks (not just US).
 

YouKnowWhatIMeanLike

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Most of the mortgages are typically low-cost tracker mortgages at ECB +1% of lower. Also most of the money doesn't come from the ECB.

Today PTSB has published its annual report. In 2012 the interest figures are:

Payable: €1,065 million
Receiveable: €1,200 million

There is no way they can run a profitable bank with a net interest income of €135 million. Their admin and pay bill is €261 million.

PTSB has around €40 billion of funding. Of that €10 billion comes from the ECB. The rest mainly comes from customer deposits (€17 billion) , interbank deposits (€4 billion)and bonds (€7 billion).
that's a profit of 11.25% not too shabby. they would need a profit of around 25% to be sustainable. they have two options. double receiveables or seize business. what's considered to be a healthy admin and pay bill for a bank in terms overall size of a bank?

Does PTSB still have around 5000 employees?
 

ibis

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that's a profit of 11.25% not too shabby. they would need a profit of around 25% to be sustainable. they have two options. double receiveables or seize business. what's considered to be a healthy admin and pay bill for a bank in terms overall size of a bank?

Does PTSB still have around 5000 employees?
It's not a profit. It's what they make on interest, and then they have a wage bill of €260 million:

There is no way they can run a profitable bank with a net interest income of €135 million. Their admin and pay bill is €261 million.
 

goosebump

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Irish banks get access to cheap money from the ECB at historically low interest rates. Their entire existence is based on lending this money to their customers at a higher rate. This is a safe bet but Irish banks still manage to fail like clockwork to be profitable. How can this be? This is incomprehensible. What's going on in Irish banks? What am I missing?

Current ECB lending rate stands at 0.75% and mortgages go for around 4.5%. Leaves Irish banks with 3.75% a whapping profit for almost no productive work.
This was already explained to you on a separate thread.

Banks borrow at 0.75% to finance day to day operations. Typically, funds borrowed at this rate are repayable within 30 days.

Mortgages/Loans are financed with long term financial instruments like bonds, on which a significantly higher interest rate is payable.
 
D

Deleted member 17573

This was already explained to you on a separate thread.

Banks borrow at 0.75% to finance day to day operations. Typically, funds borrowed at this rate are repayable within 30 days.

Mortgages/Loans are financed with long term financial instruments like bonds, on which a significantly higher interest rate is payable.
Ibis subsequently stated on the other thread that they simply roll over these loans and can end up with the low rate on an on-going basis.
 

Watcher2

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Irish banks get access to cheap money from the ECB at historically low interest rates. Their entire existence is based on lending this money to their customers at a higher rate. This is a safe bet but Irish banks still manage to fail like clockwork to be profitable. How can this be? This is incomprehensible. What's going on in Irish banks? What am I missing?

Current ECB lending rate stands at 0.75% and mortgages go for around 4.5%. Leaves Irish banks with 3.75% a whapping profit for almost no productive work.
Mortgages are not the only product they have either. What's the rate for car and personal loans, the rate for commercial loans, overdrafts, credit cards etc. all rates above mortgage rates. But they carry heavy losses from not performing loans. And don't they have massive losses to carry forward? My technical knowledge of accounting is fairly poor.
 

Ribeye

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This was already explained to you on a separate thread.

Banks borrow at 0.75% to finance day to day operations. Typically, funds borrowed at this rate are repayable within 30 days.

Mortgages/Loans are financed with long term financial instruments like bonds, on which a significantly higher interest rate is payable.
That's just not true,

The bank's business model is borrow short and lend long,

This is a very clever business model, right up to the point where you inevitably go bust;)
 

SPN

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Irish banks still manage to fail like clockwork to be profitable. How can this be? This is incomprehensible. What's going on in Irish banks? What am I missing?
Most, if not all, of the Irish banks make a trading profit (despite their problems with losses on tracker mortgages).

The failure to be profitable you refer to comes when they write down the value of assets on their balance sheets. This is a seperate process to the trading profits.




that's a profit of 11.25% not too shabby.
A profit of 11.25% on what?
 

YouKnowWhatIMeanLike

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Most, if not all, of the Irish banks make a trading profit (despite their problems with losses on tracker mortgages).

The failure to be profitable you refer to comes when they write down the value of assets on their balance sheets. This is a seperate process to the trading profits.






A profit of 11.25% on what?
on payable.
 
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