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Cue “Jaws” music: Bank of Ireland posts huge Q1 losses

That’s all we need now, our old friends the Banks coming with the begging bowl. Which they will be, if things continue in this vein:

Bank of Ireland slid into a loss in the first quarter as the Covid-19 crisis led to the group taking a €266 million loan impairment charge and racking up an additional €155 million hit as stock and bond market volatility affected its wealth and insurance business and financial assets.

The combined €421 million impact resulted in the bank posting an underlying pre-tax loss of €235 million for the quarter, it said in a trading update on Monday.

Bank of Ireland has extended loan payment breaks to 86,000 customers in Ireland and Britain since the middle of March. While the lender has not yet seen a material increase in individual loans running into problems, it took a large impairment charge in anticipation of a surge in bad debt as the economy has deteriorated sharply in recent months.

That projects out, if things don’t improve for the rest of the year (a big “if”, of course) to a one-year loss of €920m.

To be fair, that’s absolute peanuts compared to what they lost in the financial crisis of 2008. So bad was the hammering that BOI took then that it required a second bailout of €5billion – in 2011. We’ve a long way to go to get to that level of pain, for now, anyway.

There are reasons to believe that it won’t be anywhere near as bad this time. For one thing, a good portion of those losses are surely related to the decision to suspend repayments for 86,000 mortgage customers – but those repayments will resume, or at least a majority of them will, later in the year.

For another thing, the recovery, if there is to be a recovery, will depend heavily on the availability of credit. People are going to need loans to get their businesses back up and running – especially in cash-intensive sectors like retail and hospitality where you need to purchase supplies for sale to the public.

Third, this crisis is not systemic and in the banking sector, like the last one was. This is a supercharged economic depression, not a banking system collapse. There’s no reason, for the moment anyway, to think that the underlying business of the bank and its competitors is not sound.

But there’s no guarantee that things will get better and not worse, either, which is why there is some cause for alarm.

For one thing, those 86,000 customers getting back to paying their mortgages assumes that they’re all going to be in a position to do that, and that they haven’t been especially hard hit with job losses and income reductions. After all, the whole reason for suspending repayments in the first place was the idea that people simply wouldn’t be able to afford to keep paying during the lockdown. It might well take a little longer than we thought for that to change, even when lockdown is lifted. And the banks will be under huge pressure (rightly!) to be gentle with customers given the circumstances. That means that the stream of mortgage income isn’t a sure thing, by any stretch of the imagination.

This is where the potential for huge public unrest comes in.

There are a lot of people in Ireland who are going to be jobless by the end of the year through absolutely no fault of their own. In fact, they will be jobless because of a decision made by the Government to close down their workplaces.

And if the banks start asking them for mortgage payments that they don’t have, with the blessing of the Government, then a lot of those people are going to be very angry, and you couldn’t blame them.

Which means, of course, that the Government will be under huge political pressure not to allow the banks to begin demanding money again.

And that, in turn, means more and continued losses for the banks. This is where the recession spirals out of control.

The thing is, somebody is going to have to pay for all of this. And the “somebody” is going to be you and me. We’re going to have to pay the Government’s bills, eventually, because we’re the main source of funding for the Government. We’re going to have to pay the bank’s bills, because we’re the main source of funding for the banks. And we’re going to have to pay those bills at the same time, and many of us will have to do it on greatly reduced incomes.

It really does make you wonder why Micheál Martin wants to be Taoiseach. My own theory is that he feels so guilty about Fianna Fáil’s role in the last recession that he wants to destroy it altogether, once and for all.

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