Irish banks are finally gearing up to move against property developers and put them into receivership or liquidation.
Davy Stockbrokers analyst Scott Rankin told the Sunday Tribune last week that "we have reached the breaking point, it would appear" because there is "no cash flow in the market".
Rankin said the decision by Bank of Ireland and Eugene Sheehy's Allied Irish Bank to rachet up their bad debt guidance signaled they were ready to take action against developers who were in default.
Rankin's analysis was backed by a senior property figure who is involved in attempted restructuring with developers.
"It is worth pointing out that despite the Irish financial index being down 98% from its peak … not one of the top property developers in the Republic of Ireland has yet to go under (we are ignoring Taggart, who was based in Derry). Plainly this is going to change," Rankin wrote in a note circulated to clients by Davy last week.
"Moreover, what has 'Ireland Inc' gained from a continuation of this 'phoney world', where we have no price discovery and those in the construction/property game worry about who is solvent and who is not?" he added. "Ironically, when this happens, it will make the government's job of selling to the public what needs to be done that much easier — we may even experience some form of catharsis."
Residential developers have been slashing the price of new homes in recent weeks, often by as much as 50% as they seek to raise cash for working capital and debt payments.
One major developer told the Sunday Tribune last week that instead of putting developers into liquidation or examinership, the banks will instead do deals to write off debt. "If they move against one of us, they have to move against all of us. There are few if any developers with money," he said.
Another leading developer is already understood to be offering his creditors 40c for every euro of debt he owes. He is expected to make the same offer to the banks.
The bank with the largest exposure to property and development lending is Anglo Irish, followed by AIB and then Bank of Ireland. According to its most recent figures Anglo Irish had over 80% of its loan book exposed to property and construction loans in its last fiscal year. However Bank of Ireland has exposure to some of the largest developers in the country and it regularly circulated testimonials from major property developers when seeking business in the last two years.
The Sunday Tribune has reported on attempts by distressed debt companies to hatch deals with the Irish banks, but so far these exploratory talks have gone nowhere. Overseas companies maintain that Irish banks are still not being "realistic" about the market value of sites and commercial property developments.