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A good proportion of the assets that NAMA is going to be acquiring are based overseas, the largest location being the UK. Now some commentators are talking up the positive news that the UK housing market has shown signs in the last few months of stabilising. The not so slight problem with this angle is that Sterling has declined against the Euro. So those assets will need to gain back the drop in Sterling versus the Euro before they would even start on the road to breaking for us.
Sad but true.
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That’s assuming Anglo borrowed euros to finance these loans – if they borrowed sterling, or hedged in some way wouldn’t it cancel out?
I’m winging it here, don’t know whether it is the case or not, but it would seems odd to me that even if Anglo had avoided Nama and nationalisation they would be facing the same burn from the currency change. I can’t see how banks would leave themselves open to losing gazillions on good loans because of currency changes.
I think you meant that Anglo lent in Euros, rather than borrowed but I’m not sure. I’m looking at this from the perspective that those who borrowed from Anglo in Euros and others and then spent in Sterling would be down on their deals purely due to the currency shift. Of course, it is possible and likely in a lot of cases that it was subsidiaries of the Irish banks who operate abroad might have done the lending so they would have lent in sterling, but from where did they get that sterling to be able to lend it was it backed by undertakings from the Irish operation or deposits in the UK?
Hedging doesn’t completely eliminate the downside due to currency shifts it merely reduces it. Otherwise you could hedge both sides and win all the time. And if you were interested in from where would you get the cash to hedge? You could buy insurance on that basis of course.
It doesn’t hang true for me. Currency risk is as old as the hills and I can’t see any way that exchange rate fluctuations which are inevitable would be acceptable to either borrower or lender. One or other side has got to be handling that risk by some means