JP Morgan Says Ireland Is Not Another Iceland

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The Irish banks still need more capital but the crisis isn’t as dire as the credit default swap pricing implies, JP Morgan’s bond analysts have said. The country remains “remarkably strong,” and the Irish government has been able to raise tens of billions in new debt at prices far lower than the CDS spreads would imply. That should mean that Ireland can bail out its banks.

From the Independent:

JP Morgan bond analysts pointed out in a note to clients this week, seen by the Irish Independent, that many other eurozone countries “have significantly worse public sector debt to gross domestic product (GDP) ratios”.

In a worst-case scenario, the analysts, led by Christian Leukers, see the country’s indigenous lenders writing off €26.9bn of bad loans over the coming years.

This would require a further €12.9bn of capital injections, in addition to the €7bn being pumped into Allied Irish Banks and Bank of Ireland….

“The €7bn used to recapitalise BoI and AIB has been sourced from the Government-run pension fund, which has circa €16.5bn of assets.

“While further support for the banks is likely to require external funding, we think this is likely to be costly, rather than impossible,” the analysts said.

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