Ireland’s wilting personal wealth

The nest-egg of the average Irish household has declined by 42% from €95,022 in 2006 to €55,113 at the end of 2008.

This downturn is reflected in the financial assets owned by the households of Ireland. Net financial assets fell by €36.1 billion to €81.2 billion in 2008.

The Central Statistics Office has just issued a balance sheet of net financial assets for 2008 and this reveals the following downward trend:

 

€ Billion	2005	2006	2007	2008
Financial Assets, Jan 1	234.3	269.0	307.8	308.3
Net acquisitions	18.2	13.1	10.6	8.9
Valuation changes	16.4	25.8	-10.1	-34.7
Financial assets, Dec 31	269.0	307.8	308.3	282.5
Liabilities, 1 Jan	110.3	140.1	167.9	191
New borrowing	29.9	27.8	23.2	10.5
Valuation changes	0	0	-0.2	-0.1
Liabilities, 31 Dec	140.1	167.9	191.4	201.4
Net financial assets, 1 Jan	124.1	128.8	139.9	117.1
+ financial transactions	-11.7	-14.8	-12.6	-1.7
+valuations changes	16.4	25.8	-10.0	-34.4
Net financial assets, 31 Dec	128.8	139.9	117.3	81.2

Financial assets include deposits, shares and securities other than shares, life insurance and pensions, accounts receivable and liabilities comprise mainly loans, both short and long-term.

The decline in new borrowing from €23.2 billion in 2007 to €10.5 billion last year is both a reflection of the credit crunch and a decline in the demand for mortgages.  The main cause in the decline in personal wealth is the collapse in the valuation of financial assets in 2007 and 2008.

The 2006 Census of Irish Population indicated that there were 1,473,345 occupied houses in Ireland, an average of 2.81 persons per household. There were a further 296,000 vacant houses and apartments, including 50,000 holiday homes.

Residential construction was one of the major sources of taxation during the boom. The residential sector alone yielded over €1 billion in 2006 and 2007 but the total anticipated yield from stamp duties in 2009 is only €980 million.

The Irish economy is suffering the catastrophic consequences of a property bubble funded by Irish banks who raised the wherewithal on wholesale markets in Ireland and elsewhere.  The economy has been in damage-limitation mode since last Autumn.  The first initiative was the State guarantee of customer deposits, (or bank liabilities).  Ireland, I believe was the first of many countries to make this move last September.  The second step has been the recapitalisation of the banks using the resources of the National Pension Reserve Fund for this purpose.  The third initiative has been the establishment of a ‘bad bank’, the National Asset Management Agency.  A review of the banking sector is outstanding both in terms of its fitness for purpose, regulation and scope of activities.  Some consolidation is anticipated together with the removal of reckless and  incompetent bankers.  The sector has all the characteristics of a dysfunctional family for the time being with grandparents taking over parenting duties.  Old geysers, who have been retired for years are turning up in board rooms, some of whom never worked in the sector and who know as much about banking as I do about high-end prostitution!