Posted: Wednesday August 11 2010, Blog Tags:
Actually it's just news as to even describe it as being 'bad news' would probably be wildly optimistic. This week National Irish Bank and Bank of Ireland report what can only be described as massive losses at the same time as the level of Government funding hits €24 Billion (surpassing evening the Goverment's own worst case scenarios). Read on to see these sobering accounts.
NIB loan losses hit €367m as it faces into tough year. But parent company Danske predicts bank can return to profit by 2012
NATIONAL Irish Bank yesterday admitted 2010 was shaping up to be "just as bad" as 2009, which the bank dubbed "possibly the worst year in Irish banking history".
But parent company Danske Bank struck a brighter note, suggesting its Irish offshoot could return to profit by 2012 reversing the massive losses of the last 18 months.
The commentary came as National Irish Bank (NIB) unveiled another €367m of loan impairments in the half-year to June, down only marginally on the €371m bad loan hit taken in the same period a year earlier.
"It's probably just as bad as last year," NIB deputy chief executive Kevin Gallen said yesterday, reflecting on the 2010 conditions.
"We'd be very cautious in terms of calling a peak in impairments ... the issue is that property prices continue to fall."
Troubled commercial property loans made up "more than 80pc" of the latest round of mark-downs, with most of the remainder taken up by "other commercial loans", mirroring NIB's experience in 2009.
Some analysts suggested the harshness of the latest markdowns might have been prompted by the 50pc haircuts applied by the National Asset Management Agency (Nama) to troubled loans transferred by domestic banks.
"Nama has been a factor but we have to take our own independent view on a case-by-case basis," Mr Gallen stressed, pointing out that NIB had been proactive on write-downs since the crash begun.
While NIB's business banking has been hit by hefty write-downs, Mr Gallen said his bank's mortgage lending had "held up well" with just 250 of its 20,000 policies in arrears.
Mortgages make up €3.6bn of NIB's €10bn book, with the bank focusing heavily on the "upper end" of the market. NIB yesterday confirmed it had "no plans" to follow competitors who've recently increased mortgage rates.
The commitment to hold mortgage rates came despite a 32pc fall in NIB's operating profit over the first half, as high deposit rates and low lending rates squeezed margins.
Mr Gallen said NIB was able to hold mortgage rates steady because it was a branch of Danske and was "very well funded".
"We don't have the same challenges the other Irish banks have regarding the cost of funding," he stressed. He added that NIB expects "pressure on the operating line to continue for the rest of the year" as deposit interest rates remain high.
Last December NIB embarked on a restructuring plan that will see its headcount reduce by 25pc and branch numbers cut in half.
In a conference call, Danske Group chief executive Peter Staarp said the Irish unit could be profitable by 2012. That profitability would be a sharp turnaround from yesterday's pre-tax result, which showed losses of €341m for the first six months, identical to losses for the first half of 2009.
Despite those bruising losses, Danske yesterday insisted it was committed to the Irish market, with chief executive Andrew Healy (above) describing the Danish bank's support as "unflinching".
Some Irish analysts are unconvinced, with Davy's suggesting NIB's decision to end cash services at its branches "points towards a phased withdrawal from the country".
- Laura Noonan, Irish Independent
Bank of Ireland reports €1.24bn six month loss
Bank of Ireland suffered pre-tax losses of more than €1.246 billion in the six months to June, up from €668 million in the same period last year.
The country’s largest lender had a €466 million loss on loans transferred to the National Asset Management Agency (Nama) and made provisions for a further €466 million on assets due to be transferred to the agency.
It reported an impairment charge of €893 million on loans to customers it does not expected to transfer to Nama.
Analysts said the bank had exceeded expectations in an "epic" first half of the year. Stock in the bank was trading down 0.6 per cent this morning on reasonable volumes.
Bank of Ireland said its first half operating profit was €553 million before impairments, down 32 per cent on the same period last year.
It said significant progress was made in the first six months of the year in stabilising the group. Bank of Ireland raised €4.6 billion in funding in that period.
Chief executive Richie Boucher said the bank has the "capability" to move off reliance on the Government guarantee in a "measured, prudent" way. He said the bank is "keen" to move on refinancing.
"With the recapitalisation we've done, the EU endorsement of our (restructuring) plan, us passing the stress tests leaves us with the capability to seek to get off the guarantee," he said.
Bank of Ireland said it aimed gradually to pay back the state's €1.7 billion worth of preference shares in the next three years, although it said it had no control over the 36 percent stake the government owns in ordinary shares.
Mr Boucher said he "broadly" agrees with analysts' forecasts for pre-impairment operating profit in 2010, without detailing a figure. "We feel we have a significant degree of control over our own destiny".
“We are confident that the steps that we have taken in the first half of 2010 to strengthen the Group will enable us to successfully meet the many challenges ahead and position us well to capitalise on the opportunities that arise through a recovery in the economic conditions in our key operating markets in Ireland and the UK," he added.
Mr Boucher said he believed loan losses would reduce progressively in 2011 and 2012 and normalise in 2013.
He also said Bank of Ireland does not expect to sell its New Ireland and ICS Building Society units this year.
In a briefing note, Davy Stockbrokers said it had been an epic six months for the Bank of Ireland group and that the results were a positive sign that management was on top of the factors within the group's control, such as pension restructuring, the successful renegotiation of outsourcing contracts and plans to reduce staff numbers.
NCB switched its outlook for Bank of Ireland to buy saying its interim pre-provision profits remained resilient.
"Encouragingly margins remained relatively robust in the period, which was encouraging given the difficult funding environment," NCB said in a briefing note. "Overall these results are broadly in line with expectation. In common with peers the trend of margin erosion remains prevalent."
It said the interim margin (1.41 per cent) was above its estimates and pre-provision profits were €100m stronger.
"We await further details as to the group’s ability to issue term funding in the near future, with a potential unguaranteed deal likely to be a key catalyst for the stock."
- Steven Carroll, The Irish Times
Anglo funding may top EUR24bn
The total State aid that will be provided to Anglo Irish Bank is set to top €24 billion as a result of deeper discounts being applied to loans that it is transferring to the National Asset Management Agency (Nama).
This emerged yesterday as the European Commission gave its approval for the Government to provide up to €10.054 billion in temporary emergency State aid to Anglo Irish Bank on top of the €14.3 billion that has been approved to date.
This included an additional €1.4 billion sought by the Government recently to allow Anglo meet its regulatory capital requirements in light of increased costs associated with transferring loans to Nama.
A spokesman for the commission described this funding as a “buffer” for the bank. The Government estimated in March that it would provide €22.9 billion in State aid to Anglo.
But the steeper discounts being applied to the loans moving to Nama have resulted in the Government seeking permission from Brussels to provide yet more capital to Anglo.
Commission vice-president for competition Joaquin Almunia said the move was necessary to “preserve financial stability in Ireland”.
“However, there is no doubt that Anglo Irish Bank has to restructure profoundly in a way that effectively tackles the weaknesses of the past business model and ensures a sustainable future without continued State support,” Mr Almunia added.
News of the extra funding resulted in the premium investors demand to hold Irish bonds moving to its highest level in two weeks yesterday.
Anglo submitted a restructuring plan to the commission on May 31st and is awaiting approval. It has proposed splitting the bank into two entities – old Anglo and a good bank – with the good bank focusing on being a business lender.
A spokesman for the commission declined to comment yesterday on when the restructuring plan might be approved but it is understood that the bank hopes an agreement will be reached next month.
This is the third emergency recapitalisation of Anglo that has been approved by the commission.
In June 2009, it gave the green light for the Government to provide €4 billion to the State-owned bank.
In March 2010, it approved an additional €10.3 billion although the Government had sought to provide €10.44 billion to Anglo.
The two latest recapitalisations are being provided by way of promissory notes, or IOUs, in annual tranches over a decade or so.
Anglo is due to transfer about €36 billion to Nama although the final figure could be lower as some loans in the UK and the US are likely to be reclassified. A second tranche of loans totalling about €7.5 billion is currently being transferred to Nama.
Opposition parties yesterday accused the Government of providing consistently inaccurate information about the full cost of the Anglo bailout to taxpayers.
Fine Gael’s spokesman for economic planning Richard Bruton said Nama should cease purchasing loans from Anglo as the losses crystallised the need to pour more capital into the bank. “The taxpayer is being left carrying the can,” he said. “This bank is not going to lend anything to anyone in the future.”
Labour Party frontbencher Joe Costello said Anglo was proving to be Ireland’s “biggest money pit ever”.
He said the Government’s figures on the costs of Nama to the taxpayer had been “constantly inaccurate”.
Anglo will publish its interim accounts on August 31st
- Ciarán Hancock and Stephen Collins, The Irish Times