Friday 20 October 2017

BoI shares anomaly intrigued Anglo pair

David Drumm and (inset) John Bowe
David Drumm and (inset) John Bowe
Donal O'Donovan

Donal O'Donovan

ANGLO executives were right to wonder in July 2008 why it was that Bank of Ireland shares were being ditched by investors even faster than those of rival AIB.

The anomaly intrigued John Bowe and David Drumm during a conversation recorded at the time, in what was a rare break from their own self obsession as Anglo Irish Bank executives.

With the benefit of hindsight the pair were right to wonder what was going on. In 2008 it should have been clear to institutional investors and analysts that AIB was the weaker of the "big two".

Bank of Ireland was by no means in good shape – it had traditionally been the more straight laced of the main banks. It did not mean the bank had sat out the boom, just that it went into the crisis with fewer really bad loans.

From their conversation at the time it is clear that Mr Bowe knew Bank of Ireland was is in the best shape of all three banks in 2008 – less exposed to what he calls "every cowboy in town", meaning the big developer customers that were his own bank Anglo's speciality.

Mr Drumm wasn't convinced, and at the time the market was inclined to agree.

Looking back it was less that the market was wrong to see Bank of Ireland as damaged, so much as being wrong for missing just how battered AIB was.

In the months after the July conversation both big banks, and Anglo, would lurch from crisis to crisis. All three benefited hugely from the government guarantee at the end of September, but after that the differences would really start to show.

In October 2008, the then head of AIB Eugene Sheehy claimed his bank would rather "die than raise equity" – meaning go cap in hand to shareholders or the government for cash. But over the next three years the bank would soak up more than €20bn of taxpayers money, and end up being 99.9pc state owned.

Bank of Ireland needed less from taxpayers, but at €4.7bn, it still needed a lot. The bank did miss being nationalised in 2011 by attracting a consortium of US investors led by Wilbur Ross and Prem Watsa to buy 34pc of its shares. A rising share price over much of the last year has left those post-bailout investors sitting pretty.

Looking back it may be that the market missed an opportunity in relation to Bank of Ireland in 2008.

In the febrile atmosphere of mid to late 2008 it hardly mattered that one Irish bank was in better shape than another – let's face it, it really wasn't saying an awful lot.

Indeed it may well have been the case that the big international players who really move share prices didn't care enough about the difference between AIB and Bank of Ireland to really get under the bonnet of either bank – they were ditching both sets of shares because no matter what happened, the coming years were going to be devastating for all the banks here. And so it proved.

Irish Independent

Also in Business