Tuesday 23 May 2017

Banker beggars can't be choosers

THE reports that Bank of Ireland had succeeded in raising €1.1bn of fresh capital by selling new shares to a group of North American investors was the first good news to emerge from our embattled banking sector since Irish bank shares peaked in spring 2007.

While it could be argued that the investors are buying in at fire-sale prices, beggars are not in a position to be choosers.

Under the terms of the deal announced last week, the investors will end up with a cumulative 34.9 per cent stake in BoI. The two biggest investors are the Canadian investment firm Fairfax Financial Holdings and American outfit WL Ross & Co, which had previously tried to buy EBS. Each will end up with nine per cent of the bank.

Meanwhile, the State holding in BoI will shrink from 36 per cent to just 15.1 per cent. The deal almost certainly ensures it will be the only Irish-owned bank to avoid majority State ownership.

AIB has not been so lucky. Its need to tap the Government for even more fresh equity means that the State shareholding has now climbed to 99.8 per cent, up from "only" 93.1 per cent previously. Irish Life & Permanent also joined AIB in the 99 per cent club this week when the Government secured a High Court order allowing it to inject up to €2.7bn of fresh capital into the broken bancassurer.

The half-year results from AIB, which were also published last week, reveal that the situation is continuing to worsen at what was once Ireland's largest bank, with loan losses of €2.9bn recorded in the first six months of the year, up from €2.2bn for the same period of 2010. Even worse is the fact that the quality of AIB's loan books is continuing to deteriorate, with 34 per cent of its non-Nama loans falling into the "criticised" category at the end of June 2011, up from 29.2 per cent at the end of December 2010.

In other words, even after offloading the guts of €20bn of bad loans to builders and property developers to Nama, more maggots are crawling out of the woodwork at AIB.

So congratulations to Bank of Ireland on securing major private investment. Judging by its present form it will be a long time before anyone but the unfortunate taxpayer will be persuaded to put a red cent into AIB.

Sunday Indo Business

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