BoI considers partial exit from guarantee as costs escalate
Published 09/09/2010 | 05:00
BANK of Ireland is considering migrating some of its €50bn short-term corporate deposits out of the state guarantee scheme at the end of the month, even though the support has been extended until December 30.
The bank's deliberations come amid concerns about the cost of the extended guarantee, with brokers NCB yesterday warning that the premium demanded "has the potential to materially erode earnings for Irish banks".
Institutions will have to pay the State a premium of between 70 and 90 basis points (or between 0.7pc and 0.9pc) of the amounts covered by the scheme, up from the 10-15pc premium in force now.
Bank of Ireland (BoI) chief executive Richie Boucher recently committed his bank to "disengaging" from bank guarantees, and market sources last night said that the bank was "likely" not to make full use of this week's extension.
"Bank of Ireland is probably in the best position to get deposits without the guarantee since it has already done its recapitalisation," said one market source, pointing to the €2.9bn raised by the bank earlier in the year.
Sources close to the bank confirmed that it was exploring the potential of not bringing its entire €50bn corporate debt pile into the guarantee in a bid to minimise cost.
The most likely option is to offer more attractive interest rates on unguaranteed deposits. But sources stressed that markets remained fluid, particularly in light of this week's develop- ments on Anglo Irish Bank and the guarantee extension.
Irish Life & Permanent has also publicly confirmed its plans to wean itself off the guarantees, but the bancassurer yesterday hinted it would use the latest extension for all €5bn of its corporate deposits.
While NCB warned of the potential cost of the extension, other analysts pointed out that if banks opted out of the guarantee and then lost deposits, that funding would probably have to be replaced on the wholesale markets, at a cost.
"It's cost-neutral really," said one. "You either pay for the guarantee, or you pay the market for the funding."
Goodbody said that the outflow of deposits expected to be triggered by the guarantee expiring in September "in theory should now likely drift to 2011".