Dankse chief admits he paid too much for NIB in the boom
Published 05/02/2010 | 05:00
Peter Straarup, chief executive of Danske Bank, admitted yesterday that he overpaid for National Irish Bank (NIB) five years ago, as the bank unveiled a €661m pre-tax loss of 2009.
NIB has written down 9pc of its €10.2bn loan book over the past two years, with bad loan provisions for 2009 more than trebling on the year to €704m.
Mr Straarup, who led the €1.4bn acquisition of NIB and sister lender Northern Bank in 2005, yesterday told analysts: "I must acknowledge that we bought two banks at the peak of the business cycle in a geographic region that has since experienced an enormous economic downturn."
He added that the two banks "proved to be too expensive -- that is especially clear in the Republic of Ireland." Danske booked an almost €400m goodwill charge on NIB in 2008.
NIB recently announced a major retrenchment in the market, with plans to axe almost a quarter of its 634 jobs as it closes 25 of its 58 branches.
The bank was among the most aggressive at recognising bad loans from the outset of the financial and property crisis, as critics blamed domestic lenders for being behind the curve.
As such, NIB chief executive Andrew Healy noted that the group's new impairment provisions have steadily declined over the course of 2009, from about €200m in the first quarter to €160m for the last three months of the year.
"We hope to see that trend continue," he said.
The group's €3.3bn commercial property portfolio has been worst-hit. "We have taken a total impairment charge of 22pc of the book," said Mr Healy.
However, the €3.8bn mortgage book has proved more resilient than seen elsewhere, most likely as a result of the bank making a big play for attracting mortgages with low loans-to-value ratios following its re-launch in 2006.
Mr Healy said that 1.4pc of its homeloans are currently more than 90 days in arrears. This compares with the most recent residential mortgage-backed securities data, which suggests that an average of 3.3pc of Irish mortgages were in arrears at the end of November.
NIB's operating profit, before impairment charges, fell 42pc to €42m last year, as net interest and net fee income declined.
Deposits soared 25pc to €4.1bn. Mr Healy said that this was largely down to the strength of Danske Bank's balance sheet, rather than NIB "paying top dollar" to attract customers' money.
"We feel that some deposit rates in the market are excessive," he said.
NIB agreed last week to improve the redundancy package being offered to staff, in line with a Labour Relations Commission recommendation that it offer employees 7.25 weeks' pay for each year worked -- up to a maximum of 2.5 years of salary.
The group originally offered six weeks' pay for each year of service, up to a cap of two years' salary. It has also agreed not to reduce the pensions of staff over 55 years who are opting for an early retirement scheme.