EBS to tap markets for €700m as losses hit €250m
Published 22/09/2010 | 05:00
EBS is preparing to tap debt markets for between €500m and €700m before the end of the year, the Irish Independent has learned.
The news comes after the building society revealed pre-tax losses of almost €250m for the first half of the year as soaring impairment charges battered the bottom line.
But chief executive Fergus Murphy yesterday insisted EBS was "on the path to viability", pointing out that operating profits would have come in at €25.6m if not for the write-offs.
EBS is expected to try to sell that profitability story to the markets over the coming months as it tries to garner support for a €500m to €700m bond programme.
Sources yesterday confirmed that the building society will wait for a major player, most likely Bank of Ireland, to test out the funding markets before launching its own programme "by the end of the year".
Its latest accounts show its balance sheet is already improving, with customer deposits jumping by €570m in the half-year and reliance on Central Bank money falling back by 16pc.
That progress was almost totally overshadowed by the impairment charges suffered in the first half of the year. "In total we had to make €275m of provisions, that's a very big number," said Mr Murphy, describing the half-year as "very challenging".
Almost €52m of the charges stemmed from loans that have already gone across to the National Assets Management Agency at a discount of 37.8pc.
Another €104.8m of provisions was taken on loans that are due to be transferred to NAMA over the coming months and have been marked down by about 38pc in advance. The remaining €118m was made up of a €77m charge on EBS's residential mortgage book and a €41m charge on its commercial loan book.
Mr Murphy said he believed impairments would "peak" in 2010. "We're taking provisions now that reflect a stimulated economy that's worse than the economy will be," he said.
The pressure of those impairments was exacerbated by higher funding costs which triggered drops in half-year income in the society's net interest margin, a crucial measure of profitability.
Income for the six months came in at €70.8m, down 14.3pc year-on-year, while the net interest margin fell to 50 basis points or 0.5pc against 70 basis points a year earlier.
The biggest drag on the net interest margin was the higher cost of retail funding, which chipped 23 basis points off the society's interest margins.
Despite offering some of the highest deposit rates in the country, Mr Murphy insisted that the state-owned EBS was not "distorting the market".
"We're trying to bring that premium [for deposits] down as much as possible," the chief executive added.
The other drags on the net interest margin were the higher costs of wholesale funding and the Government's new bank guarantee scheme.
Those pressures were partly offset by an increase in lending margins on foot of recent mortgage rate hikes.
EBS is targeting a net interest margin of 120 basis points by 2014, Mr Murphy said. The figures for the second half of 2010 would include the benefit of the bank's August mortgage rate hike.
Beyond that, improvements are likely to come from lower funding costs. EBS has also been reducing its cost base, with overall costs falling by 4.8pc in the first half.
Deposits up at State-owned lender 'on path to viability'