NIB results pile more pressure on the banks
JUST when it seemed as if things couldn't get any worse for the Irish banks, they do. This week's catastrophic results from NIB and the mounting problems of the Spanish banks indicate that, far from "turning the corner", the Irish banks are still locked in a downward spiral.
Even to seasoned bank watchers, the NIB result came as a shock. After writing off €228m of bad loans in 2008, NIB wrote off a further €704m in 2009. This means that NIB has written off €931m of bad loans, almost 9 per cent of its total loan book.
By comparison, AIB expects to write off €7.1bn in the two years to the end of 2009; while Bank of Ireland anticipates total writedowns of €6.9bn in the three years to the end of March 2011. These writedowns represent 5.3 per cent of AIB's total loan book and 5 per cent of Bank of Ireland's loan book.
However, if the NIB standard were applied, AIB's total loan losses would jump by almost 70 per cent to €12bn while Bank of Ireland's loan losses would almost double to nearly €13bn.
At the same time as the NIB results were pointing to more trouble on the home front, the long-awaited Spanish banking crisis seems to be coming to a head. Last week, BBVA, the second largest bank, announced an 86 per cent increase in full-year loan-loss provisions to €5.5bn, with fourth-quarter loan losses pushing the bank into the red in the final quarter of 2009.
This week Santander, the biggest Spanish bank, published its annual results, which showed a 44 per cent increase in loan-loss provisions to €9.5bn last year.
A combination of deteriorating internal and external environments explains why the share prices of both AIB and Bank of Ireland continued to weaken this week. The AIB share price is now down to just €1.09 while the Bank of Ireland share price now stands at €1.13. Since their late September peaks, the AIB and Bank of Ireland share prices have both fallen by two-thirds.
All of which means that the pressure on Nama to adopt a hard line when determining the discount it will demand from the Irish-owned banks on their bad loans will increase.
Add it all up and it's clear that both AIB and Bank of Ireland are going to need more capital. Lots more. As things stand, that extra capital can only come from the State. So, regardless of his feelings on the matter, Brian Lenihan is going to end up owning both of the major Irish banks sooner rather than later.