Superwoman dealmaker advises on Irish banks
One of the most influential female dealmakers in the City of London, Henrietta Baldock of Merrill Lynch, is understood to be advising the Government on the future landscape of Irish banking.
As a pivotal player in Lloyds TSB's planned takeover of HBOS and close adviser to the embattled Royal Bank of Scotland boss Sir Fred Goodwin, Ms Baldock would be aware of two things that could open a can of worms for Irish banks.
Although Lloyds is reportedly seeking to renegotiate the HBOS deal in light of the latter's recent share slump, any transaction will involve the use of "fair value" accounting rules. This will force Lloyds to mark down to market value all the assets being bought -- including any impaired assets sitting on the book of HBOS's Irish unit, Bank of Scotland (Ireland).
Loan book
While only 8pc of BoSI's €32.4bn loan book was exposed to the troublesome residential development sector at the end of June, a fresh assessment of bad loans in this portfolio could force other Irish lenders to reassess their own ledgers.
Reports that Goodwin -- whom Ms Baldock advised on the purchases of First Active in 2003 and ABN Amro last year -- is facing pressure to step down is likely to be sending shivers through more boardrooms in Dublin than RBS's Ulster Bank.
"If Goodwin goes, it is likely that his successor will conduct a root and branch review of all operations and 'kitchen-sink' any credit weakness in the Ulster book," said one senior corporate financier.
While Irish banks have been willing to "roll with" builders' problems during the property downturn, rather than tighten the screws, the fear has long been that a big foreign lender could withdraw its support, creating a domino effect.
As Lloyds, HBOS and RBS have indicated they will tap the UK government's £50bn new recapitalisation scheme, they will be in a strong position to take large bad loans charges and wipe their slates clean.
Irish peers, whose liquidity issues have been addressed by the Government's €400bn guarantee scheme, do not have the same capital flexibility to take a large hit, according to analysts.
Observers
Corporate finance and banking observers believe Ms Baldock's team is continuing to work with the Government on a number of options, including potential tie-ups and ways for lenders to raise capital.
Bad loan losses factored in this week by JP Morgan for the three biggest lenders point to a combined capital shortfall of €7.6bn for Allied Irish Banks, Bank of Ireland and Anglo Irish Bank within the next two years.
A worst-case scenario implies the four big lenders would have to raise €14bn to maintain acceptable core tier one ratios -- a key gauge of a lender's financial stability -- as they write off 3.5pc of their loan books by 2010.
Many observers say the banking sector faces massive consolidation over the next 12 months.
"The Government is agitating to push through deals, but we would be resisting becoming a plaything as part of any grand scheme," said a banking source.
However, this does nothing to address capital issues, unless the Government is prepared to invest in the acquiring bank, or underwrite a rights issue.
Agenda
But waiting for Ms Baldock and the State to hatch a plan, or, indeed, a foreign bank to set the agenda, should not be an option for any of Ireland's banking bosses intent on emerging from the downturn in a strong position.
If dividends need to scrapped or assets and shares sold, first mover advantage counts for a lot in this type of market. The question is, who will be first out of the traps?
- Joe Brennan
