Business Irish

Friday 17 November 2017

Boss distances himself from the old regime

ONE would expect a bank executive announcing the largest loan loss in the history of Irish banking would approach the task with a certain amount of humility and regret.

But instead, Colm Doherty, in his first public outing at AIB managing director, projected a sense of defiance as he unveiled a set of numbers that even he admitted nobody in the bank was proud of.

Keen to present a fresh change of direction at the bank and escape its chequered past, Doherty found it difficult to draw a line under the record of his immediate predecessor Eugene Sheehy.

Announcing a staggering pre-tax loss of €2.6bn made it virtually impossible for Doherty to talk about anything but stabilising the bank and filling the gaping hole in its giant balance sheet, preferably with private capital and not a government hand-out.

Doherty was prepared to apologise for some things, but not for others. For example he was prepared to offer an apology for recent lending mistakes , but of course most of those occurred on the watch of Sheehy, rather than Doherty himself.

However there is a complication -- Doherty has been on the board of AIB since 2003 and as head of capital markets he would have been a powerful figure in that forum.

But to the surprise of many yesterday Doherty for the first time put distance between himself and the previous regime at AIB, led by Sheehy and chairman Dermot Gleeson.

Doherty said his views on AIB's dangerous exposures to the property sector were ''known at board level'' and he said the bank had been run on a ''silo'' basis, meaning that different divisions operated with different credit standards.

From this faltering structure emerged the bank's current woes, which includes ''criticised'' loans worth €38.2bn. These are loans either impaired, on watch or vulnerable.

The comments about the so-called ''silo'' bank were fascinating, hinting that the AIB board was split in recent years over the scale of its property lending and the potential dangers for asset quality.

But as they say, the past is a foreign country.

Doherty now has a bigger task to save the bank from the clutches of state control. Yesterday's figures, while broadly in line with market expectations do not make for pleasant reading in that context. Yes, the bank is still able to boast a chunky operating profit of €2.9bn, but this was somewhat flattered by a one-off pension benefit. It was utterly destroyed by the €5.3bn bad debt charge.

Still the bank is gradually and painfully working its way through the mountain of bad debts and the operating profit performance is bound to be attractive to a suitor at some stage in the future once the bank is adequately capitalised.

Doherty has been very frank about this.

''The reality of life is that we need capital," he said. ""I'm clear about what we need to do, and I'm about doing it in 2010."

While the bank's operating profit still rolls in, this is an insufficient selling point until the bank raises at least €4bn in fresh capital and M&T will only generate €900m of this and debt buybacks will only bring in about €620m say analysts.

This means that the bank's prized business in Poland will have to go, and probably at some kind of fire sale price.

The more assets the bank sells, the less the government stake will be of course, but at what cost? The Polish business is bringing in €309m a year and growing. It is in a very resilient market.

If it is sold purely to keep the State shareholding below a certain level, it will come at a cost, which is that AIB will become a small Irish bank again with few international aspirations.

Irish Independent

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