Richard Curran: Banks' demise is double trouble
THE post-crash banking sector is shrinking in the worst possible way for Irish consumers and businesses.
The effective withdrawal from personal and business banking by ACC and Danske Bank were a double hammer blow in the past 10 days. Some respite came with the news that Ulster Bank is to stick around, but we should have no illusions about just how weakened, cautious and defensive that bank will be in the future.
The big two of AIB and Bank of Ireland just got bigger, without doing anything. Consumers, as taxpayers, have a genuine financial stake in seeing BoI and AIB succeed. We want our bailout money back.
But with these two banks holding an 80 per cent market share between them, competition has been annihilated. AIB has more than 50 per cent market share of new mortgages issued. There may not be that many, but it will grow.
We shouldn't be too surprised that ACC and Danske pulled the plug. Both lost their shirts here in the crash, and their foreign parent companies (Rabobank in the Netherlands and Danske in Denmark) can easily shut-up shop with the stroke of a pen.
Ulster Bank is more complicated. It is the biggest player north of the Border, number three in the South and its biggest shareholder is the British government. It had wider considerations, such as the impact a withdrawal would have on the island of Ireland banking market.
Thankfully, Ulster's parent, RBS, was bailed-out by the British taxpayer. If it hadn't been, a similar stroke of a pen exercise could have happened there also, given that it, Ulster, lost billions in the crash. The Ulster decision was about politics as much as economics. Staying in Ireland was a clear affirmation of the bank's position in the crosshairs of the island of Ireland economy, rather than a vote of confidence in our economic recovery.
The big two will hold on to 80 per cent of the market. As things pick up in the economy in the years ahead, we may see smaller specialist operators come in. Other factors will nibble away at what they do, such as growth in the payments business by technology giants, or the likes of Tesco offering more financial services. Others will probably come in and compete for deposits.
AIB and BoI will probably see their collective market share fluctuate between 75 per cent and 85 per cent of the domestic banking market. The mythological Irish banking third force remains as illusive as ever. PTSB is struggling. KBC is active but small.
Credit unions have had their own difficulties, but now remain firmly under the cosh of the Central Bank, which is re-shaping the sector in a bizarre financial experiment. ACC Bank, set up in the 1920s as a cornerstone of Free State agricultural policy, is gone. ICC Bank, a major plank of industrial policy under FF in the 1930s, is also gone. Both lost their way by excessive lending to developers.
The last week has shown how foreign-owned banks can be wiped out with the stroke of a pen at a head office in Copenhagen, Brussels or wherever. Danske Bank got a new CEO in recent weeks, and a Danish banking inquiry highlighted the risks Danske's boom-year activities in Ireland had placed on the entire Danish financial system.
Wider considerations come into play where the State has a role or banks remain Irish-controlled.
Bank of Ireland will be ripe for takeover in about two years, while AIB is likely to re-float on the stock market in about two years, which will see the State reduce its shareholding, similar to what happened with the Royal Mail flotation in recent weeks.
If both of these banks end up foreign-owned, and the state is incapable of helping to develop a new banking alternative, consumers and business borrowers will lose out.