Shrewd banks spurned developers
Institutions which held nerve avoid State control
AS the banking sector absorbs further shocks, it is easy to forget that two national lenders have performed reasonably well.
Irish Life & Permanent remains completely outside State hands while Bank of Ireland is a third owned by the State, an ownership level that is lower than any of its rivals who have gone into the National Asset Management Agency.
Yesterday, Bank of Ireland shed further light on the state of its developer loans, admitting that NAMA will pay even less than expected for the rest of the bank's loans.
The discount on the remaining loans to be bought by NAMA will be 42pc -- a staggering discount but significantly less than the 60pc discount which NAMA will impose on the rest of AIB's loans.
The Financial Regulator also confirmed that Bank of Ireland has sufficient capital to meet various international standards -- news that pushed the shares up almost 10pc to close at 62c yesterday and bolstered the bank's stock market valuation to six times that of Allied Irish.
Where did it go right? Perhaps the simplest answer is that these banks did not lend to developers to the same degree as their rivals.
There is a fairly close correlation between how much was lent to developers and how much independence any lender now has.
Allied Irish went on a lending binge to catch up with Anglo and Irish Nationwide during the second half of the decade as did the EBS. All four are now State controlled.
Bank of Ireland was more cautious. This required nerve. As the decade progressed, shares in Allied Irish outperformed Bank of Ireland and Irish Life, turning Allied Irish into the country's biggest bank and ensuring that those executives paid by share options earned more than their counterparts in the other lenders.
Irish Life is primarily a lender to homeowners and had the good sense or luck to remain that way. Both the EBS and Nationwide were seduced when the builders came knocking and destroyed in the process.
There is no easy explanation for why Bank of Ireland held back when Allied Irish and Anglo Irish stampeded towards oblivion. Corporate culture is probably part of the answer. Bank of Ireland has several centuries of experience and has survived many wars and regime changes while AIB is a relative newcomer to banking and an amalgam of cultures from the merger of provincial banks.
Bank of Ireland also reacted better to the crisis than its rivals. There was less denial, fewer broken promises, and better communication with the Government and the public.
One example of this was the way the two rivals replaced their chief executives. Bank of Ireland was calm, quick and successful. Allied Irish announced Eugene Sheehy's departure, and spent months looking for a successor. It then became involved in a spat with its largest shareholder, the Government, over the appointment which damaged the bank's credibility.