THE SHEER scale of the cost of recapitalising the Irish banks, which reached €70 billion in March, has overshadowed the scale of the losses at the foreign-owned Irish banks, many of which dabbled as heavily in property.
The two British-owned banks, Lloyds and Royal Bank of Scotland – both respectively part or effectively nationalised – reported financial results earlier this month showing up-to-date figures for the carnage caused at their Irish units.
Lloyds had – over the duration of the financial crisis – taken provisions totalling £9 billion sterling (€10.2 billion) at what was Bank of Scotland (Ireland), which has shed its banking licence and is being run down by the management team as a company called Certus.
Total provisions taken by RBS against loans at its Irish subsidiary, Ulster Bank, totalled €8.6 billion over the same period.
Given the size of their respective loan books at the peak of the market, BoSI and Ulster Bank have cumulatively written off the equivalent of 32 per cent and 14 per cent of overall loans over the 30-month financial crisis.
Ulster Bank has received about €7 billion from RBS to cover the capital hole created by the losses, while BoSI has received almost €8 billion from its parent, Lloyds.
To put this in context, the two Irish subsidiaries have received about a third of the £37 billion (€47 billion) in capital made available by the British government to save RBS, HBOS and Lloyds at the peak of its crisis in the autumn of 2008.
The Irish banking crisis has been a heavy drain on the British exchequer. It is little wonder then that British chancellor George Osborne agreed to a £3.8 billion loan to the Government to complement the EU-IMF bailout last November. The British government has a vested interest in a recovery of the Irish economy as its banks have almost €100 billion of loan exposure in Ireland.
The fact BoSI is no longer operating as a bank will limit its capital call on parent Lloyds, as a wind-down company is not required to hold the same levels of regulatory capital as a bank.
In terms of capital injections, Anglo Irish Bank leads the field with a Government injection of €29.3 billion, with the possibility of this rising to €34.3 billion under a worst-case scenario. AIB is a not-too-distant second with €20.5 billion of fresh capital required to save the almost fully nationalised bank from oblivion.
However, when judging the badness of the banks in terms of cumulative loan loss provisions over the past 2½ years, Irish Nationwide comes out on top.
The lender, run by Michael Fingleton, has taken total provision and loan losses of €6.6 billion since 2008, amounting to almost 60 per cent of its book. It is followed closely by Anglo with loan losses amounting to close to 50 per cent of the bank’s loan book at its peak in 2008.
Asked last week – based on its losses – whether Irish Nationwide could be one of the world’s worst banks, chief financial officer John McGloughlin said: “The write-offs are extraordinarily high. If you take the losses against the loan book, it is certainly a very high percentage.”
After Anglo comes BoSI with 32 per cent and the Rabobank-owned ACC Bank with 28 per cent. The fact that BoSI is in wind down is one of the factors for the heavy levels of write-downs at the bank.
National Irish Bank, which is owned by Danish lender Danske, is fifth in the ranking.
The bank was one of the first to aggressively write down loans as the Danish parent took an early and uniquely candid pessimistic view on the extent of the problems in the Ireland when none of the Irish banks acknowledged the extent of the property crash.
NIB booked an impairment charge of 2.14 per cent of its loan book for 2008 in February 2009 – the highest across any of the Irish-based banks for that year.
The bad debt to overall loan percentages are also reflective of the scale of property lending that the banks undertook relative to their overall business – as well as the level of risk that the banks took on with developers and investors.
Anglo and Irish Nationwide had a greater proportion of high loan-to-value loans – in some cases up to 100 per cent and even higher – as well as equity positions in many deals it bankrolled, particularly at Irish Nationwide.
While AIB was one of the most aggressive in terms of property lending and has taken horrendous losses, the bank’s impairment provisions are a lower percentage of overall loans because it was more diversified. Its international interests muddy the waters when assessing the relative scale of the write-offs.
Stephen Lyons, analyst at Davy stockbrokers, pointed out that if the Irish loan books of Bank of Ireland and AIB – which bore the heaviest losses – were considered on their own, then their overall loan impairment percentages would be significantly higher and more comparable with the other lenders.
He also noted that the level of impairment provisions on Ulster Bank’s development loans at 36 per cent of the book – was still some way off the write-downs estimated in the recent Central Bank stress tests on property loans.
“BoSI are probably in line but Ulster Bank has some way to go,” he said.
While BoSI is undertaking the long-term run-down of its €32 billion loan book, Ulster Bank has pushed its worst assets – loans totalling about €18 billion including property development loans – into a non-core division.
The Irish banks are following suit by splitting themselves in core and non-core parts.
To put the losses at Ulster Bank in perspective, the Irish bank accounted for 15 per cent of loans in the overall non-core division at RBS but 78 per cent of the non-core bad debts within the group.
The Irish economic crash is not just being felt in Ireland.
BAD DEBTS: WHAT THEY HAVE WRITTEN OFF
IRISH NATIONWIDE – 57%
€6.6 billion out of total loans of €11.5 billion
ANGLO IRISH – 48%
€35 billion out of total loans of €73 billion
BANK OF SCOTLAND IRELAND – 32%
€10.2 billion out of total loans of €32 billion
ACC – 28%
€1.4 billion out of total loans of €5 billion
NATIONAL IRISH BANK – 17%
€1.7 billion out of total loans of €10 billion
ULSTER BANK – 14%
€8.6 billion out of total loans of €62 billion
AIB – 14%
€20 billion out of total loans of €137 billion
BANK OF IRELAND – 7%
€9.9 billion out of total loans of €136 billion
EBS – 6%
€967 million out of total loans of €16 billion
ILP – 3.75%
€1.5 billion out of total loans of €40 billion
This table details cumulative loan write-offs at Irish banks (including some foreign-owned Irish subsidiaries banks) over the financial crisis as a percentage of their loan books at the peak of the market. The figures have been sourced from their accounts for the period from 2008 to 2010 and for the first quarter of 2011 in the case of some of the foreign-owned Irish banks.
