Banks now a feast for the world's vul­tures

The Pak Banker - - Editorial5 - Roisin Burke

NO Ir­ish-owned banks by 2014? Like pris­on­ers on pa­role, they are forced to re­port reg­u­larly to the au­thor­i­ties, in the form of the ECB, IMF and EU. They have to shrink down, shape up, meet tar­gets and give a good ac­count for their plans of ac­tion by Fe­bru­ary next.

Some, like An­glo, al­most cer­tainly won't sur­vive. Oth­ers will dra­mat­i­cally change in scale and func­tion.

Al­ready in the vice-grip of the EU/IMF thanks to the bailout, the fu­ture of Ir­ish bank­ing may land in in­ter­na­tional hands, ac­cord­ing to some ob­servers.

"For­eign mega­banks could own Ir­ish bank­ing" --John Reynolds, CEO, KBC

"The fu­ture banks in Ire­land may be for­eign owned," Reynolds spec­u­lates.

"My hunch is that af­ter a pe­riod of set­tling down and achiev­ing a bet­ter pro­file, an out­side bank that sees the virtue of be­ing part of the re­cov­ery story could come on the scene.

"Once things set­tle, by 2013/14, value in our banks will emerge and at­tract buy­ers. Maybe the mega­banks like San­tander or HSBC, or maybe a medium-sized player.

" Af­ter the shake-down, Bank of Ire­land and AIB will still ex­ist in some form and will have a lot go­ing for them," Reynolds con­tends. "There's a mar­ket of 4.5 mil­lion peo­ple and a good liv­ing to be made here. They have good cus­tomers, a very valu­able in­fra­struc­ture -these facts are be­ing lost in the cur­rent cli­mate of negativity.

"Bank of Ire­land and AIB have some­thing very valu­able. Their cus­tomers are both highly loyal, and highly stuck, in this cli­mate. To say there's noth­ing in­ter­est­ing there (for a buyer) is to miss el­e­ments.

"At the moment, you have the two big Ir­ish mono­liths, Bank of Ire­land and AIB. Like Ever­est, they're there, and both will be present and ac­tive in a fu­ture mar­ket. Then you have KBC, NIB and Ul­ster. Each of us is a sub­stan­tial bank with medium prospects in Ire­land.

"There won't be ac­qui­si­tion just at this point. Most for­eign en­ti­ties are pub­lic com­pa­nies and they won't be wad­ing into Ire­land straight away post IMF. It's not per­fect tim­ing yet, you need time for terra firma. But af­ter the blame and in­dig­na­tion, maybe in a year's time, it will be time for an en­light­ened in­vestor.

"It's most un­usual for me to talk up Bank of Ire­land and AIB, and there are a lot of is­sues, but while An­glo is a dis­grace and should be shut down, Bank of Ire­land is do­ing a de­cent job and in­ter­ven­tion at AIB will im­prove things. We own them, we've got to make them work, not do them down, to en­able them to de­velop a rep­u­ta­tion."

What lies be­neath? Ciaran Cal­laghan, bank­ing an­a­lyst, NCB stock­bro­kers

Oth­ers, like Cal­laghan, think more bod­ies buried in the bank­ing sec­tor cel­lar in the form of mas­sive mort­gage or SME loan im­pair­ments is an is­sue.

" The mar­ket is afraid of what risks and loan losses might re­main," he says. "It has al­ways turned out to be worse than pre­sented. Nama has taken care of the riski­est loans, and what's left def­i­nitely won't be as bad, but even so, no one knows how bad it is --that's the con­cern."

"If a big in­ter­na­tional bank took over a big share of Ir­ish bank­ing it might not be re­warded by its share­hold­ers, but there is profitable rev­enue stream there, fur­ther down the track."

"A com­peti­tor would not be be­holden to the ex­pen­sive govern­ment guar­an­tee and would be able to fund a more profitable loan book --and would have a higher credit rat­ing than Ir­ish banks.

"One of the strong in­ter­na­tional banks with fewer wor­ries about their cap­i­tal po­si­tion might be able to lend into the econ­omy. "The plans the Govern­ment sub­mits next year (to the ECB/IMF/EU on the fu­ture of bank­ing) will be key to defin­ing the fu­ture land­scape.

"Dis­posal of for­eign busi­ness will have to hap­pen to re­duce whole­sale fund­ing ex­po­sure. It will be back to the early days, the Ir­ish bank­ing sys­tem will be a much smaller pie with a much smaller pool of rev­enue. Bank­ing here is still go­ing to need two or three main re­tail play­ers, how­ever," he con­cludes.

"Bank­ing still in self­de­struct mode" --Mike So­den, bank­ing Con­sul­tant

"Have you got a red pen?" asks the for­mer Bank of Ire­land boss. "Corrections are usu­ally writ­ten with a red pen, and it's also the colour of blood, and the colour of over­draft --be­ing in the red. "If you're writ­ing about the fu­ture of the Ir­ish bank­ing sys­tem, it should be writ­ten in red," he says grimly.

Now a Cen­tral Bank com­mis­sion ap­pointee, he's re­luc­tant to give too much away about where things are head­ing.

"What is aimed at is to slowly but surely cre­ate two banks," he says. "The oth­ers will be re­lieved of ac­tive ser­vice."

He says that the prob­lems he out­lined in his re­cent book, Open Dis­sent, still ex­ist, with de­nial and lack of dis­sent at top level in Ir­ish bank­ing form­ing part of its con­tin­u­ing dif­fi­culty.

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