Goodbye competition, Hello duopoly (Postbank to close)

First it was HBOS, today Postbank (the JV between An Post and BNP Paribas) have announced that they will close by the end of the year, again restricting choice and competition in the retail banking market. Yes we thought NAMA might stifle competition and with it bring higher interest rates and higher fees. Chairman of the Postbank Board Thierry Schuman cited a number of factors including the ‘unprecedented circumstances’ in which the financial services sector finds itself contributed to the decision. Who will be next?

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The Decision explained…

The Decision is now published.

It’s Saturday morning and 24 hours after the Statement (the Irish Examiner report this morning that the Decision  “should be [published] in a matter of weeks”) and we still await Decision N725/2009 becoming available so we can see the detail of this morning’s EU approval, one sentence from the Statement is beginning to cause alarm as it relates to reviews by the EU of individual transactions and says quote:

“These individual reviews will include a claw back mechanism in case of excess payments.”

These reviews have the potential to negate the purpose of NAMA which was to clean up the banks’ balance sheets. If there is a risk of a review and a further claw back then that doesn’t give you a clean balance sheet – it gives you a balance sheet with contingent liabilities, akin to what they have at present. This post will be updated as the Decision becomes available or further clarity is provided.

Whilst we haven’t yet seen the full decision Mr Lenihan made statements in respect of some of the Decision detail as follows, quoted in the Irish Times:

“Mr Lenihan said the valuation methodology set out in the regulations would be amended to take account of the Commission’s decision, with a higher remuneration risk margin and higher enforcement costs applied.

“There will however be a reduction in the interest rates used for loan discounting purposes. In overall terms the proposed valuation methodology which the Commission has endorsed is broadly as originally proposed by Government,” he said.

Responding the lackadaisical performance of banking stocks in Dublin yesterday : “They didn’t really benefit from that, as there are still too many unknowns,” one broker said, explaining that EU approval was more or less expected. Has the valuation methodology substantially changed and does the clawback undermine the purpose of NAMA by clouding banks’ balance sheets even after the transfer of loans?

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Credit environment in the State continues to deteriorate

Almost a year after the government invested €7bn from the National Pension reserve Fund in Bank of Ireland and AIB and more than a year since the government nationalised Anglo costing €4bn we find today that the credit environment continues to deteriorate. The rate of decline is accelerating with the adjusted figures showing credit to non-financial corporations fell by 4.3 per cent in the year ending January. The annual decline in December was 3.1 per cent, while November recorded a fall of 2.7 per cent.

Is it not about time that the Opposition demanded metrics by which the government’s actions can be judged?

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The decision !

Decision published 9th April 2010.

I am presently awaiting the EU statement which will be available under the case number N725/2009 in the State Aid Register on the DG Competition website once any confidentiality issues are resolved. I will post a link here as soon as it becomes available. Here is the EU Statement announcing the decision.

Of note from the Statement is that the NAMA loans including rolled up interest are now being talked about as €80bn and not €77bn and also we have confirmation for the first time that only 5 banks have applied to be included in NAMA by the deadline of 19th February, 2010 – they are

Anglo Irish Bank, Allied Irish Bank, Bank of Ireland, Irish National Building Society and Educational Building Society

Of note also is the reference to oversight on individual loan transfers – perhaps Senator Regan has gotten a concession after all!

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There’s plenty a slip twixt cup ‘n’ lip

Bank of Ireland shares continued to sink this morning and at 9.30am were trading at €0.989. On Monday last the government (or more specifically the National Pension Reserve Fund) received 184,394,378 ordinary shares in Bank of Ireland representing the amount of the 2010 preference share dividend divided by the average share price in the 30 trading days prior to and including 19 February 2010. Of course this was in lieu of a cash dividend from BoI because the EU has not yet approved the government’s restructuring and financing plans for Irish banks. I seem to recall that in December 2008 we were sold the €3.5bn purchase of BoI 8% preference shares on the basis that the return was a very healthy one for the Irish taxpayer. Well today our divident of 184.4m shares are worth €182bn, we have a significant shareholding in the bank and I do not think people generally expected us to be in this position.

Let us hope that NAMA yields more desirable results.

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The man from Del Monte says….YES !!!!

Well, we probably won’t know for a few hours though some media outlets are saying early next week is possible, but I thought you might want to take a look at the man himself, Joaquin Almunia, EU Competition Commissioner (since November 2009) and formerly Financial and Economic Affairs Commissioner with which hat he oversaw the creation of NAMA so no conflict of interest there then! Approval granted at 10.30am – more to follow!

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