Fine Gael (FG) looks set to be at the centre of the next government. With just under a week to go to election day, the party is riding the high 30s in opinion polls and Paddy Power will this morning give you odds of 40/1-upwards that FG will NOT be in government. So it would seem likely that the manifesto pledges of this party will be put into action over the coming months and it is interesting to see their attitude towards the banks and in particular, Bank of Ireland (BoI).
FG’s vision for an “Irish” banking sector would seem to form around BoI, a foreign-owned AIB and a “third force” which might develop around Irish Life and Permanent, I would guess. It would seem that some effort will be expended in maintaining BoI as an “Irish” bank though I note that this might involve upping the State’s stake in that bank in the short term from the 36.5% held today. So with BoI being nominated as the Chosen One, the publication of that bank’s unaudited unconsolidated 2010 financial statements yesterday is of more than a little interest to the nation. And just to recap, this is how important BoI is in Ireland.
The financial statements are unconsolidated which allows all sorts of jiggery pokery – remember Anglo’s carouselling of €7.4bn loans at year end with Irish Life and Permanent? Well unconsolidated accounts allow such occlusion on a factored scale compared with that. The statements are also poorly prepared without comparisons or even a definition of the term “period”. Below is a better presentation with a 2009 comparison (the interim accounts for the six months ended June 2010 did not contain a company/bank balance sheet which would compare with last week’s results and the interim management statement in November 2010:
In terms of the big number movements
(1) Loans to customer have dropped by €24bn whilst loans to banks have increased by €24bn.
(2) Deposits from banks have increased by €44bn to €88bn, and that is probably a reflection of ECB/Central Bank of Ireland intervention
(3) Customer deposits have dropped €38bn from €89bn to €51bn
(4) Debt securities in issue which includes senior bondholders has dropped from €26bn to €12bn.
In terms of the BoI press statement on Friday, I think the following is significant:
(1) BoI say that deposits have stabilised since the end of November, 2010. This is in line with the IMF February 2011 Staff Report which said “Pressure from corporate deposit outflows have moderated, however, and retail deposits continue to be relatively stable.” Both statements would appear to be at odds with the facts, but what I think might be the correct interpretation is that deposit flight from the six State-guaranteed banks might have been in the €10bn/month zone in late 2010 but that has now moderated to low single digit billions. Information from the Central Bank later this coming week on January 2011 deposits might help clear up the apparent confusion.
(2) BoI say that the NAMA haircut has been an average of 44% but that some €0.9bn (before provisions) remains to be transferred. This is understood to be the objector developers’ loans and are good quality “cherry” assets which might have small haircuts so the 42% final forecast haircut that Minister for Finance, Brian Lenihan indicated in September 2010 might still be valid.
(3) The sub-€20m NAMA-eligible exposures amount to €4.1bn and we know from previous reporting that the €5-20m exposures are €2.5bn so that would mean there was some €1.6bn of sub-€5m exposures.
(4) It would seem that much of the profit for BoI for 2010 will flow from the redemption of bonds at a profit.
The poor quality of presentation of BoI’s financial statements on Friday last is surprising. Whilst the misspelling of the filename as “unadited” is forgivable the retained earnings figure for the start of the period appears to be wrong (it is shown as minus €474m and the 2009 accounts show it was €213m)(UPDATE: 20th February, 2011. Thanks to commenter Michael O’Donnell pointing out that foreign exchange reserves were previously categorised under “Other Reserves” though are now categorised under “Retained earnings (inclusive of foreign exchange reserves)”. The opening balance for foreign exchange reserves was minus €687m). Overall there is no indication as to how BoI is to raise the remaining €1.5bn originally deadlined for 28th February, 2011 nor is there any indication of the scale of additional losses from the current stress tests – CBI Governor Patrick Honohan says they will be larger than forecast across all banks. It seems that it will be some weeks yet before we get clarity on Bank of Ireland’s condition and I wonder if FG might need revise its commitment to the bank.
NAMA Wine Lake 
Hi Namawindelake,
You reported “Customer deposits have dropped €38bn from €89bn to €51bn”. This is nothing short of a massive deposit outflow.
I don’t understand how The Sunday Times today can say that BoI deposits have stabilised. Maybe The Sunday Times are incorrectly including ECB/CBI “deposits” in their analysis.
Hi Ciaran, it is both BoI and the recent IMF Staff Report that claim deposits had stabilised. BoI is referring to the period from end November 2010 onwards – the bank admits that prior to that there had been a heavy flight of deposits. The CBI figures are heavily aggregated which means we can’t verify what BoI says though it is the case that from end Nov to end Dec 2010 there was a fall in deposits of €3bn+ for all Irish banks. Whether deposits have stabilised overall in January 2011 remains to be seen when the Central Bank issues information later this week.
NWL
Re your assertion of an error in the carry forward of retained earnings, are you sure that your 2009 comparatives are comparable, in other words are they also unconsolidated entity figures?
Hi Michael if you mean am I sure that the December 2009 unconsolidated (that is, bank) “Retained earnings (inclusive of foreign exchange reserve)” was €213m whereas the press release says minus €474m, then I would say I was pretty sure. The bank balance sheet (as opposed to the consolidated balance sheet) for December 2009 is on PDF page 263 of the 2009 report linked to here (and it shows €213m)
Click to access annual-report-160410.pdf
The December 2010 Financial Statements published on Friday last show “Balance at the beginning of the period” of “Retained Earnings (inclusive of forex reserve)
” of minus €474m. The link is here
Click to access Bank%20of%20Ireland%20Interim%20Accounts%20%28unadited%29%20for%20the%20year%20ended%2031%20December%202010.pdf
Do you disagree and if so why?
Remember you can access all the recent financial statements for the six State-guaranteed banks here
https://namawinelake.wordpress.com/about/the-banks/
It is no surprise that FG will seek to protect BOI given the strange social fabric of that party – but thats a given in Irish circles.
What I cannot understand is the lack of imagination everywhere else.
Why in Gods name there is no industrial bank set up immediately using the remaining utility assets of the state ? ,its beyond me really – we have to listen to the same strange Tory / social democrat / blue shirt porridge again and again.
The power stations as non – strategic assets really cracks me up , where do these guys come with with this gruel.
NWL
Yes I see your point. But the apparent difference of Eur687m represents the opening FX reserve (negative) which is included in the 2010 retained earnings figure of Eur1,839m but not in your 2009 comparative of Eur213m. Thus if we deduct this FX number from the Eur213m we get the amended opening retained earnings number of Eur(474m). The clue is in the BOI description of retained earnings as”inclusive of foreign exchange reserve”.
Please do not go looking for problems where none exist.
Hi MOD, yes I see now that the difference is due to the reclassification of “foreign exchange reserves” from “other reserves” to “Retained earnings (inclusive of forex reserves)”. You see I am used to companies maitaining the same balance sheet descriptions from year to year. The post will be added to above to explain the difference, and thank you for explaining it.
Because the banks have routinely produced unsound information during the past three years, I tend to have a sceptical view on information produced now. And if other people had, in the past, displayed a curiosity in, and validated claims by, the banks then the nation might not be facing such a huge cost for the financial crisis.
The Dork of Cork wrote “It is no surprise that FG will seek to protect BOI given the strange social fabric of that party”. It would also represent the repayment of an historic debt.
As the nascent Irish State faced an acute cash crisis in 1921/22, the Chairman of the Exc=ecutive Council (prime minister) WT Cosgrave, went down to College Green and arranged emergency funding from Andy Jameson, then governor of the Bank of Ireland. That BoI money kept the fragile Irish state on the road during the last existential crisis it faced.
@Cormac Lucey
Hey Cormac , believe it or not I ain’t no radical baby – I concede that there needs to be a deal done between various interested parties but I get slightly pissed off when numerous clans want to take apart the last vestiges of once successful state bodies to feed the giant debt ogre in the sky.
The decapitalisation of Ireland has been beyond extreme – he will never be happy with his yield quota
He has had enough.
The growth in the “loans and advances to banks” is astonishing.
I presume some of this is green jersey purchases under ELA? The already incestuously linked Irish banking system now seems to be sharing a single set of vital organs.
I also presume that some of this is the self-issued bond? (Or had that not been issued by 31 December?
All this talk of “restructuring” begs a question relative to our nearest neighbour.
If Ireland reneges on the debt and Britain is hit hard, who will bail out the British banks, which are not part of the euro zone?
One possible answer is that it may well be the U.S. taxpayer via the Federal Reserve, whose profits and losses are ultimately transmitted to the U.S. Treasury.
Is this too improbable?