Speaking in the Dail today, new Minister for Finance, Michael Noonan delivered an assessment of the aftermath of last Thursday’s announcements regarding the stress test results and bank restructuring. The speech is available in full here. Some key points:
(1) The Minister claims “the total amount of deposits withdrawn from the pillar banks has been very significantly reduced. Since Thursday’s announcements, the net deposit position of the Pillar Banks has improved significantly.” The Pillar Banks are Bank of Ireland and Allied Irish Banks. It is not clear to me if the statement means the pace of decline in deposits has slowed or if deposits have increased. The Central Bank of Ireland tomorrow issues its own financial statements for March 2011 but these will be upto 25th March 2011 and won’t capture the aftermath of last week’s announcements. Indeed it will probably be the second week in May 2011 when we get a steer on this when the CBI issues data covering the period post-31st March.
(2) The Minister points out that the share prices of AIB and BoI have advanced considerably since last week. This is indeed correct – the closing prices on 30th March 2011 for AIB and BoI respectively were €0.19 and €0.22. And a couple of minutes ago the price of both was coincidentally the same, €0.31, representing 63% and 41% increases respectively. By contrast Irish Life and Permanent has fallen by 68% from €0.37 to €.12
(3) The Minister points to the drop in our 10-year bond which has been even more dramatic this afternoon – it is now trading at 9.31% mid-point compared to a close of 10.22% last Thursday, down some 9% in relative terms and it is now trading at the same level as 24th February, 2011.
(4) The Minister alluded to the Morgan Stanley analyst note on Monday entitled “Ireland – Time to Buy” and S&P’s removal of Ireland from its CreditWatch. Both were encouraging, said the Minister.
(5) The ECB will continue to fund Irish banks at rates which are currently far cheaper than available elsewhere and there will be no firesales. Though with more than €2bn per month to deleverage (€70bn in total over the next 33 months), it is hard to see how fire sales can be avoided.
(6) There will be €30bn of new lending across the entire economy between now and end 2013 (that is €10bn per annum). This is up from the €3bn per annum committed to, by the last government for SME lending alone – €1.5bn each from AIB and Bank of Ireland each year.
UPDATE: 7th April, 2011. The ambiguity with respect to deposits continues. The Independent reports that (my emphasis) “it is understood the banks have not seen a major surge in deposits in recent days, but the deposits have marginally outstripped withdrawals, delivering a “net deposit” boost.” However this is “marginally” descriptor is at odds with the Minister’s statement “the net deposit position of the Pillar Banks has improved significantly” and yet the title of the article is “deposit flows have reversed on stress test”. The Irish Times via Bloomberg talks about a “rebound” in deposits but although the word “rebound” was used in the Minister’s speech, it was not in relation to rebound. This is all very unsatisfactory because the Minister’s words are ambiguous and we will not have official figures on deposit flows for the period 31th March – 6th April until the last day of May 2011 when the Central Bank of Ireland issues bank statistics.
I’ll believe it when BoI, AIB, and the State go back to the bond traders for their funding. Anything else is powder on a pigs face.