Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

Anglo Irish Bank: A lot done, more to do

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I’ve just returned from Anglo Irish Bank’s H1 2011 results presentation to the media. Overall, the tone was fairly positive, with management recapping on the work it has done since taking over the institution in 2009 and outlining its intentions for the remainder of the wind-down period. The main headline-grabbing news from it was guidance from the bank that it sees the total eventual cost to the Irish taxpayer of Anglo at between €25-28bn (“closer to €25bn”) versus the Central Bank/Financial Regulator estimate of €29-34bn

 

In the briefing Anglo CEO Mike Aynsley said “We are pretty happy with where we are at this point. We have done an enormous amount of work in the past two years”. The main highlights of this are as follows:

 

  • Net loan assets have shrunk by circa 67% from December 2008 (€69bn) to June 2011 (€22bn). Following the expected disposal of the US loan portfolio this will shrink further to c. €16bn (however, this excludes circa €2bn of INBS assets).
  • The total balance sheet has been shrunk from €94bn to €54bn over the same period (a circa 43% fall). Of the balance sheet assets, €24bn of this comprises government capital instruments, €22bn are loan assets and €8bn are other assets).
  • Headcount has fallen from 1,826 to 1,075. By the end of Q1 2012 management expect it to have fallen to 940, and it will continue to move lower in a “progressive and proportionate” way to zero over the remainder of the wind-down period.

 

In terms of today’s results, the first half net loss of €101m compares with the €8.2bn in losses recorded in the same period of 2010. The out-turn was helped by a €601m favourable adjustment on the original consideration paid by NAMA on loans transferred in late 2010 “following completion of full due diligence”, while there were also provisions for impairment of €778m.

 

Before today the main areas of focus were (i) the progress it was making on the sale of its US loanbook; (ii) progress on shrinking the remainder of the loanbook; and (iii) its long-term work-out projections.

 

Aynsley said that the bank has been pleasantly surprised by the level of interest in its US loan portfolio – “results thus far have been encouraging”. Management would not be tied down to a specific date for when the disposal of this loanbook, which totals €6.7bn, will take place, but indicated that it would be some weeks before the preferred bidders would be announced. Obviously, as this is a live sale process, management couldn’t say a whole lot about it, but it is clear that they are approaching the endgame for this process.

 

I asked management if there had been any specific interest in the Irish loan book. They acknowledged that while Ireland is a “tough sell”, they have been in contact with some investors (they referred to “high yield funds”). However, Anglo are only interested in pursuing “capital friendly deals” and I didn’t get the sense that a meaningful transaction would take place in the near term.

 

In terms of other potential disposals, the bank is “examining the potential sale of its wealth management business and has received non-binding indicative proposals from various potential acquirers“.

 

As noted above, the main focus from the presentation is on guidance from the CEO that the total cost to taxpayers of Anglo Irish will be in the €25-28bn range, most likely towards the low end of this range. This compares with previous estimates of €29-34bn. If realised, this will mean a welcome capital return to the Exchequer at the end of the wind-down period (as €29.3bn of capital has been paid in by the Exchequer to Anglo Irish Bank to date).

 

I would highlight, however, that one possibly material swing factor on this out-turn will be the future losses on the remaining loan book. I note that at the end of June the bank had provisions for impairment of €9.9bn against a total loan book of €32.8bn (c. 30%). Of the loan book, some €16.9bn was classified as “impaired” and a further €4.8bn was classified as “past due but not impaired”. Peter Rossiter, Anglo’s Chief Risk Officer, did state that he was comfortable with the level of provisioning, adding that they were fully compliant with the relevant IFRS rules. The management team also strongly emphasised that it would be selling the loan book “intelligently”, stating that there would be no ‘firesales’. While management did stress that it aims to recover 100c in the euro, how the loan book performs between now and the eventual wind-up of the bank, coupled with the prices achieved for disposed assets, will be among the key determinants in reaching the final bill.

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Written by Philip O'Sullivan

August 26, 2011 at 12:54 pm

Posted in Sector Focus

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2 Responses

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  1. […] been a busy 48 hours since I last scribbled down my thoughts on the wider market. I did write a focused piece on Anglo Irish Bank’s H1 results after I attended their presentation yesterday, but there have been plenty of other goings on such […]

  2. […] have changed since its last update. You can read my views from the H1 2011 results presentation here. If you’ve any questions – within reason (!) – that you’d like me to put to […]


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