Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

IBRC – One piece at a time

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Last August I attended Anglo Irish Bank’s H1 2011 results presentation. I outlined my views from that event at the time here. This morning saw the now-renamed IBRC issue full-year numbers. Ahead of these results, there were a number of things that I wanted more clarity on, namely:


  1. Does management still see the eventual cost to the Irish taxpayer of Anglo Irish Bank as being in the €25-28bn range?
  2. How much more progress has management made on shrinking the balance sheet?
  3. Has there been any pick up in interest levels from overseas investors in its Irish loan book?
  4. Will there be a targeted approach to offloading the UK loan book in 2012, in much the same way as the US loan book was substantially sold in 2011?
  5. Is management still comfortable with its levels of provisioning?
  6. Has the expected timeframe for the winding up of the bank changed?


Taking the above in turn:


(i) CEO Mike Aynsley told me that he remains comfortable with the estimate he provided at the interim results stage that the old Anglo Irish Bank business will eventually cost the taxpayer between €25bn and €28bn. It should be noted that the overall cost of IBRC may deviate from this, should trackers from other banks or other financial assets be assigned to its remit and so on.


(ii) Management expressed satisfaction with the progress to date on shrinking the balance sheet. In September 2008 this stood at €101.3bn, and it has contracted steadily over the past three years (2009: -€16.1bn, 2010: -€13.0bn, 2011: -€16.7bn) to the end 2011 level of €55.5bn. Excluding the €29.9 billion in Government promissory notes, total assets were €25.6 billion at the end of last year. Net loan assets at the end of 2011 stood at €18.1bn, of which circa €2bn was INBS. The message from management is that the balance sheet deleveraging is “ahead of the bank’s restructuring plan”.


(iii) On Ireland, management told me that there is “good interest” in Dublin commercial real estate, but that outside of Dublin the level of “interest has fallen off a cliff”. Lack of finance is the key issue in the overall market. Management said that they are starting to see some transactions, but emphasised that “2012 is not going to be a significant year for transactions in Ireland”.


(iv) On specific geographical loan books, CEO Mike Aynsley stressed that they are conducting an “asset by asset workout of the portfolio”. They don’t have a specific geographic plan and they would continue to opportunistically deleverage. They hinted that the lumpy sale of the majority of the US portfolio last year was not what they were expecting to do, rather they would have assumed a piece-by-piece disposal process.


(v) I quizzed Chief Risk Officer Peter Rossiter about the level of provisioning. At the end of 2011, total provisions for impairment stood at €10,442m as against impaired loans of €17,758m and past due but not impaired loans of €3,054m. So, around half. Rossiter told me that he was comfortable with this level of provisioning given loan-to-value ratios and other considerations.


(vi) The expected timeframe for the winding up of the company has not changed, for now at least. It remains 2020, but as the CEO said, they are running ahead of the schedule under their business plan. However, were the State to move in assets from other institutions, as has been speculated about recently, this timeframe would obviously change. Aynsley emphasised that the nature of the assets being speculated about (i.e. residential trackers) were significantly different to the nature of the current IBRC loanbook, so they would have to look at resources and so on in the event that any transfers were to occur. We’ll watch this space I guess!


Overall, the sense I got from the presentation was that management is continuing to deliver on its strategy. While obviously the bank is highly vulnerable to a number of external factors over which it has limited to no control (the current promissory note discussions being a good example of this), operationally it’s doing well with net interest income and non-interest income rising by €202m and €294m respectively in 2011, while on the cost side operating expenses fell €33m in 2011 despite the pressures of taking INBS on board and a number of high profile legal actions.


Management reaffirmed its target for the eventual costs of Anglo, and we’ll wait and see what happens in terms of potential asset transfers to the company. I was a little disappointed that they weren’t more upbeat on the prospects for Ireland in 2012, but as noted above this is one of the factors they have little or no control over. In all, I think it was a solid performance given the circumstances.


For those of you who trade the Irish financials, in addition to today’s results from IBRC, keep an eye out for tomorrow’s FY 2011 numbers from AIB and Monday’s FY2011 release from Irish Life & Permanent. The commentary across all three should provide an excellent overview of the current trends in the sector.


Written by Philip O'Sullivan

March 29, 2012 at 12:56 pm

Posted in Sector Focus

Tagged with ,

2 Responses

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  1. […] IBRC (the old Anglo Irish Bank and Irish Nationwide Building Society) released FY 2011 results on Thursday morning which I’ve covered here. […]

  2. […] Ireland’s so-called ‘bad bank’ NAMA said that it no longer expects to make a profit. Given this, shall we say, “tempering of expectations”, can we still be confident of IBRC’s (Anglo Irish Bank & Irish Nationwide) guidance on how much it will ultimately cost the taxpayer? […]

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