Monday, March 1, 2010

Economics 01/03/2010: AIB, Nama & tomorrow's numbers

From the Dolmen guys - today's preview of AIB results announcement tomorrow -

"We expect operating income of €2bn for the year, impacted by lack of demand for credit by Irish consumers and lower Net Interest Margins (NIM). Due to a pre-tax loss of €2.7bn, equity tier 1 of the group will move down to 5%. Overall, the market will be looking for guidance on NAMA, capital raise and credit quality in the non-NAMA loan book. It is also likely the group will announce an exchange offer on its Lower Tier 2 debt."

Note the figure of 5% Tier 1. Internationally (e.g. UK) target is for 8%+ Tier 1, for banks with Loan-to-Deposits (LTD) ratios in excess of 100%. AIB's latest accounts I have access to show LTD ratio of over 150%. This means that the AIB will be on the hook for up to Euro 4 billion in order to plug in the Tier 1 capital gap with its international peers. And this is before the expected loans losses of Euro 5-5.3 billion expected in the tomorrow's announcement. So on the net, H1 2010 demand for funding should be around €3.8-4.5 billion before Nama kicks in and before provisions for a new batch of bad loans...

This is more than 3 times the current market capitalization of the bank!

Also note Dolmen's reference to the lack of demand for credit. Spot on - the problem is that no matter how one spins the current credit crunch, consumers and businesses (burdened by massive debt and facing rising tax curve into the foreseable future, along with high risk of unemployment and huge uncertainty about the future performance of the economy) are simply in no position to borrow. This, along with the crippling expected cost of Nama to the real economy means that there is not a snowball's chance in hell the credit bubble can be relaunched in Ireland... at any level of interest rates...
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