And while on Financial news, AIB announced yesterday that its trick-o-treat debt swap Tier 1&2 for Tier 2 'raised' €1bn in new capital. In a statement the bank said it was exchanging tier 1 and tier 2 securities for the equivalent of circa €1.3bn of new lower tier 2 capital qualifying securities. The face value of the securities received in the exchange is approximately €2.4bn. "The securities will be exchanged for between 50pc and 67pc of their face value in line with the previously announced exchange prices," the bank said. Commenting on the exchange, Goodbody Stockbrokers said AIB will need €935m more to bring its equity tier 1 to 4% by 2011.
Ok, folks, and Citi did generate the profits they booked last quarter... sure. In reality, this is rather pathetic. 4% T1 ratio is hardly a gold standard to begin with, but AIB's creative accounting is turning even this into mockery. If T1 is a true hedge against default or a bank run, what on earth will the bank do with the newly minted T2 securities? Default and hope no one will notice?
Now on to the real economy: last week Irish Small & Medium Enterprises Association (ISME) reported that according to its regular Credit Watch survey, average payment period for SMEs in Ireland is now the longest on record at 73 days, 23% are paid within 30 days, 45% are paid in 90 days or more and 15% are paid in over 120 days (up from 10% in March survey).
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Surely, this is not doing much good to our already extreme rates of business insolvencies, but the real matter here is with the banks. In recent weeks, I have heard a number of acquaintances who run their own businesses telling me the stories of horror when BofI and AIB forced rent and loan terms reviews onto functioning and paying businesses in apparent attempts to 'extort' income up front ahead of schedule. The same banks have rolled over, day after day, for their developer-borrowers. It looks to me like may be some of the credit flows have gone from the functional enterprises to zombie development projects. What's next? Mortgages holders squeeze?
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