Wednesday, March 3, 2010

Economics 03/03/2010: IL&P results FY2009

IL&P – the folks who pushed their mortgages lending to 300% of their deposit base – in the style of Northern Rock – have released their FY 2009 results this morning. Overall operating loss of €196 million for 2009 represents a swing of €537 million against the profit of €341m in 2008 reported in 2008. This takes some doing to achieve for a book of loans valued roughly at €39 billion (and that is widely optimistic – the total lending book declined from €40.1bn in 2008 to €38.6bn in 2009 – a decline that is hardly reflective of the peers).

When considered against the Irish Life division operating profit of €102 million (down from €284 million in 2008) the Permanent bit of IL&P is emerging as a seriously weak link. The bank posted a loss of €270 million with operating loss of €280m – a swing of €310 million on €30 million profit in 2008. Bad debt provisions are set at €376 million – assuming relatively static deterioration in 2010 compared to 2009. Total expected provision for 2009-2011 crisis period is standing around €900-950 million. I am not sure this is realistic, given the fact that mortgages are now starting to show increasing stress – with anticipated lag of legal process and for work-through of savings cushions by distressed households. In contrast with all rational expectations, IL&P management commented that home arrears growth was slowing. Good luck to them.

Capital ratios remain flat over 2009 - Total Tier 1 of 9.2% - hefty, healthy, but… one has to remember that IL&P has a much heavier T1 requirement due to life insurance business side. Translated into banks ratios, this implies effective banking side Tier 1 of roughly 6-6.5% - still better than AIB or BofI, but has some room for improvement. Given the overall reluctance of the Permanent side to take realistic writedowns on mortgages, I would suspect there will be renewed pressure on Tier 1 in months to come.

1 comment:

patrick1978 said...

Brian Lenihan "dissapointed" that he has hunted Postbank and Halifax out of Ireland. More BS from Minister Lenihan. The "third banking force" which will involve IPM is the reason why Postbank and Halifax have fled the country like terrified animals.
AIB share price has soared on the news, see here