The rationale for AIB selling its profitable divisions to plug the holes in its collapsed domestic business (notice, more detailed analysis of exactly the same fundamentals argument was supplied by Prof Brian Lucey back in March in his article in the Irish Times - see here). The logic of this AIB's perverse move was:
- sell the stakes in M&T and BZWBK to provide capital to write down bad loans on homegrown turf;
- put the bank assets squarely into the geography where it has proven time and again to be incompetent in lending (aka Ireland);
- reinforce the incompetence of the management of the bank by showing to the rest of the world that over the last 10 years, AIB could manage to make money only in those divisions/investments where it had no managerial say (I mean, really, folks - AIB's competent managers - who need to be paid wages comparable to other bankers around the world, cause, you know they are being actively headhunted by global banking syndicates for their ability to turn funding into bad loans - had nothing to do with only two profitable sides of the bank: M&T and BZWBK)
AIB needs not €7.4bn (the minimum regulatory requirement capital top up), but more like €10bn to plug the hole in bad loans. It has managed to under-report (thanks to an accounting rule) losses in H1. The bank is now being stripped of the very few assets it has that actually make sense, leaving it with the legacy of its own actions and choices that is purely toxic. The markets don't buy the management 'plan' (what plan?) nor do they by the management team itself. The only thing that separates AIB from heading the Anglo route is the willingness of the Government to throw taxpayers guarantees and cash at the bank to rescue its shareholders and bondholders. How long will that last is an academic point at this moment in time. The real point is - AIB simply has so far shown no capacity to produce viable banking business short of buying into foreign-run assets.
Yes, the logic of selling off revenue generating and profitable divisions abroad in order to "retrench" back to Ireland does not make sense in the long run.
ReplyDeleteAIB is selling foreign assets to satisfy a short term goal and that goal is to minimise recapitalisation.
But what are AIB going to do to try to generate profits going forwards? Screw the Irish citizen who banks with them?
Yes, the logic of selling off revenue generating and profitable divisions abroad in order to "retrench" back to Ireland does not make sense in the long run.
ReplyDeleteAIB is selling foreign assets to satisfy a short term goal and that goal is to minimise recapitalisation.
But what are AIB going to do to try to generate profits going forwards? Screw the Irish citizen who banks with them?
The funniest thing is that banks who were managed well during the boom are on a buying spree at the moment and have very good credit ratings. No foreign bank will (nor would they be allowed to) buy AIB or BofI. So the choice is either failure or taxpayer cash and we know the choice....incompetent bank management replaced by Irish political management....reminds me of the film "Dumb and Dumberer"
ReplyDelete