Inside the world of business
Being the 'least worst' bank is scant consolation for B of I
BANK OF Ireland must be sick. The bank did what was asked of it earlier this year. The haircuts on the loans it moved to the National Asset Management Agency blew a hole in its balance sheet and the bank filled it, meeting and surpassing the capital target set last March by the Financial Regulator.
The bank successfully tapped the equity markets as the Greek debt crisis struck last May and still managed to raise €3.5 billion.
This boosted its capital by €2.9 billion, paid off the Government’s future share options and limited the State’s ownership to 36 per cent.
The regulator set a bar at an 8 per cent capital ratio and asked Bank of Ireland to clear it. The bank jumped with room to spare.
Now the world has changed again and with a fourth banking bailout looming, the bank faces the prospect of losing control to the Government as the State takes a fifth institution under its wing with a majority shareholding.
The regulator wants the banks to meet 12 per cent capital to convince international investors that they have enough for bad losses beyond what even the regulator expects in a worst case scenario.
Getting the additional €3.2 billion that the bank needs is likely to leave the Government’s shareholding in the bank at 79 per cent, according to Davy stockbrokers.
The bank was reluctantly labelled “Ireland’s least worst bank” but, as investors had turned on Ireland, it could not stand on its own, even after passing the regulator’s onerous stress test. On the fourth attempt, credibility in the Government’s waves of recapitalisation has been well and truly eroded.
Anglo, EBS and Irish Nationwide are fully State-owned and Allied Irish Banks is almost there too.
Irish Life and Permanent will be the only lender outside the club but it has severe funding problems and was saved from a bailout by its profitable life business. It seems that being the strongest bank in the Irish system wasn’t enough to save Bank of Ireland from Government control.
State-of-the-art road to hell
Anyone who is wondering if the boom left us with anything other than a heap of debt should look up page 82 of the Government’s four-year plan for enlightenment.
We got some “state-of-the-art motorways”, according to the chapter on public capital investment, which outlines how the Government plans to save €3 billion in this area over the plan’s life.
The reality is that there will be little or no money spent on infrastructure and the Government is relying on State companies to continue with investment programmes that they have already announced.
The chapter ignores public transport, which is potentially the cheapest way of moving people and some goods around and the Government is only now saying it will tackle water-treatment systems, which both industry and consumers need.
The Republic’s telecoms network is continuing to creak, something that is holding up both the development of commerce.
Xtravision, an Irish-owned retail and services business, pointed out yesterday that shortfalls in this area could potentially hinder the future development of parts of its business.
The company could also develop a postal delivery service for customers, one that could deliver reliable cashflow, if the Republic introduced post codes. The Government though hasn’t done this because of largely political, rather than economic, considerations.
The Government may have delivered on one, very limited, area of infrastructure, while ignoring a range of other areas that would make life easier and, more importantly, far cheaper, for businesses.
Now that the boom has sped off on a state- of-the-art motorway and disappeared over the horizon, it appears to have taken any chance of improvement in a lot of these areas with it.
Northern tax hopes on up
THE NOTION of bringing the North’s 28 per cent corporate tax rate in line, or making it equal to, the Republic’s increasingly controversial 12.5 per cent has an air of the undead about it. Rejected under Gordon Brown’s watch, David Cameron’s man in the North, Owen Paterson, has been outed as a fan of at last some movement on the issue.
The matter is now before a House of Commons committee, which is hearing from all sides, again.
Invest NI, unsurprisingly, is on the side of a reduction, arguing such a move could beef up the North’s job-attraction rate by a cool 3,000, some of which would inevitably be drawn from companies that would otherwise have invested solely in the Republic.
Arguments against a change include the academic theory that cutting the rate does not necessarily increase the tax take, while politicians in Scotland and Wales would play the unfairness card.
The North’s corporate tax rate is on the decline, with the UK chancellor already committed to cutting the UK-wide rate to 24 per cent.
Any additional reductions would be pleasantly surprising for the North’s businesses and even more so for its politicians and investment agencies. Going as far as 12.5 per cent appears at this stage to be too combustible for all involved, but moving bravely in that direction is looking more likely than ever before.
TODAY
Minister for Finance Brian Lenihan will address the annual lunch of the American Chamber of Commerce in Dublin. Elsewhere, the Construction Industry Federation will meet to discuss company failures in the sector.
PODCAST
A special podcast on the Government's four-year plan will be published at lunchtime today, featuring The Irish Timeseconomics editor Dan O'Brien and Alan Barrett of the ESRI.
For regular commentary on business and economic issues visit our blog, Current Account, at www.irishtimes.com/blogs/ business
Twitter users can receive links to the latest business news and blog posts by following us at twitter.com/IrishTimesBiz
