Analysis:Anglo Irish Bank spent almost two hours yesterday morning dissecting its strong results and funding position for analysts, with the bank's main department heads each saying their piece, writes Simon Carswell
The show of force was less about parading the bank's impressive 2007 figures - pretax profits have broken through the billion euro mark for the first time - and more for the benefit of doubting investors, particularly those overseas, who don't understand or believe the bank's profitable model.
"It was required because there has been a lot of misinformation out there," said Emer Lang, financial analyst at Davy's.
The bank has had to defend itself against "negative sentiment", a market euphemism for naysaying and rumour-mongering. The negative talk has centred on the bank's funding situation in light of the three-month-old turmoil in the capital markets and Anglo's future prospects, given its heavy reliance on the property markets in Ireland, Britain and the US, and the Irish housebuilding slowdown.
Yesterday's detailed publicity assault appeared to have worked. The share price rallied, rising 10.4 per cent to close at €11.02. It's still some way short of its 2007 high of €17.85 in May, however.
"They have done a good job," said Merrion Capital analyst Sebastian Orsi. "They put out a massive amount of disclosure on the loan book and funding, and a lot of detail on markets they are dealing in. It will probably turn sentiment from those points of view, but the broad macro-economic risks still exist."
Asked how long the turmoil in the capital markets would last, Anglo's chief executive David Drumm said it would not be resolved until the early part of next year when the major investment banks laid their 2007 audited accounts on the table for all to see their exact exposure to US subprime mortgage debt.
As for its own funding, Anglo Irish has been at pains to emphasise that it relies not on precarious wholesale funding, but on "sticky" customer deposits for 63 per cent of its balance sheet.
The bank showed yesterday that it was continuing to grow deposits strongly, particularly in Britain. Two months ago it started taking deposits in the US, where the bank believes it can replicate the lending model that has made it Ireland's third-largest bank and has driven 22 years of successive profit growth.
That model, aimed at the commercial property market, is based on Drumm's four "pillars" - people, cashflow, collateral and recourse. The bank first makes sure it knows and trusts each borrower. It then ensures that the customers have enough cashflow (rent, income or cash) to make the loan repayments and sufficient collateral, primarily properties, to be used as security and personal guarantees. Recourse guarantees that the bank can move quickly against a borrower if a loan is at risk.
The bank said it has been a careful lender, particularly to the slowing housebuilding sector. Anglo's head of lending, Pat Whelan, said 13 per cent - or €4.9 billion - of the bank's Irish loans had been provided to housebuilders and of that, almost €3.3 billion in loans was provided on pre-sold houses.
He said Irish commercial and retail property was still performing strongly. However, Anglo Irish Bank is preparing for more "moderate" growth in lending of 15-20 per cent.
Drumm said the "stellar results" would not fix the market but might silence critics. The improved share price will keep some quiet, for a short time at least.
