Buyer beware: Irish banks on the block

By Steve Slater and Carmel Crimmins

LONDON/DUBLIN (BestGrowthStock) – Ireland may have hoisted a “For Sale” sign over its troubled banks but will struggle to attract buyers when the country is still in the throes of its economic crisis, bankers and analysts said.

Patrick Honohan, Ireland’s central bank governor, on Wednesday said foreign ownership of its ailing banks was not a “far-fetched” scenario.

But the country’s two main banks have had to sell some of their best assets to raise funds or as a condition of taking state aid and are pure plays on an economy mired in austerity and struggling to emerge from years of reckless lending.

Bank of Ireland’s shares fell a further 8 percent on Thursday while Allied Irish Banks was down 7 percent.

Having avoided majority state ownership, Bank of Ireland is seen as best placed to attract any buyer interest. Analysts say it should emerge from the crisis as a dominant, profitable force in a market where foreign rivals like Lloyds and Danske Bank

have retreated or retrenched, and domestic rivals are on the ropes.

But the febrile Irish backdrop and concern that more capital could be needed makes it unlikely any predator will move soon.

The cost of insuring the bonds of Irish banks has soared to distressed levels amid concerns there will be more nasty surprises that could tip the sovereign over the edge.

“The attractiveness of Ireland is still very risky,” one banker said. “Capital markets are losing patience … the news has repeatedly been worse than expected.”

Stephen Lyons, Davy banking analyst in Dublin, said overseas interest would be welcome, but appetites would be limited until the economy is on steadier ground.

“When he (Honohan) talked about that he wasn’t really being timeframe specific … You need the positive support of the economy. We’re not there yet,” Lyons said.

Bargain hunters circled earlier in the crisis, with Allied Irish Banks last year holding talks to sell a minority stake to an unnamed suitor — which sources said was from Canada — but that talk faded as problems deepened.

Spain’s Santander has also shown interest in the past, an industry source said. But the euro-zone’s biggest bank last month called a halt to acquisitions after a string of deals.

Asset managers or sovereign funds are seen as more likely buyers, and hedge funds or turnaround experts are showing an interest in books of loans that emerge at knock-down prices from Ireland’s “bad bank,” or NAMA.

Also a private equity consortium led by Cardinal Asset Management will seek more deals if it is successful bidding for nationalized EBS Building Society, a person familiar with the matter said Thursday. Of potential interest to them would be Permanent TSB and Irish Nationwide, the source said.

Ireland has already struggled to get to grips with its banking crisis, and the latest fear is that losses on residential mortgages will spike as the government’s austerity measures squeeze income.

The government admitted in September the bill for purging its banks of years of reckless lending could top 50 billion euros and now there is a fear the bill could be even higher if mortgage losses climb.

And most of the banking sector is now in government hands. Losses on commercial property left Anglo Irish Bank nationalized, BoI is 36 percent owned by the state and Dublin will own over 90 percent of arch-rival Allied Irish Banks after a 5.4 billion-euro rights issue.

The crisis has also hurt foreign banks. Royal Bank of Scotland’s Ulster Bank unit has lost 490 million pounds this year, hit by 785 million pounds of bad debts, and last week said the commercial property market will take years to recover. It also has a sizeable exposure to Irish sovereign debt.

(Additional reporting by Matthew Scuffham and Victoria Howley; Editing by Greg Mahlich)

Buyer beware: Irish banks on the block