Will the Red Flag fly in Baggot Street when the Proles own Bank of Ireland

Bank of Ireland – A staid old lady falling into the hands of proletariat!!! It took a long time for the inevitable to happen and the proles to strike. The Bank of Ireland was set up by Act of the Irish Parliament in 1782. Daniel O’Connell set up the National Bank of Ireland in 1835. In 1958, Bank of Ireland took over the Hibernian bank and in 1965 the National Bank of Ireland. So a long conservative careful history preceded the recent
financial calamity.

To the sound of rumbling in Highgate Cemetery, London as Karl Marx turns  over in his grave, the workers of the world have united to nationalise the banks. – AIB/BoI/Anglo all under state control. The skies have not fallen in but the PDs did the decent think and vanished.  Isn’t it amazing that the Socialist Workers mantra “nationalise the banks” has happened in many capitalist countries? Murphy’s law also applies to the banks – anything that can go wrong will go wrong at some point.

The brutality of the loan book reality speaks for itself.

Toxic Loans heading for NAMA €16 billion – NAMA will pay BoI €11.2 billion (approximately) Gap €4.8 billion immediately – Bad debt provision to 30th September 2009 for this toxic element – €1.4 billion

( The NAMA total estimate in April for all the banks was €54 billion with a market value of €47 billion  – ie  15% over market value handout to the banks )

The market has fallen another 20% since then – this would make the BoI bad debt provision requirement at market rates now €6.2 billion.

Up to March 2009, BoI admitted impaired loans of €5.3 billion (up €4.3 billion in one year).  Provision was made for €1.8 billion ie only 33% of the requirement.

Bank of Ireland has a remaining loan book of €119 billion with loan loss provision of €3.1 billion –  2.6% coverage.

BoI has €60 billion in domestic mortgages – half in Ireland and half in UK and around 25% is in negative equity.

BoI has set aside bad loan provision of 0.4% for this to September 2009.

Bank has a €19 billion non-NAMA property and construction loan book and a provision of €0.6 billion here up to September 2009 which is 0.3%. With a 50% decrease in the value of investment properties, – 3% provision would be more likely.

In the Small Medium Enterprises and big corporate loan book of €35 billion,  BoI has made provision for 2.5% write down but admits to an impairment of €2.2 billion already.

In September 2009, the bank’s equity base was €4.4 billion, therefore the €3.4 billion loss on NAMA leaving €1 billion plus the €3.5 billion preference share from government.

Bank of Ireland has a €1.5 billion pension black hole.

After providing for NAMA losses and the pensions problem, BoI has only a  tier 1 capital base of €3 billion left from government giving a tier 1 ratio of 2.5%, less than the 4% minimum required by the Regulator in Ireland.  To get to a 10% tier 1 ratio, BoI would need €8 billion, almost certainly from government.

The problems at BoI seem bigger than the €2.8 billion projected additional government intervention listed in my piece on 20 December 2009 entitled “NAMA transfers, costs and capital ratios”.

The National Pension Reserve Fund has warrants for 15% of BoI shares for 52 cent and has a right to a further 10% at 20 cents. At the lower of these prices, the government could end up owning 98% of the bank’s share capital.

I agree with Moneybags in Phoenix magazine, that the government should just buy the banks – AIB and BoI – and let the bondholders and the shareholders take the hit.

* I declare an interest – I and my wife separately, own shares in both BoI and AIB in the four figure volume range so I am not protecting my private interest.