A disappointing week for all three of the Republic’s pillar banks

In a remarkably busy week for Irish corporate earnings, banks stood out for a collective performance that was underwhelming at best. All three of the Republic’s pillar banks disappointed the market and all for their own reasons.

Bank of Ireland was first up on Monday and suffered a hefty 8 per cent fall in its share price so poorly received was the fall in profits it recorded. It recovered later in the day to eventually close down 2.3 per cent.

Nonetheless, its 30 per cent share price fall since Francesca McDonagh unveiled ambitious targets makes it the worst-performing Irish banking stock since last June.

While the State’s largest bank by assets made headway in its cost cutting plan, that wasn’t enough to satisfy concern over the fact that underlying pretax profits dropped by 13 per cent to €935 million.

Bank of Ireland sets up €2bn fund to help SMEs manage Brexit issues

---

Irish businesses moving to prepare for post-Brexit trade

---

Brexit is Thatcherism 2.0, Andrew Marr tells Ibec-hosted event

---

On Wednesday, Permanent TSB said its net profit fell to €3 million last year from €40 million previously as it absorbed impairment charges relating to the sale of its problem loans and set aside more money to deal with the tracker mortgage debacle. Markets weren't impressed with that either, even as PTSB's profit before exceptional items soared 45 per cent to €94 million.

On Friday, it was AIB’s turn. It reported a fall in pre-tax profits to €1.25 billion from €1.31 billion the previous year. But the bank proposed a bigger-than-expected 42 per cent jump in its annual dividend, which means the State will benefit to the tune of more than €373 million.

Of continuing concern across all Irish banks is the high level of non-performing loans they all hold. While Bank of Ireland has the lowest NPL ratio in the State, at 6.3 per cent, that’s still well above the euro zone average of 3.5 per cent. The lender said it may try to shift up to €800 million of soured buy-to-let loans or refinance them on the bond markets.

But political machinations may well put a spanner in the work. Sinn Féin has offered a bill that would prevent banks from selling loans without the borrowers’ consent.

While the timing of such legislation may be bad for Bank of Ireland, it's far worse for AIB and Permanent TSB, which hold 9.6 per cent and 10 per cent in NPLs respectively.

And Sinn Féin's bill is making the regulator uneasy. Sources close to the Central Bank said the mortgage market is still seen as "dysfunctional" and added that the legislative noise on the issue and the uncertainty surrounding it is a barrier to entry here. A "predictable and effective legal market where security on a house actually meant something for lenders" is preferable, the sources said.

What will make consumers uneasy is rising mortgage rates. Bank of Ireland this week called time on mortgage rate cuts with its chief financial officer saying rates will likely begin rising from here on.

High-end properties

While banks may be growing their loan books, one would imagine their focus is on the mid-market, given the decreasing appetite for luxury homes.

According to Knight Frank, the price of high end Dublin properties fell by 2.8 per cent in 2018, the second decline since 2013, owing to Brexit uncertainty and an increase in the volume of properties coming to market. The estate agency’s index tracks properties in the top 5 per cent by value in each market – in Dublin’s case, that is homes priced in excess of €950,000.

Meanwhile, the Government was strongly criticised by the European Commission over its housing policy. The EU's executive team said the shortage of housing in the State had triggered a 23 per cent jump in rents since 2015 – the highest in the EU.

It also noted that, while demand for social housing stood at approximately 72,000 units, there were just 10,000 planned for delivery in 2019.

Back on the luxury home front, sellers needn't think that their problems are unique. Prices of prime residential homes fell 4.4 per cent in London, 3.4 per cent in Dubai and 2.5 per cent in New York.

With Brexit promising a boom for financial services in the Republic, perhaps these properties won’t hang around the market for too long. But for the majority of us who can’t afford a luxury home, the slow moving property market beast shows now immediate signs of improvement.

Poor customer service

Eir’s customer service has come in for extensive criticism of late with its clients complaining of long waiting times and poor responses when they do get hold of someone.

The telecommunications company finally acknowledged the issues this week and on Wednesday outlined plans to tackle that poor reputation. Of course, these plans have already been well flagged and we’re merely entering the final furlong of the implementation stage, which will see 750 customer care roles spread through the company’s new regional hubs.

"During this time of change, customers have experienced longer wait times than usual or acceptable, and we are doing everything we can to minimise the disruption," chief executive Carolan Lennon said.

For her, this is a “key priority”. Although with earnings merely stable as a result of cost cuts, one suspects growth will ultimately be far more important to the company’s new French owners.

While Eir aims to grab market share, so too do the mobile phone companies. At Mobile World Congress this week, a plethora of new announcements were made in an effort to attract consumers away from market heavyweights Apple and Samsung. Sony opted for a new aspect ratio so customers could watch their films on mobile while Nokia upped the camera stakes by introducing a phone with five camera lenses.

For Huawei, the strategy was altogether different. Like Samsung, they opted for a foldable phone, which turns into a tablet, but they’re appealing to customers with deep pockets. At €2,299 a pop, Huawei had better hope that its larger display translates into larger sales.