Danske passes damning verdict on boom period by putting 56% of NIB loan book into special unit

ANALYSIS:HIVING OFF bad and unwanted loans into non-core units is in fashion, not just in Irish banking but across Europe, as lenders tackle problem assets.

Danske became the latest group to announce a core/ non-core split of a troubled Irish lender – in that bank’s case, National Irish Bank.

The two “pillar” banks, Bank of Ireland and Allied Irish Banks, have split their operations to run down the non-core loans as part of the shrinking of their businesses.

Permanent TSB was the most recent bank to unveil a split when the Government and troika blessed a plan to carve out a good bank by parking a third of its loans in an internal bad bank.

At NIB, judging from the scale of the problems being ringfenced, there are proportionately far more unwanted loans there.

The bank is putting €4.7 billion of mostly property loans, including buy-to-let mortgages, into a separate unit for special attention so Danske can recover the most money as they are wound down.

This amounts to 56 per cent of the NIB loan book, which suggests what Danske thinks of the lending that its Irish subsidiary did during the go-go years of the boom.

Danske’s restructuring coincided with the departure of Andrew Healy, chief executive of NIB and one of the survivors of the 2008 Irish banking crisis.

He has been in place since 2005, when Danske paid €1.4 billion to buy NIB and Northern Bank, a deal that looks even more disastrous when you consider that since the crisis began Danske has set aside about double this amount to cover bad loans at NIB alone.

The bank says there is more to come, saying that it expects a further €670 million to €940 million in Irish bad debt charges over the next two years, during which time it doesn’t see any prospect of a material improvement in Ireland.

“The Irish economy is expected to continue to face structural challenges, and because of the economic climate, the level of future impairment charges is uncertain,” Danske said in its latest results.

“The situation for rental property and property developers in Northern Ireland is also uncertain.

“Loan impairment charges at the units in Ireland and Northern Ireland are therefore likely to remain high, at least in the coming quarters.”

Belgian-owned KBC Bank Ireland, which also reported first-quarter results yesterday, said that 2012 would be another tough year.

Danske expects Irish commercial and buy-to-let property values to decline by 70 per cent from the peak to the trough, and residential properties to fall 60 per cent.

Even though Danske has gone further and quicker on bad debt charges and cost-cutting through the crisis than other Irish banks, a further significant restructuring was deemed necessary to draw a final line under its woes in Ireland.

Northern Bank and what remains of NIB will be merged and rebranded as Danske by the end of the year.

New divisional managers will no longer be reporting to an Irish chief executive but instead will deal with divisional heads in Copenhagen.

This is the first major act of Eivind Kolding, who became chief executive of Denmark’s biggest bank in February.

The effect of his various changes will leave the merged Irish operation with considerably less autonomy.