Goodbye to AIB and hello again to a ghost of Christmas past

It was a year when Ireland said goodbye to a significant stake in AIB and to the chief executive of Bank of Ireland. And, before 2017 was out, taxpayers said hello again to a ghost of Christmas past.

From the outset the clear focus was on AIB, which had required a €20.8 billion bailout. The bank’s announcement that it posted a €1.7 billion full-year profit before tax in 2016 and declaration of a €250 million dividend, its first since 2008, was enough to get the ball rolling on Europe’s biggest initial public offering of the year.

Project Viking, two years in the planning, culminated in June when the Government sold almost 29 per cent of AIB, raising €3.4 billion – notwithstanding a minor market wobble in the middle of the process when Britain's Conservative government lost its parliamentary majority after the prime minister, Theresa May, called a snap election.

Non-performing loans (NPLs) remained in focus as the European Central Bank upped the pressure on banks across the euro zone with high levels of soured loans to finally draw a line under the problem. While domestic banks had cut their NPLs from an average of 27 per cent of their loan books in 2013 to just over 14 per cent at the end of 2016, they remain well over the EU average of about 5 per cent.

Moments of the year: Sweet night in Dublin as England’s train derailed

---

Moments of the year: We’ll always have Cardiff despite Danish pasting

---

Moments of the year: Jordan Spieth’s rough magic showed an Open mind

---

Moments of the year: Joe Cool when everything was on the line

---

Bad loans

AIB and Permanent TSB outlined plans to start selling bad loans, including problem mortgages, to bring their NPLs down to more normalised EU levels – or face the consequences of being subjected to more intrusive supervision, higher provisions requirements and higher capital targets.

Permanent TSB, with the highest level of NPLs in the State, at 28 per cent, saw its share price fall during the summer. Investors’ hopes the bank may have surplus capital on its balance sheet turned to concerns that it might not have enough as it starts selling soured loans at deep discounts to their nominal value.

PTSB plans to start loan sales early next year, but it won’t be alone. AIB, which sold a portfolio of buy-to-let loans to Goldman Sachs in April for half their €400 million face value, has just launched the sale of €3.8 billion of NPLs, known as Project Redwood.

Meanwhile Lloyds Banking Group, which inherited Bank of Scotland Ireland's loan book when it agreed to take over Scottish lender HBOS in 2008 in a rescue deal engineered by the UK government, also made a decision in recent months to prepare its remaining €5 billion mortgage portfolio for sale. That transaction is expected to be launched early next year.

Bank of Ireland, which has the lowest level of bad loans in the industry, at 6.5 per cent as of September, is alone in insisting it has no plans to sell defaulted loans.

The bank had enough on its plate during 2017 as its chief executive of eight and a half years, Richie Boucher, retired in September and was succeeded by Francesca McDonagh, a former HSBC executive in the UK.

Key issues

Two key issues awaiting McDonagh were the tracker-mortgage scandal, which has cast a dark shadow over banks in recent years but came to a head in October, and Bank of Ireland’s €900 million technology investment programme.

The bank has so far given very few details of what the information-technology overhaul will achieve, other than reduce its costs. The Irish Times reported in October that the group has been working off plans – hatched before McDonagh joined – that more than 1,000 jobs, or 9 per cent of its workforce, would be shed from 2019. Investors will be looking for much more information next year.

Meanwhile, the remnants of Irish Nationwide Building Society (INBS) came back to haunt taxpayers in December when a long-awaited inquiry into alleged lending-practice breaches at the failed lender began to hear statements from some of the five men under investigation.

Michael Fingleton, who is now 79, and who led INBS for 38 years until he stepped down, in 2009, came out swinging, saying the firm and wider system ran into trouble because of regulators' failures to spot the looming crisis.

He also claimed the society would have long been sold on to an overseas group before the crash but for “political treachery”, which delayed legislative changes paving the way for such a deal until 2006, when it was too late.

“I formally deny all special prescribed contravention allegations that have been made against me,” he said in his opening statement.

It may be another two years before we learn the inquiry panel’s verdict.