Year: 2010
I surely have better things to do with my time but, yes, I spent the evening reading AIB’s half year report (with the Airtricity boys doing us proud in the background.) As John already noted, the report has a lot of pretty bad news in it, so I thought I’d point out some sort of positive news (before getting back to the bad stuff).
Liquidity Situation
The good news? Despite concerns that have been expressed about a looming “wall of cash” moment, AIB looks as though it’s in a position to get through to the end of the year paying back all its debts, though this may require ECB assistance.
“The six months to June 2010 was a very difficult period for AIB and its customers.” So begins management’s overview of AIB’s interim results for 2010—and it’s hard to disagree. Bank watchers were looking for news in three main areas: impairments on non-NAMA bound loans, operating profits, and progress on asset disposals. Today’s release managed to disappoint on all three.
Provisions for impairment were €2.3 bl. (including €1.2 bl. for loans “identified for potential transfer to NAMA”). Operating profit before provisions fell 46 percent from the same period last year, with significant falls in the net interest margin. And Colm Doherty was not especially forthcoming on how well the disposals of Polish, UK and US assets are going, although his presentation to analysts did give the sense that AIB were being forced into a fire sale in poor market conditions—hardly encouraging.
Other “news” included the (inevitable) plan to follow BOI in raising the rate on variable-rate mortgages by about half a percentage point, and the (sensible) call to extend the guarantee on both shorter- and longer-term liabilities given the continuing difficult funding environment.
The interim report is available here. Colm Doherty’s presentation and Q&A is available here.
There is no international standard for the reporting of property price indices. However, it is still very welcome that the BIS has now made public its database on property prices for 37 countries. Details (and spreadsheet) available here.
Paul Sweeney criticises the idea of selling State-owned entities in today’s Irish Times: you can read his article here. Paul Sweeney’s contribution is incomplete. In particular, he does not fully address some key issues (I raise these points as questions, without having answers)
- Liquidity. If a government faces funding risk, selling valuable-but-illiquid assets may reduce the risk of a funding crisis.
- Ownership and firm performance. While Paul Sweeney highlights the potential inefficiencies of privatised firms, he does not have much to say about the possible inefficiencies of State-owned firms where the management or workforce may have objectives that are not fully aligned with the common good.
- Regulation. Where monopoly power is a severe problem, regulation is necessary. Can the Irish regulatory system be made more effective to ensure that sectors inhabited by monopoly-type firms deliver efficient outcomes? Does the identity of owners affect the effectiveness of regulation?
Paul Sweeney also highlights the increasing importance of State-owned firms in Asia, Russia and Latin America. It would be good to know the exact lessons to be drawn for countries such as Ireland from this development.