Cantillon

Inside the world of business

Down and out at Irish Life

IRISH LIFE & Permanent confirmed the inevitable yesterday – that the State would end up with another bank under its control. The company said that, to raise up to €3.8 billion, there is no alternative but to take the cash from the Government, ceding a stake of more than 99 per cent to the State.

This means IL&P will join the mighty AIB, Donegal Creameries and Ovoca Gold next month on the junior Irish market, the ESM, if shareholders vote for the proposal at an egm on July 20th. This will be like turkeys voting for Christmas but the company recommends such a move “given the risk of further value destruction”.

Bank of Ireland will be the only bank left on the main Irish market.

In a detailed shareholder circular, the company showed why these actions were necessary. At the end of April loss-making tracker mortgages accounted for €16.7 billion or 65 per cent of the Irish mortgage book and €7.1 billion or 98 per cent of the UK book.

But it is the company’s heavy borrowing during the property boom that has pushed it into State hands. Permanent TSB increased its loan book by €13 billion from 2005 to 2007, funded primarily by borrowing in the debt markets. At the end of April 2011, 40 per cent of funding came from debt of €17.4 billion guaranteed by the Government, some €12.6 billion was borrowed from the ECB and €600 million from the Irish Central Bank.

Some €2.2 billion of the €4 billion Central Bank capital target relates to deleveraging to get borrowing down. This will cover losses on the disposal of €7.5 billion in UK mortgages and Irish commercial loans of €2 billion.

Minister for Finance Michael Noonan said last week a radically restructured IL&P would be one of the components in Irish banking to ensure competition.

Given that a further €6.2 billion of loans are to be offloaded from loan repayments exceeding new lending up to the end of 2013, it’s hard to see how it can be any kind of significant competitive force.

Getting the message on quarterly reports’ merit

IF THE Central Bank presses ahead with a proposal to require Irish banks to report figures on a quarterly basis, it would be following the lead of the Financial Services Authority and the Bank of England, both of which favour such a move.

Prior to the 2008 financial crisis, the view of the UK authorities – and by extension the Irish ones – was that, on balance, quarterly reporting was not necessary.

The prevailing view was that the additional transparency it might bring was counterbalanced by the pressure it would put on banks and their management to think short term and concentrate their energies on hitting quarterly targets in order to keep the market happy. Some might argue the collapse of Lehmans and the contagion that followed stemmed in part from exactly this sort of thinking on Wall Street.

The pendulum has clearly swung the other way, albeit somewhat later in Ireland than the UK. Lord Turner, the chairman of FSA, raised the issue in 2009 in his review of the causes and lessons of the banking crisis.

Lord Turner’s Irish counterparts have clearly had other issues on their mind. But the decision to look at reporting requirements hopefully reflects a move towards a different phase of the Irish crisis; one where having fixed the problems in the banks the focus now shifts to communicating to the market that they are fixed.

Halternecks fail to cut it for Jane Norman

JANE NORMAN has become the latest casualty of recession related fashion fatigue putting at risk more than 1,600 jobs in Britain and Ireland. The women’s clothing chain is weighed down with debt of £140 million at a time when input costs are rising and the retail sector is generally depressed.

Jane Norman specialises in the 16-25 age group – with the emphasis on the sweet sixteen end of the scale – which means its dresses tend to be doll-like confections of viscose and elastane, with a fondness for jewel embellishments, netted underskirts and an abnormally high frequency of halternecks.

Pursuing such a narrow demographic in a recession sounds like a dangerous commercial strategy, and so it has proved.

The company’s stock is also significantly pricier than that of its fellow fast fashion merchants, such as Primark, which trades as Penneys in Ireland, to where many of its customers have presumably departed.

Administrators, Zolfo Cooper, are now in discussions with “relevant parties”.

Debenhams has form in buying up the stock of struggling chains that happen to have concessions in its department stores. Edinburgh Woollen Mill has also been tipped as a buyer.

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