€464m wiped off Anglo value after risk warning

SOME €464 MILLION was knocked off the value of Anglo Irish Bank yesterday after it said lending was slowing across all sectors and that it was taking a further writedown on risky assets and adopting a highly cautious approach to new lending.

Anglo's share price fell 10.7 per cent, or 103 cent, in trading yesterday before closing down 6.3 per cent, or 61 cent, at €8.97, valuing the bank at €6.8 billion, compared with €7.2 billion a day earlier.

In a more pessimistic outlook, Anglo said it was continuing to "adopt a highly selective and cautious approach to new lending opportunities in the current environment". The bank said in a trading statement
that it was sticking with its 15 per cent earnings growth forecast for the half-year to March 31st, 2008, but that there were "risks associated with further financial market disruption and the potential impact of a protracted deterioration in the wider economic environment".

Anglo chief executive David Drumm said that, "notwithstanding market uncertainties", the bank believes it will deliver similar growth for its full 2008 year. Underlying profit has grown at a significantly higher rate, the bank said, but it would "continue to take a prudent stance in relation to the valuation of treasury assets impacted by the current dislocation in the global credit markets".

Davy banking analyst Emer Lang said she was puzzled by the market reaction, saying the figures were in line with expectations. "We saw the statement as reassuring. I am surprised some have taken flight and the market has reacted so negatively. The bank is taking a more jaundiced view and is not taking on every loan that comes its way. I would interpret that as a bank that is managing its way through tough
times."

The bank expects net loan growth of €6-6.5 billion in the halfyear to March 31st, 2008, down from €8.7 billion in the preceding six months, and €10-12 billion for the full year. Anglo said the 15-month slowdown in the housing sector appeared to be "bottoming out following price reductions and a significant decline in the supply of new homes".

Irish residential development accounted for around 7 per cent of Anglo's loans and was "performing well under difficult market conditions".

The bank said most of its housebuilder clients were "long-established, experienced developers with significant net worth" who had diversified their business interests. Anglo said it had "a limited number of smaller relationships" which required "additional active management reflecting current market  conditions". Anglo said asset quality on loans was "robust".

The bank expects an annualised bad debt charge of around 0.13-0.14 per cent of loans, below the consensus of 0.25 per cent, while actual bad loans would be roughly static at 0.55 per cent. The bank again revalued its structured investment vehicle (SIV) assets, increasing writedowns on these investments by about €30 million to over €100 million, more than 75 per cent of their original value.

The bank said it remained "highly vigilant" in the UK market and in the US would continue "to exercise a high degree of caution in selecting new business" given the deterioration in sentiment.