Inside the world of business

AIB owes us clarity over its exposure to property fraud

THE SHUTTERS have well and truly come down at AIB over the transfer last year of a €1 billion UK property portfolio formerly owned by Achilleas Kallakis to Green Property.

Serious questions remain unanswered as to whether it was a bona fide arm’s length transaction or a cleverly structured deal that allowed AIB avoid taking a big fraud-related writedown at the worst possible time, early 2008, which might have been enough to tip it over the edge.

The source of the doubt over the true nature of the subsequent deal with Green is the prices apparently paid by the offshore vehicles which took over the properties, which reflect no real discount for the collapse of the UK commercial property market in early 2008.

AIB’s silence rather cuts across the fine words of its new managing director Colm Doherty who wrote to staff after his appointment late last year about ethical codes and rebuilding trust in AIB. The bank’s stubborn refusal to dispel doubts about the Kallakis transaction does not do much for trust or confidence. More pertinently it raises fresh doubts about the level of bad debt exposure at the bank just as the process of transferring loans to the National Asset Management Agency begins.

The sine qua non of the Nama process is that it draws a line – and a very expensive one at that for the taxpayer – under the bank’s property-related loans. Some greater clarity about AIB’s continued exposure to the Kallakis portfolio is needed before we can safely say that we have arrived at that point.

O’Leary fights for himself

MICHAEL O’LEARY loves to portray himself as the consumers’ champion. Fighting the good fight to break up state monopolies, smash cosy cartels and bring the lowest fares possible to the masses.

So how does he square this with increasing air fares in Ireland at a time of deflation and recession?

At a press conference on Thursday, O’Leary not only announced a 19 per cent cut in weekly flights, he said fares would rise by “at least 10 per cent” here. “There will be no free seat sales out of Ireland this year,” he added. “I don’t think there’ll be any seat sales less than €10.”

O’Leary said “the growth [in flights] will be from the summer months when people are willing to pay high fares to get the hell out of this country.” He then seemed to contradict himself by adding: “It will never be easier or cheaper to get abroad this summer.”

So it seems Irish travellers are going to have to pay more, on average, flying with Ryanair this year, unlike their counterparts in the rest of Europe. Ryanair’s average fare is €32. “Out of Ireland this year it’ll go up €3 if not more,” O’Leary told reporters.

Irish passengers are the meat in the middle of a sandwich that is Ryanair and the Dublin Airport Authority/Department of Transport.

O’Leary is hopping mad at increases in airport passenger charges and the Government’s €10 air travel tax and blames these fees on the rise in fares. He has warned that Ryanair will keep cutting capacity out of Ireland until they come to their senses.

He has a point but the irony is that O’Leary has made an art out of charging for baggage, online check-in, credit card bookings and the like. Interestingly, O’Leary hasn’t cut any routes out of Dublin, just frequencies. Cynical observers would say the cuts are more to do with improving his load factors and maximising profits than doing battle with the DAA and Government on behalf of consumers.

They could be right.

Lloyds boosts BoSI’s dowry

ULSTER BANK’S latest capital top-up from its supportive parent, Royal Bank of Scotland (RBS) and the cash injections into Bank of Scotland (Ireland) (BoSI) from its parent are revealing, more so for showing the capital holes left to plug in the domestic banks.

The most recent cheque from the UK into Ulster Bank – thought to be about €500 million – before Christmas brings to just shy of €3 billion the support from RBS over the past year.

Covering a loan book of €60 billion, this amounts to 5 per cent of assets. BoSI has received €3.45 billion over the past year, which on a loan book of €32 billion, suggests that its parent, Lloyds, has taken a much more pessimistic outlook on the state of Irish bank loans. There is of course a greater concentration at BoSI to the property sector.

AIB and Bank of Ireland have each taken €3.5 billion in State aid on loans of €133 billion and €131 billion respectively and so fall well short of the UK hand-outs as a proportion of the banks’ loan books.

The €3.45 billion from Lloyds could also be a means of strengthening BoSI’s capital as it works through its loans in the long term.

This may make the Irish unit more attractive as local management push the bank’s attempts to join the third force that may take shape after the pending EBS-Irish Nationwide merger.

The Government is instigating the merger of the two building societies, but when it comes to adding Permanent TSB or possibly BoSI, to the mix, the Department of Finance would prefer the market to take the lead, so it can keep its copybook clean with EU competition rules.

Besides, its focus remains on the building societies and the Government is still cool on either Permanent TSB or BoSI joining the party. Lloyds’ capital into BoSI will help the bank with a dowry, but the massive loans-to-deposits ratio (486 per cent in December) could prove more problematic to it joining any polygamous marriage of financial institutions.

NEXT WEEK:Business and political leaders meet at the World Economic Forum in Davos, Switzerland which begins on Wednesday

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