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Inside the world of business

Why B of I is happy enough to be best of a bad bunch

BEING THE least worst bank is hardly something that any financial institution would want to boast about, but Bank of Ireland is happy to wear that badge, particularly given the perilous state of the other lenders.

Following shareholder approval at an egm tomorrow, the bank will launch the final part of its €3.56 billion capital plan on Thursday to boost its cash reserves. This should “bomb-proof” the bank against any future unexpected losses, and limit Government ownership to a minority 36 per cent. The same can’t be said for AIB.

Market commentators were clamouring for a Bank of Ireland rights issue last year, given that the bank was in a more favourable position than its peers participating in the National Asset Management Agency (Nama).

Such action was next to impossible without clarity around key issues – the discount Nama would apply, how the European Commission would want the bank to restructure itself under state aid rules, how much capital the Financial Regulator would force it to raise and where loan losses would go.

Those boxes have since been ticked. The bank was hit with a 35 per cent discount by Nama on its first loans – the lowest of the five institutions – and expects this to apply to all its loans heading to the bad loans agency.

Expected bad loans have remained as forecast. The bank is on the way to surpassing the regulator’s new capital threshold, and some businesses are being put on the block to appease Brussels.

Bank of Ireland appears to have turned a corner. The raising of €500 million from private institutions last month seemed to be a vote of confidence that the bank was on the way to fixing its problems and emerging ahead of AIB as the first Irish bank to emerge from the domestic financial crisis.

Cowen plays the odds

LATE LAST week, Taoiseach Brian Cowen told guests at an Irish Field-organised bash for the racing and breeding industries that the Government will shortly publish legislation to tax internet betting, which currently is not liable for the 1 per cent levied on turnover in bookies’ shops.

The issue has been the subject of a sometimes heated debate between racing on the one hand and bookies on the other. A traditional link between the two means that the cash raised from betting tax was effectively used to fund racing.

The racing industry now believes that it is losing out because more and more punters are moving online. The bookies on the other hand say there is no pot of gold at the end of the internet betting rainbow.

The other issue for home-grown players such as Paddy Power, which holds its annual general meeting (agm) today, is that rivals in the Irish online market, such as Ladbrokes, have their internet operations based in Gibraltar, and they will thus not have to pay the tax.

This will give them a competitive edge over players such as Paddy Power and Boylesports. Power’s chief executive, Patrick Kennedy, says his company could ultimately be forced to shift its internet business, and its 600 jobs, offshore, if it had to pay the tax and its competitors did not.

On this basis, Kennedy has said that the company favours a regime which ensures that everybody pays the same, and would prefer a licensing system. Other operators seem to agree with this.

It remains to be seen whether or not the Government does. The real answer would be to come up with a system that tempts operators from the increasingly global and lucrative online gambling business to set up here, and get a piece of the action for the exchequer, horse racing and the economy as a whole.

The fact that Cowen made his announcement to the racing industry indicates that the Government has already decided what it is going to do and – possibly – which constituency will be happiest with that decision.

A seasoned Somers

IT APPEARS the Taoiseach is not alone in trying to get his retaliation in first ahead of the expected publication later this month of Central Bank governor Patrick Honohan’s report into the causes of the banking crisis.

Michael Somers, the former head of the National Treasury Management Agency, took to the airwaves last weekend and was quizzed as to what he knew, and when, about what was going on at Anglo Irish Bank.

To Somers’s credit, his deep and well-founded suspicions about the viability of Anglo Irish Bank’s model meant the NTMA was circumspect about putting taxpayers’ money on deposit with the bank. According to Somers, he had no information other than that which was in the market generally, and his unease was more a gut feeling than based on any specific information.

The difficulty for Somers is why he did not sound the alarm in Government Buildings about the bank if he did not trust it. His answer is that he was well aware that he could be wrong in his assessment. The Department of Finance knew as much as he did, according to Somers.

What really comes across from this is that the relationship between the NTMA and the Department of Finance was dysfunctional. It seems absurd that when the head of the NTMA – one of the longest serving, most respected and best-paid civil servants in the State – had real concerns about Anglo Irish Bank, he didn’t or couldn’t bring those concerns to the attention of the Department of Finance in such a way that they would be acted on.

Today

Bookmaker Paddy Power releases an interim trading statement ahead of its annual general meeting. Other companies updating shareholders include UTV and Tullow.

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