EBS reports pretax loss of €250m for first half

EBS BUILDING Society said it was “on the path to viability” yesterday, as it reported a pretax loss of almost €250 million for the first half of the year, but added that impairments on loans would peak during 2010.

Impairment provision charges amounted to €223.5 million in the six-month period, with €105 million of that relating to loans being transferred to the National Asset Management Agency (Nama). The building society has made a loss of €52 million on the loans transferred to Nama.

“Clearly the bad debt charge is a very challenging number, but the underlying business in EBS . . . was and is performing quite well,” said chief executive Fergus Murphy.

Before provisions, EBS made an operating profit of €25.6 million in the first half. Excluding Nama business, it made a pretax loss of €93 million. Mr Murphy said EBS was engaged in “positive discussion” with European Commission officials in relation to the restructuring plan it submitted for approval at the end of May.

He added that EBS’s funding position was “solid” despite the current “extremely dislocated” markets. ECB funding has decreased from 12 per cent to 10 per cent of its total funding.

By the end of the year, the bank will have taken close to €2 billion in new deposits since the start of 2008.

“Overall our funding position is good, our collateral is very strong and we’re comfortable with our liquidity,” he said.

EBS finance director Emer Finnan added that the company was “taking an ongoing realistic approach to impairments”.

EBS’s net interest margin for the first half of 2010 fell from 70 basis points in the first half of 2009 to 50 basis points (half a percentage point) in the first half of this year, with pressures on margins including the elevated cost of retail deposits, the elevated cost of wholesale funding and the increased cost of the Government guarantee.

Mr Murphy said this margin was an all-time low for the institution, but that the impact of a recent increase in its standard variable interest rate (SVR) on mortgages would bring the margin back up towards 70 basis points by the end of this year.

Mr Murphy said he expected that the “lion’s share” of the interest rate hikes had now been implemented. “Obviously we need to continue to manage that as we go,” he said.

With only three actively competing players remaining, EBS now holds a quarter of the residential mortgage market, a record high for the lender. Gross lending volumes of €630 million in the first half of 2010 were roughly in line with the same period the previous year, it said.

Mr Murphy said its “overriding objective” was to minimise the cost of the recapitalisation to the Government.

Building society in talks with interested parties: number of bidders expected to be narrowed down

THE NUMBER of bidders for EBS Building Society is likely to be narrowed down to two within the next month, with "strong progress" expected by the year end, the company has indicated.

EBS chief executive Fergus Murphy said he had not expressed a preference for any one bidder to the Department of Finance.

"There has been a very positive, constructive engagement with bidders and a very positive, constructive engagement with the NTMA and the Department of Finance," Mr Murphy said.

"We will continue to work through the process between now and the next number of months and we expect to come to a good solution," he added.

The bidders who have expressed interest in the institution are Irish Life Permanent, a consortium led by Dublin-based Cardinal and backed by US private equity giant Carlyle, the UK-based Doughty Hanson and the US buyout firm JC Flowers.

All of the "very well-informed" bidders were looking beyond the current difficulties experienced by Ireland on sovereign debt markets, Mr Murphy said.

Both the in-market consolidation option and a private equity buyout scenario have "a lot of credibility", he said.

"I think there's a strong business case for both."

Mr Murphy said EBS had not engaged with Wilbur Ross – whose company is part of the Cardinal-led consortium – in relation to comments made by Mr Ross that part of the capital of homeowners' mortgages might be written down.

Mr Murphy also said EBS had not looked in detail at what the outcome for jobs at the bank would be under either of these two main scenarios.

There was only "a low probability" that the bank would remain State-owned.

"You never know, and the world has been a very strange place over the last couple of years.

"But I think the momentum and the strong probability is that there will be some kind of transaction."

Meanwhile, the search for a chairman for the company is "in abeyance", Mr Murphy said.  – Laura Slattery