Bank of Ireland, Allied Irish May Show Halt in Cash Flight

Bank of Ireland, Allied Irish May Halt Deposits Flight
Regulators last month ordered the two banks to raise 18.5 billion euros of additional capital following a stress test aimed at ending the countrys financial crisis. Photographer: Aidan Crawley/Bloomberg

Bank of Ireland Plc and Allied Irish Banks Plc, the Republic’s two largest banks, will this week show if regulators are succeeding in staunching the outflow of deposits triggered by the country’s financial crisis.

Ireland’s six biggest banks have lost about a third of their deposits since the end of 2008 as the country was forced to seek a bailout, according to the Irish central bank. Bank of Ireland and Allied Irish will disclose their deposits when they report combined annual losses that analysts estimate will total a record 10 billion euros ($14.4 billion).

Regulators last month ordered the two banks to raise 18.5 billion euros of additional capital following a stress test aimed at ending the country’s financial crisis. The Dublin-based banks are relying on emergency funding from the European Central Bank as customers pulled deposits and investors shunned their debt. The two banks get about half their funding from deposits.

“The new proposed capital levels will be very comforting for depositors,” said Niall O’Connor, a London-based analyst at Credit Suisse Group AG with an outperform rating on the two banks. “From a foreign point of view, what is going out has probably already left.”

Finance Minister Michael Noonan said April 6 net deposits at the two lenders “improved significantly” after the stress tests, without giving details.

Allied Irish fell 2 cents, or 6.8 percent, to 26.1 cents as of 2:30 p.m. in Dublin trading today. Bank of Ireland fell 6.1 percent to 27.8 cents in Dublin.

Deposit Flight

Depositors pulled money last year as the country’s credit rating was reduced on concern the government wouldn’t be able to afford the cost of bailing out its banks. Ireland’s bill to rescue the banks may reach as much as 100 billion euros, according to data compiled by Bloomberg.

Corporate deposits, excluding banks, at Ireland’s six government-guaranteed lenders declined to 30 billion euros at the end of February from 103 billion euros at the end of 2008, Emer Lang, an analyst at Davy, the Dublin-based securities firm, said in a note to clients on April 7. Consumer deposits shrank 12 percent to 134 billion euros.

Standard & Poor’s last week lowered Ireland’s credit rating to BBB+ from A-, putting the country on the same level as Thailand. In December, Ireland’s credit rating was cut five levels to Baa1 by Moody’s Investors Service as the government struggled to contain losses in the country’s banking system.

Companies on Sidelines

“Very low ratings, some below investment grade, will keep corporate depositors on the sidelines,” Eamonn Hughes, an analyst at Goodbody Stockbrokers in Dublin, said in an April 7 report to clients. “From here, growth in the economy will be the main driver for deposit growth.”

Expansion may total about 1 percent this year, the country’s central bank forecast on Jan. 31.

Domestic consumer lenders, including foreign-owned banks operating in Ireland, borrowed 114.5 billion euros from the ECB as of March 25, the Irish central bank said on April 8. They may have also borrowed as much as 66.8 billion euros from the Irish central bank, the data show.

Allied Irish, the country’s second-biggest lender, may report a net loss of 8.6 billion euros tomorrow, according to the median estimate of four analysts surveyed by Bloomberg. The Dublin-based bank had 52.4 billion euros of deposits at the end of December, a 29 percent decline on the year-earlier period, according to the central bank. The decline excludes deposits at Allied Irish’s Polish division, sold last year.

Bank of Ireland Loss

Bank of Ireland, the country’s biggest lender, may record a 1.9 billion-euro net loss, according to the median estimate of six analysts. Five of Ireland’s banks, including Bank of Ireland and Allied Irish, sold 71.2 billion euros of commercial real estate loans to the National Asset Management Agency, or bad bank, for about 58 percent less than face value on March 2.

Irish Life & Permanent Plc, the country’s third-largest lender, said last month that deposits fell 6 percent to 14.8 billion euros in 2010. The company, which relies on deposits for a third of its funding, said corporate deposits dropped by a third to 3.7 billion euros.