Allied Irish Banks Plc’s Chief Executive Officer David Duffy comments on plans to win new investors in 2014, four years after the company was seized by the state, restructuring soured mortgages and rebuilding margins.
He made the remarks in an interview in Dublin on Feb. 14.
On how AIB may return to private ownership:
“The first principle is that we would not really look at venture capitalist or short-term” investors. “If we had to wait even longer, we’d wait to have long-term stable investors.”
“I think the government should and would always be involved in the bank at some percentage, and there’s certainly a long-term equity upside in that equation. Long-term investors would want to have a majority, but I think the government could” see “participation that could lead to further potential equity upside in future.
‘‘We will make ourselves as attractive as possible from a commercial perspective, with the most attractive dividend or yield in future and then the government will take its decision at the right time.’’
On state’s aim to sell bank stakes to the European Stability Mechanism:
The ESM taking a stake is ‘‘about the government recovering some of the absolute burden of the debt’’ linked to bank bailouts ‘‘and I think that’s an appropriate principle given what happened. I think the long-term answer is that you want private investors in. So even if you do a transaction with the ESM, then having private investors come in and eventually taking the ESM out would be appropriate.
‘‘We’ve deliberately chosen a strategy to make us an investible proposition’’ in 2014. ‘‘If the government is the body that makes the decision, it will judge with its ESM dialogue’’ on ‘‘where the best mix is.’’
‘‘If it turns out that it’s straight back to market, great. That’s a function of getting the money back. If it turned out that if it was through the ESM which reduces the burden, followed by a migration to private ownership, or a hybrid of ESM and private for a while, we’re very relaxed.”
On restructuring soured mortgage loans:
“I’m comfortable saying that all of the mortgage arrears book will have long-term restructuring in place by the end of the year, bar a small percentage or whatever percentage want to go the litigation or the PIA,” or Personal Insolvency Agreements, “route. We would say in principle we’d be looking to offer a more attractive solution than PIA.”
Allied Irish has built “an engine of almost 2,000 people” to work on problem loans.
While the bank late last year targeted 1,500 mortgage restructurings a month “we’re exceeding that in the first few months of its operation” to 2,000 a month.
“It doesn’t mean you’ve finished the restructuring. It means you’ve done the full assessment and in the great majority the offer’s been made and you’re going through the process of delivering against that.”
“The right principle is to protect the consumer from harassment from a bank. That’s your first instinct and nobody would dispute that, but it’s quite a cumbersome process” as the industry Code of Conduct on Mortgage arrears limits banks’ unsolicited calls to borrowers to three times a month.
“Then you have the Justice Dunne” ruling in 2011 that makes repossessions “difficult to execute.”
“Then you have the general system, legal system, which takes a lot longer than a number of our counterparts in Europe or the States. If you aggregate them, there’s quite a treacly process to get through.”
In addition, “until the banks had built our capability and start to demonstrate real resolution capability in volume, the pressure wasn’t there. So, you may be perhaps dealing with more immediate cases that were falling over. But now that there’s a volume-based process for all the banks” to restructure troubled mortgages, “I think there’ll be more visibility around the topic of repossessions over the next six to 12 months.”
There will be a “natural bias” to focus on repossessions in the buy-to-let sector.
On rising residential mortgage rates:
“Throughout 2013 there could be another raise, but it’s not a whole series of raises.”
On rebuilding net interest margins:
“In the latter part of last year, we’ve seen the trend on NIM turning to the positive. The primary objective of the bank is to focus on NIM from a long-term sustainability perspective. I think in the history in any global crisis, volume replaces NIM as a priority and you can always show compounding profitability with escalating growth of volumes of business done.
‘‘Over 10 years, the trend was largely downwards in NIM but the volume was rising so high.
Last year ‘‘I think will be pretty much the bottom of the NIM trend.’’
On restructuring small- to medium-sized enterprise loans:
Resolving problem SME loans ‘‘is probably an 18- to 24-month cycle because the nature of those are more complex.’’
On whether Allied Irish, having cost 21 billion euros to bail out, should have been shut down like former Anglo Irish Bank Corp.:
‘‘AIB was so large in terms of its participation of the economy’’ that in closing it down ‘‘the damage that would have been done in purely financial terms and in terms of the fabric of everything would have been enormous.’’
‘‘Today, we’re sitting in a place where, well, a lot of money went into it, but if we can follow the path we’re on successfully, money will be coming back. What amount finally gets paid back, who knows?’’