Thursday, April 1, 2010

Irish banks are hugely profitable

In the midst of the disaster that is the Irish banking failure, it is useful to note that Irish banks are hugely profitably businesses on an day-to-day or operating basis. 

Irish banks are not losing money and are generating big profits.  The problem is that Irish banks lost absolutely vast amounts of money when they issued huge loans to developers that they have no chance of getting back.  These losses are only now being addressed and are threatening to drown this country.  Any profits the banks are making are small in comparison to these huge losses but there are profits there nonetheless.

If we take the most recent financial reports for some of our main banks.


Operating Profit

Reported Profit

Allied Irish Bank

€2,962 million

-€2,656 million

Bank of Ireland

€1,050 million

-€1,469 million

Anglo Irish Bank

€636 million

-€12,709 million

Ulster Bank

£281 million

-£368 million

These four banks reported operating profits of close to €4 billion.  We already own one of them (Anglo), are well on the way to owning another (AIB) and have a sizeable stake in a third (BOI).  On this basis owning these businesses is not a bad thing.

However, the process of owning these has seen us commit almost €75 billion to cleaning up their appalling balance sheets: €45 billion for NAMA and €30 in recapitalisation.  The annual profits outlined above will not even be enough to cover the annual interest charges on the huge debt burden we are creating with our ‘solution’ to this mess.

Our banks may be profitable but it is lose/lose for us.  We are losing money to the banks whose profits are so high only because their charges are so high.  We are losing money to the world to pay the interest on all this debt we are creating so that these banks can survive.

Details of the figures used above are given below the fold.

The operating profit figure for Allied Irish Bank is on slide 9 of this presentation.  AIB made a bad debt provision of over €5 billion that turned the operating profit into a reported loss of €2.6 billion.

Bank of Ireland recently published preliminary nine month results for the period ending 31 December 2009.  On page 11 of this report we see the operating profit of just over €1 billion for the period.  BOI’s bad debt provision was €4 billion. A tax credit for €344 and a gain on the repurchase of liabilities of just over €1 billion, gave BOI a reported loss of  €1.469 billion.

Anglo Irish Bank reported 15 month results for the peri0d to the end of December 2009.  Anglo actually made an operating profit of €2.394 billion in this period as per page 38 of this report.  However €1.758 billion of this was due to the profits on the non-recurring purchase of financial liabilities.  Removing this we get the €636 million figure used above.  Anglo’s bad debt provision was nearly €15 billion, resulting in the bank reporting the largest loss in Irish corporate history.

Ulster Bank is part of the Royal Bank of Scotland group and is not part of the NAMA process.  The 2009 results for the bank are on page 70 of this report.  Ulster Bank’s operating profit of £281 million is wiped out with a bad debt provision of £649 million, giving the reported loss of £368 million.

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