Government celebrates further cash drain from Bank of Ireland
Bank of Ireland has done a Friday afternoon news dump of a provisional set of accounts for 2010 and an associated announcement that it will make a dividend payment on the National Pension Farewell Fund’s preference shares in the company — last year, the Bank was under a “dividend stopper” order from the European Commission and paid the preference share dividend in highly valuable Bank of Ireland shares. In a press release from Minister Brian Lenihan –
I welcome Bank of Ireland’s intention to pay €214.5 million of cash to the State. This payment is in return for the States investment in the Bank and is a very welcome return to the National Pension Reserve Fund. This payment will bring the cash return to the State from its investment in Bank of Ireland to over €757 million.
There’s just one problem.
Every cent of this cash will at some point have to turn around and head right back into Bank of Ireland again, because the government has promised to super-capitalize Bank of Ireland, AIB, and EBS as part of the IMF/EU bailout, notwithstanding Brian Lenihan’s unilateral renegotiation of the deadline for that to happen. In fact, the B of I’s trading update makes clear that it is bleeding cash every day it’s in business. One detail from the accounts: it has 55 billion in customer deposits, and nearly 88 billion in deposits from other banks. In other words, it’s a bank more dependent on the goodwill of other banks than its customers.
One other blow –
In the Group’s AFS portfolio, the Group recognised in December 2010 impairment charges of approximately €170 million on (i) a holding of subordinated debt issued by an Irish financial institution who exchanged these bonds for cash in January 2011 at a loss to the Group of approximately €100 million
That sounds like it lost money on the Anglo subordinated bond exchange. Anglo is still sucking the blood of the rest of the banking system. Or is AIB? Either way, this is a self-cannibalizing banking system.