Last bank out - turn off the lights!!

Thursday 31.10.2013

Hot on the heels of ACC Bank announcing an exit from the Irish Banking market we now have Danske Putting on their running shoes and making for the exit. Who can blame them?

Last week, ACC the Irish subsidiary of Dutch banking giant Rabobank said that next year it will close all its branches and business centres to the public and give up its banking licence. Danske Bank, this morning has announced that they will be pulling all of their services bar those to their corporate and institutional customers.
Both have suffered significantly with the deterioration of the Irish property market over the last five years.  ACC Bank posted losses of over €200 million last year. Danske Bank have shown losses of €31.4 million for the first nine months of 2013 and added impairment charges of €22.8m. There just seems to be no end to the pain and the foreign banks have had enough.

ACC will now focus on debt recovery.  The former National Irish Bank shifts their attention solely to their more elite customers. Both have very publicly reached the conclusion that the situation is unsustainable and that they need to take action now.

It really begs two questions. Who will be left to participate in the Irish banking market? And what of the timing?
Very few banks are left.  PTSB appear to be in the banking wilderness with no clear direction on what they will look like. Allied Irish and Bank of Ireland remain but appear hamstrung at their apparent inability to lend. The only bank emerging with any sign of growth is KBC, but clearly they are another bank whose allegiance to these shores may not be as resilient as the domestic banks.
The question I find more fascinating is, why now as opposed to earlier or later? With Ireland allegedly poised to exit the bailout plan towards the end of this year, I think there is a little more to it than is immediately seen. Contrary to their performance over the last ten years, bankers aren't naturally stupid.  All are deserting the ship that has been sinking but there are clearly those in the know who possibly think it has further to go.
Against a background of a number of people championing the spectacular recovery in Ireland, the action of both ACC and Danske would suggest a slightly different landscape. If everything was rosy in the garden why exit after weathering five years of pain? The problem that we have foreseen all along is the manner in which the pillar banks are looking to resolve their own impaired debt books. Placing mortgages on interest only periods and offering split mortgages is only like putting your finger in the dam to protect the tidal wave that is ultimately coming. Stemming the tide is not what this country needs. Address the debt issue or it will continue to take control as it has done for the last five years. Those in power, both in government and banks are operating in the belief that if we slowly removed the finger stuck in the dam, the outcome won't be that bad. They are very wrong.

Danske and ACC, rightly or wrongly are addressing their issues, the pillar banks are not. Kicking the can down the road may have worked in the past but the enormity of the problem remains overwhelming both to the individual and the borrower.  We shall watch this space with interest.

Nick Leeson