BoI the one to monitor


Yesterday Moody’s downgraded BoI’s deposit ratings to Ba2/NP (from Ba1/NP) and senior debt ratings to Ba3 (from Ba2) , after the lowering of the bank’s baseline credit assessment (BCA) by two notches to b1 (from ba2). The group’s outlook remains negative. The downgrade of BoI’s BCA reflects increased risks to bondholders relating to ongoing asset quality challenges and the ECB stress tests next year. According to the rating agency “banks such as BoI with poor quality lending books, relatively low levels of provisions and poor profitability are at relatively greater risk of failing the test”. Consequently, any material capital shortfall that can’t be remedied by BoI or its shareholders “directly raises the risks for BoI’s bondholders”. At the same time, Moody’s believes that the bank’s increasingly visible return path to sustainable profitability should help it to offset some of these challenges.


Yoga - The ECB may have cooperated with prior stress tests but this is the first time they have owned the process and they do seem to be taking it seriously. I don’t think the ECB want to be linked to a farce test.

So Moody’s think BoI might fail the stress tests. This is worrying. A lot of people think Permo and / or AIB will fail the stress tests but BoI failing the tests would be a surprise to many.


I think even Moody’s is coping on to the farce of Irish banks who 5 years into a crises have almost made zero foreclosures. No US bank would even get a rating acting like this. BOIs balance sheet is nothing but the result of Draghis 0% money propping up the insolvent trackers. Take it away and BOI collapses.


BoI up over 8% today.


National Pension Reserve Fund sells 44 million Bank of Ireland shares … nd-shares/





The reflation trade is working.


The Irish banks who - when the trades have settled - will have been shown to have bought almost all of today’s Irish sovereign debt @ 3.55% with 0% ECB money, will have earned a ‘free carry’ of almost 150m in total (c. 3.55% @ 4bn). There is no capital / reserve cost (no capital needed to back the trades as they are sovereign) or cost/income ratio applied (or even tax given past losses) to these trades, so it is pure profit that is worth 1.5bn over the 10 years for BOI / AIB (main buyers) and the ECB will keep rolling over the loans to maturity. Hence the rise in BOIs share price. This is all ahead for the Greek banks (Greek 10 year is 8%) if Greece shows more compliance with the troika programme (then their banks get the 0% ECB money).

Goldman rate BOI a Sell (a rare event for GS) with a price target of 20 cents.
But who are Goldman, only the architects of Draghi’s Doom Loop (pumping sovereign carry trades into PIG banks).


That 150m will disappear when thrown into their tens of billions of bad debt. The only way that shareholders in Irish banks will get a return is if they can fool the Irish government into allowing dividends to recommence.


Hence the Goldman analysis - they are quite insightful on Ireland and the implications of the zero resi foreclosure rate on the adequacy of BOIs provisioning.


Gotta love your insightful posts on all this. Very logical, and as with any crime start with who has the motive?

So this is really further capitalisation through the back door. To deal with political pressure exerted by david hall, pat kenny and the strategic defaulters. The compliant little guys get fucked over yet again, only it’s now performed so covertly.


Is this not good news for us? The banks get extra capital, and we get a favourable rate for sovereign borrowing, as long as the ECB spigot stays open.


Draghi is doing amazing things for Ireland and is pumping several billion pa of carry trades through our sovereign and our banks. No wonder Barosso was pissed off at the EU getting no credit. Kenny and Noonan have done little (Draghis deals are being given to all PIGS who follow the troika programme, which is why Greek bonds are interesting). There should be a statue to Draghi in Ireland. If he gets run over by a bus and replaced with another Trichet, we’re in trouble. This is powerful medicine and it is working in my view. Capital is capital and however we get it, we should welcome it.

The downside is that if we fail / stumble in the troika programme and need further austerity then we have no choice. All of Draghis carry trades are on short term rolling basis and can be withdrawn / suspended quickly. If we get testy with the EU, our sovereign yields will rise immediately (as they did in Italy when Berlousconi tried to make a come back and started spreaking about pushing back on their programme). Because of Draghi Doom Loop (see link below) structure, rising Irish sovereign yields will translate into another banking crisis (as it did in Greece / Cyprus when the domestic Governments tried their own DIY Doom Loop).

That is why we will never leave the Trokia (which may not be a bad thing). Draghi’s Doom Loop has tied us in ‘golden handcuffs’ but will have to suffer Noonans grinning face in every newspaper as if he has anything to do with it.


No they won’t.

If it’s true, you won’t see it, and I suspect it is not true.

The Irish banks don’t have the cash. You misunderstand the nature of LTRO…


Yes you will and it is.
This is not the LTRO programme (‘unsterilized’ - Euro QE).
Although I suspect having seen Italian 2 year go below 1% yesterday, another LTRO is coming.
If Draghi drops short rates to the floor and launches another LTRO then the Euro yield curve is headed towards Japan.
(and we know how that strategy works out).


No they won’t.

Easy stuff, isn’t it? Back it up…


No they won’t what ?


A bit of a side note - but it turns out via Goodbody’s the 44m BOI shares sold yesterday were from the university fund transferred to the NTMA - with 2.6m shares of BOI left in that fund. … odbody.pdf

On a separate topic, we note the reduction by the NPRF of its stake in BOI from 14.08% (4.558bn shares) to 13.95% (4.514.6bn). Bloomberg said that the NPRF indicated the shares were from the fund’s discretionary portfolio (independently managed), relating to legacy holdings of Irish universities transferred to the NPRF in 2009 and are unrelated to the government’s directed portfolio ownership. The discretionary fund now has just 2.6m shares outstanding, with the directed fund still owning 4.512bn shares (source NTMA).
You’ll occasionally hear the odd academic who’ll say that they’d a fully funded pension scheme and that transferring it to the government was a bad thing for them rather than placing a burden on the taxpayer.

In 2007 I think BOI was around 18 euros for a while, which would imply the university fund had over 800m invested in just one share in 2007, I’d assume these were long held positions rather than the trustees moving into bank stocks in 2009.

Even without knowing the details of the rest of the fund (AIB must have featured) you’d have to guess it got hit particularly badly by the crash. 800m to 13m would be seen as poor performance even in Irish pension fund manager terms - 13m would just about fund a single retired university president.


Not true.

The geographical breakdown of investors in the 10 year NTMA bond was 17% domestic and 83 % overseas. Irish banks purchased well under 17% as the domestic banks only make up a segment of domestic investors.

LTRO money is been repaid at a fast rate back to the ECB. The ECB balance sheet TNA is on a rapidly declining downward curve. There is no new 0.25% LTRO ‘money’ being created, quite the opposite.