It’s been widely reported that Irish Permanent and three other private equity groups are going to bid for EBS. With impairments rising and further NAMA write-downs ahead, EBS will breach the 6% minimum tier 1 capital ratio (currently it’s just above the minimum of 6.7%).
As some of you know, EBS account for the lions share of mortgage lending in Ireland, having 50% market share for first time buyers in 2009. What’s also worrying, is that EBS have the worst loan/deposit ratio of any Irish bank, coming in at 175%, if the bank guarantee was to be withdrawn, or the ECB were to withdraw emergency liquidity funding, then EBS would collapse, in a situation similar to that on Northern Rock a few years back. The fact that EBS have been aggressively growing the loan book while impairments and losses are rising is tantamount to just how disastrously management have been running the institution. I would anticipate that if any of the private equity guys were to get their hands on EBS, the first thing they would do is fire management. Secondly, EBS is going to be reined in on the expansion of lending. 4.9% of the residential mortgage loan book is impaired, the private equity guys are going to want to stop that, the only way to do this is to just stop lending and try to run-off the bad loans. Finally, there are going to be branch closures and redundancies.