29 Aug 2019

Irish Banks: Bank of Ireland Group - Disposal sees NPEs below 5% threshold

Bank of Ireland Group (BIRG) last night announced that it has agreed to sell a portfolio of NPEs predominantly secured on Irish buy-to-let investment properties to Promontoria 2019, an affiliate of Cerberus Capital Management. 

The portfolio has a gross book value of c.€0.25bn (as at end June), and Promontoria will pay a cash consideration upon completion of c.€0.15bn. 

BIRG currently has a 30% coverage level against Irish residential mortgage NPEs (OO and BTL), so assuming a higher tilt to BTL, this implies a relatively P/L neutral transaction. However, the transaction will result in a marginal increase in BIRG’s CET1 ratio (RWA decline), while its net interest income will reduce by c.€3m on an annualised basis (no impact on NIM). 

Following this transaction, BIRG’s NPE ratio is now below the 5% threshold that has been mentioned as a key regulatory milestone in the past, which could pave the way for a less onerous regulatory perspective on the Group going forward.

Irish banks/builders: Strong mortgage approvals in July

Mortgage approvals data from the BPFI released this morning showed a strong improvement in July after a sluggish May and June, with €1,162m in new approvals last month, +25% y/y vs July 2018 (€931m), +12.6% m/m vs June 2019, and +28% vs the average of €908m seen so far this year. It takes the twelve month cumulative total to a new cycle high of €10.85bn (vs €10.62bn in June), and we remain on course for our expectation of just over €11.0bn in approvals this year, with the July ‘bump’ in fact leaving upside risk to this forecast, albeit one swallow does not an otherwise damp and cool summer make. 

The volume of newly approved mortgages was 5,129 in July, +21.5% y/y and +14.5% m/m, while the average value of newly approved mortgages was €226.5k in July, +2.7% y/y and -1.7% m/m. We retain our expectation of c.€9.75bn in new mortgage drawdowns this year and c.€11bn in drawdowns in 2020. 

Irish Builders: Cairn Homes – Increased planning application for RTE site 

Cairn Homes has lodged a planning application with An Bord Pleanála for a 611 apartments and three-townhouse development on the site it purchased from RTÉ (Irish state broadcaster) in Donnybrook for €107.5m in 2017, according to reporting in this morning’s Irish Times. This is an increase of 111 apartments when compared with the initial c.500 Cairn had indicated it would look to build when it initially acquired the 8.64-acre site, with Cairn presumably looking to take advantage of the relaxation in planning rules and ability to build higher density that has evolved in the interim. We would expect a decision from ABP in early 2020.

ICG - Solid H1 but “one-offs” will likely impact FY19 estimates 

ICG this morning reported interim financial results for the six months to 30th June, which show revenues of €166.8m, +6.1% y/y. EBITDA (pre-non trading items) of €30.0m was +14.9% vs. H118, but the y/y comparison is impacted by the adoption of IFRS 16 Leases. The interim dividend has been raised by 5% to 4.42c. However, a number of small negatives on both the revenue and cost lines are likely to impact the group’s FY19 EBITDA number.

These negative factors include a conservative approach by the group to opening its booking system on the WB Yeats’ direct France service (to avoid hefty compensation payments in the event of delays to launching the service), higher crew costs to ensure a smooth launch of the new ship and costs of technical improvements to a number of vessels following the Ulysses’ issues last year. As such, we view these as “one-offs” without a direct read-through to future years. Strong momentum in freight activity (across RoRo, port lifts and containers shipped) has continued and is attributable to a positive macro backdrop, increased capacity and favourable y/y comparatives. In the year to 24th August, RoRo volumes were +11.2% y/y (although this metric is helped by disruption during Summer 2018), container volumes increased by 6.0% and port lifts were +4.7%. Car volumes are +1.8% YTD. 

Total Produce - Solid H119, FY19 guidance unchanged

Total Produce this morning issued a solid set of H119A numbers reporting a 63.1% increase in adj. EPS to 9.80p from a 103.5% increase in adj. EBITA to €92.8m and 39.6% increase in revenue to €3.05bn. Growth was primarily due to the contribution from the Dole business as at the regional level Europe – Eurozone reported adj. EBITA of €11.2m from €816.4m in total revenue while Europe – Non-Eurozone generated €22.7m in adj. EBITA from €766.4m in revenue. International, which is primarily North America, reported adj. EBITA of €8.9m from revenue of €607.9m. Dole was in line with expectations, reporting an EBITA of €142.9m from revenue of €1.98bn. 


Management describes the results as “strong” and that Dole results “are in line with expectations” including a good recovery in the Fresh Vegetables division, which was impacted by an industry-wide recall the previous year. Non-Eurozone has come in line with expectations, while Eurozone is slightly behind against a strong comparative last year and some softness in the Benelux markets. That said, full year guidance remains unchanged. 

Johnson suspends parliament

The flimsy plaster that sits atop the ever festering Brexit wound has yet again been violently ripped away as earlier summer threats of the UK government attempting to prorogue (suspend) parliament, became a glaring reality earlier this morning. 

In what appears to be an extremely provocative/aggressive move designed purely to limit parliamentary time to introduce legislation to force the government to negotiate a further extension to the Brexit date, Boris Johnson, early yesterday morning requested that the Queen (which she has since approved) suspend the current parliament. As such, the UK parliament will now only get one week (3rd Sep -11th Sep) to attempt to legislate against a no-deal Brexit before an almost five week (12th Sep -14th Oct) suspension comes into play. 

Swirling uncertainty again grabs hold as the many and varied permutations of political brinkmanship are now sure to play out in the days/weeks ahead. 

Sterling slumps on added uncertainty

As has been the norm with UK political uncertainty in recent times, sterling is more often than not the first asset class to react and today was no different. A fast paced sterling sell off took the benchmark EUR/GBP rate sharply higher from in/around £0.9050 only for the move to top out at  £0.9120 as news emanated that the opposition leader, Jeremy Corbyn, will attempt legislation next week to block Johnson’s suspension plan. 

As European markets open this morning, the pound is only slightly weaker than yesterday’s open with the EUR/GBP rate sitting at £0.9075. Global FX markets will be keenly observing the political shenanigans that are sure to kick off when the UK parliament returns from summer recess on September 3rd.

Economic Releases

13.00  GE   HICP

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13.30  US   GDP

13.30  US   Goods trade balance