14 Feb 2019

Irish Banks: KBC Ireland releases full-year 2018 results

KBC Group announced Q4 and FY18 results this morning, with a few items to note for some read-across to the rest of the Irish banking sector from the relatively modest information it releases on its Irish division.

For FY18 there was a net loan impairment release in the Irish subsidiary of €112m, including a €15m release in Q4, with the Q4 release driven by an increase in the 9-month average house price index (RPPI). This would suggest the potential for similarly positive impairment releases at the other Irish banks. Impaired loans fell significantly over the year to €2.44bn at Q418 (from c.€4.4bn at Q417), equivalent to 23.1% of gross loans (37.5% in Q417), mainly due to a large portfolio disposal (c.€1.9bn of BTL and corporate loans sold to a Goldman Sachs’ backed fund) executed in Q4. The weighted average indexed LTV on the retail impaired portfolio has improved significantly y/y and in 4Q18 decreased to 99% (from 104% at 4Q17), again likely benefitting from both the portfolio disposal but also the strong property price dynamics. We note no new provisions to deal with the ongoing tracker mortgage examination.


HBRN: KPMG’s requirements could prove very timely


Today’s Irish Times reports that accountants KPMG have a medium-term requirement for up to 350,000 sq ft of space to accommodate its 2,500 staff in Dublin under the one roof.


KPMG currently has two Dublin offices, one at Stokes Place off St. Stephen’s Green in Dublin 2 (South CBD) and the other in the IFSC. The leases on those properties run to 2026 (it is not clear if there are any break clauses). KPMG has hired Knight Frank to advise on its accommodation options.


The largest currently vacant office space in Dublin is Chartered Land’s Seamark Building at Elmpark Green, which comprises 182,500 sq ft of accommodation, well below the 250,000 sq ft – 350,000 sq ft range envisaged by KPMG. A new build option, be it a single large premises (which appears to be KPMG’s preference) or a ‘campus style’ development involving a number of new buildings on one of the few remaining scale landbanks in the city centre, would therefore appear to be the most likely outcome to this process.


In a happy coincidence, in November Hibernia REIT (HBRN) received planning permission for a new 315,000 sq ft office scheme at Harcourt Square, which is 350m south of Stokes Place. The existing Harcourt Square building accommodates the Dublin Metropolitan Headquarters for An Garda Síochána (Irish police) on a lease running to end-2022. Last August the agency that manages the State’s property footprint, the OPW, signed off on a new €80m ‘Command and Control’ centre on Military Road in Dublin 8 to replace the Harcourt Square premises.


While it will be around the middle of the next decade before HBRN’s new Harcourt Square development is completed, it would be helpful if that jumbo scheme (it should account for more than a tenth of total Dublin take-up in the year of delivery) was de-risked through a pre-let agreement. To this end, we will be closely monitoring the KPMG review, although it should also be noted that those accountants are not the only large professional services firm in the capital with material medium-term property requirements.


Amendments in the UK


Today UK Prime Minister, Theresa May, is set to table a motion effectively endorsing two amendments backed by MPs last month, to replace the Irish backstop with “alternative arrangements” and to reject a no-deal Brexit. By doing this she is seeking backing of MPs for more time to get a workable concession on the backstop and to continue talks with the EU to achieve this. The last bit of the motion, on rejecting no deal, was inserted in the previous Brexit ‘Plan B’ vote as an amendment tabled by Tory MP Caroline Spelman; note though that it is only symbolic. However, despite its symbolic nature, reports suggest that Eurosceptic Tories would vote against today’s parliamentary motion unless it was reworded to make clear a no-deal Brexit remains on the table.


Voting set to commence at 5pm


Talks with whips will continue through the course of the day but it’s worth noting that the Sun reports that if May does not back down, up to 50 Eurosceptic Tories could vote against or abstain tonight, likely leading to a defeat for the PM. There will also likely be various amendments voted on; Speaker John Bercow will decide which ones later this morning.  Voting is due to begin at 5pm and each vote will take around 15 minutes, with the final vote on May’s motion including any successful amendments. If Mrs. May is defeated, this will look to be a further blow to her Brexit strategy, which has suffered after her right hand man and main official on Brexit Olly Robbins was overhead in a bar reportedly saying that the final Brexit vote would not include the choice of a no-deal Brexit but rather a length Brexit delay, set against the option of taking PM May’s deal. A loss tonight will likely make the EU less inclined to offer PM May a compromise on the Irish backstop option. It would also likely further embolden UK Parliament in taking greater control of Brexit.


UK RICS housing survey


January’s UK RICS housing market survey was weak this morning with the house price balance falling to -22% from December’s outturn of -19% and below the market expectation of a -20% print. This marks the lowest reading since July 2012. Price expectations for the next three months were equally as weak, where the price expectations balance fell to -32%, the lowest since February 2011. The activity metrics fared no better, new buyer enquires fell to 34.9% (lowest since June 2008), whilst new instructions to sell fell to 24.8% (lowest since June 2016). The report on the whole makes for grim reading and makes note of the Brexit uncertainty weighing on the market as well as the general economic backdrop.


Economic releases


09.30 UK BoE’s Vlieghe speaking

          UK MP’s debate PM May’s Brexit motion

10.00 EC Q4 GDP 2nd estimate

13.30 US Retail Sales