‘Real problem is €64bn in bank debt’

Bank of Ireland shareholder, Wilbur Ross, has accused the last government of “very bad politics” for its handling of the economy.

‘Real problem is  €64bn in bank debt’

“As Milton Friedman said, if you put a government in charge of the Sahara, it would run out of sand. The exception is this Government.

“[Taoiseach] Enda Kenny has done a very good job, but the last government allowed the economy to become a bubble.”

He noted that the last Fianna Fáil-led government had allowed the banks grow disproportionately to the size of the economy.

“Ireland’s real problem is the €64bn in bank debt,” he said.

Mr Ross has a 9% stake in Bank of Ireland, making him the bank’s largest single private investor.

Speaking at ‘Ireland Day’ in the New York Stock Exchange yesterday, Mr Ross said he is very happy with his investment. “The share price is currently around 18c. When I bought shares originally it was 10c and then I bought some more when it was 8c.”

However, the bank still faces a number of challenges in returning to profitability “despite a better than expected set of results last week”, he said.

The level of mortgage arrears continued to improve throughout the course of 2012 and so far this year.

“But provisioning levels have to return to normal levels before the bank becomes healthy again. And for a healthy economy you need a healthy banking system,” he said.

The removal of the Government’s eligible liabilities guarantee scheme will save the bank €328m in fees this year. Bank of Ireland is in the process of laying off 1,200 staff and this will translate into €125m in savings in 2014.

One of the bank’s biggest problems is its tracker mortgage book, which at €17bn is 62% of all mortgages and 24% of the entire loan book. These products track the main ECB lending rate, which is currently at historically low levels.

“However, if the interest rate increases by 100 basis points, then that will mean an extra €164m to the bank,” Mr Ross said.

Bank of Ireland also faces currency risks through its UK business, he noted. But ultimately the bank relies on the economy recovering, he said. He welcomed the restructuring of the €28bn in promissory notes and the liquidation of IBRC.

The successful issue of a 10-year bond on Wednesday at a yield of 4.15% was a “very positive development”. This follows the sale of Irish Life for €1.3bn and the sale of the Government’s €1bn CoCo notes in Bank of Ireland.

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