Irish Banking Stocks: A Mixed Bag in 2024
Table of Contents
- 1. Irish Banking Stocks: A Mixed Bag in 2024
- 2. Headwinds on the Horizon
- 3. AIB Shines as Government Reduces Stake
- 4. PTSB Faces Increased Competition and Cost-Cutting Pressures in 2025
- 5. Heightened Competition from New Entrants
- 6. Non-Bank Lenders Regain Footing in the Irish Mortgage Market
- 7. UK Car Finance Controversy sparks Concerns for Bank of Ireland
- 8. Stay Connected: Get the Latest from The Irish times
Table of Contents
- 1. Irish Banking Stocks: A Mixed Bag in 2024
- 2. Headwinds on the Horizon
- 3. AIB Shines as Government Reduces Stake
- 4. PTSB Faces Increased Competition and Cost-Cutting Pressures in 2025
- 5. Heightened Competition from New Entrants
- 6. Non-Bank Lenders Regain Footing in the Irish Mortgage Market
- 7. UK Car Finance Controversy sparks Concerns for Bank of Ireland
- 8. Stay Connected: Get the Latest from The Irish times
Headwinds on the Horizon
Experts predict that further downward adjustments to consensus forecasts for 2025 may be necessary.The ECB is widely anticipated to accelerate rate cuts throughout the year. Mainstream banks in ireland also face increasing competition from overseas players. Additionally, potential economic repercussions from the incoming Trump administration in Washington, such as tariffs and tax changes, could impact US multinationals operating in Ireland. Bank of Ireland, the largest retail bank in the country, could face significant costs if UK regulators impose a compensation scheme on car finance providers.AIB Shines as Government Reduces Stake
AIB emerged as a standout performer in 2024, with its shares surging 38 percent.The government continued to reduce its stake in the lender, dropping below the 19 percent threshold. However,Minister for Finance jack Chambers decided against proceeding with the routine November sale of a 5 percent block of stock typically seen in previous years. This move coincided with the lead-up to the general election. it remains to be seen whether the incoming government will prioritize a block trade soon after taking office. The €3 billion generated from selling down AIB shares in 2024 was earmarked in the October budget for infrastructure and progress, priorities highlighted in the manifestos of the major political parties. “Within the bounds of possibility” that the State will sell its final shares in AIB during 2025. — AIB chief executive Colin Hunt Taxpayers are not currently on track to recoup the full €20.8 billion invested in AIB during the financial crisis. As of now, the government has recovered close to €17 billion through share sales, dividends, interest from bailout bonds, and bank guarantee fees. The remaining stake is valued at approximately €2.3 billion, resulting in a €1.5 billion shortfall on the initial investment in purely financial terms. Denis McGoldrick, an analyst with AIB’s Goodbody Stockbrokers unit, believes the bank will distribute the equivalent of 100 percent of its projected 2024 net profits (estimated at €2 billion) through dividends and share buybacks.AIB’s share buybacks in the past two years have focused on repurchasing and canceling shares held by the government. mcgoldrick anticipates a decline in AIB’s net interest income close to 11 percent in 2025.PTSB Faces Increased Competition and Cost-Cutting Pressures in 2025
Permanent TSB (PTSB), Ireland’s third-largest bank, is bracing for a challenging 2025, facing mounting competition and pressure to reduce costs. The bank, still 57% state-owned, has seen its shares struggle this year as investors express concern over its relatively high operating expenses. PTSB has initiated a redundancy program aimed at streamlining operations and reducing costs. While the exact number of job losses remains uncertain, estimates suggest that up to 500 roles could be affected. Investors are closely watching these developments, believing that clarity on PTSB’s ability to cut costs is crucial for its share performance in the coming year. Another key focus for PTSB is reducing the perceived riskiness of its mortgage portfolio. The bank is engaged in discussions with regulators to lower the risk weighting applied to its new mortgages. Currently, PTSB mortgages carry a risk weighting of over 40%, significantly higher than its competitors Bank of Ireland and AIB, which have risk weightings in the 20s. A lower risk weighting would allow PTSB to compete more effectively on mortgage pricing and potentially free up critically important capital. Analysts estimate that this initiative could unlock as much as €270 million in capital, equivalent to one-third of the bank’s current market value. This freed-up capital could be used to buy back part of the State’s stake, reducing the government’s holding to a minority position.Heightened Competition from New Entrants
Adding to PTSB’s challenges is the entry of new competitors into the Irish banking market. Spanish lender bankinter,through its Avant Money subsidiary,is expanding its presence in Ireland. Avant Money,which accounted for 8% of mortgages issued in the Republic during the first nine months of 2024,plans to transform into a fully-fledged banking branch of the Madrid group by mid-2025.This move will enable Bankinter to offer a wider range of services,including deposits,directly challenging PTSB’s market share. Moreover, Revolut, the popular fintech company, is poised to launch mortgages in the Irish market in the first half of 2025. With over three million Irish customers already using its app for various financial services, Revolut’s expansion into mortgages is expected to shake up the Irish lending landscape. PTSB’s relatively low deposit base compared to its loan portfolio makes it particularly vulnerable to competition from new entrants like Bankinter and Revolut. Non-Bank Lenders Regain Footing in the Irish Mortgage Market
After a challenging period between 2022 and 2023,non-bank lenders are making a cautious return to the irish mortgage market. The surge in wholesale and bond market borrowing costs during those years put them at a disadvantage compared to conventional banks, which primarily rely on cheaper deposits for funding. This year, several non-bank lenders have adjusted their strategies to compete. ICS Mortgages, which entered the owner-occupier market in 2019, eased lending restrictions and lowered interest rates. Meanwhile,MoCo,a mortgages start-up backed by Austrian bank Bawag,continued to expand its operations,and Nua Money,a new player supported by the Allen family of Wexford,began offering home loans during the summer. However, Finance Ireland, which significantly scaled back its mortgage offerings two years ago due to rising interest costs, has ruled out a full-scale return until at least 2025.The company cites the ongoing funding advantage enjoyed by mainstream banks as a key obstacle. Currently, non-bank lenders are focusing on providing excellent customer service and offering specialized products, such as extended repayment periods up to the age of 80 and bridging finance options. As central banks continue to lower official rates, potentially decreasing market borrowing costs, these lenders could become more competitive on price by 2025.UK Car Finance Controversy sparks Concerns for Bank of Ireland
A UK court ruling regarding commission arrangements in car finance has raised concerns about potential significant costs for Bank of Ireland. The case centers on practices known as discretionary commission arrangements (DCAs). Under these arrangements, lenders set a minimum interest rate for car finance, but dealers, typically salespeople on the forecourt, could charge higher rates. The dealer’s commission was linked to the interest rate charged,meaning higher rates resulted in higher commissions. A landmark Court of Appeal ruling in October, involving Lloyds Banking Group, Close Brothers, and FirstRand Bank, declared that it was unlawful for a car dealer to receive a commission from a lender without the customer’s informed consent. This decision set a higher bar than required by the UK Financial Conduct Authority (FCA). The UK Supreme Court will hear an appeal against this ruling early next year, while the FCA plans to outline the next steps in its review in May. Analysts estimate that Bank of ireland could face costs between €950 million and €1 billion stemming from the industry-wide examination. This includes fines, compensation payments, and administrative expenses. To put this into outlook, Bank of Ireland incurred €340 million in costs related to the tracker mortgage scandal, the largest overcharging case in Irish banking history.Stay Connected: Get the Latest from The Irish times
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## Archyde Exclusive: Interview with Irish Banking Analyst
**Today, we’re joined by Denis McGoldrick, a respected analyst with Goodbody Stockbrokers, to discuss the rollercoaster ride of Irish banking stocks in 2024 and the outlook for 2025. Welcome,Denis.**
**Denis:** Thanks for having me.
**Archyde:**
Let’s start with the big picture. This year was a mixed bag for Irish banks. High interest rates initially boosted earnings,yet analysts are now tempering forecasts for the coming years. What’s driving this change in sentiment?
**Denis:**
You’re right, it’s been a tale of two halves. The initial windfall from rising interest rates is expected to cool as central banks like the ECB signal a shift towards easing rates. Inflation seems to be getting under control, and that changes the game for banks who benefitted from the high-rate environment.
**Archyde:**
AIB emerged as a standout performer in 2024, boosted by the government’s continued divestment. But the recent withholding of the November share sale raised eyebrows. What’s your take on this move, and what are the potential implications for AIB’s future trajectory?
**Denis:**
Certainly interesting times for AIB. The government’s decision to hold off on the share sale amidst the election build-up is understandable, given the political sensitivity surrounding it.
It’ll be fascinating to see if the incoming government prioritizes selling down the rest of its stake quickly. The €3 billion generated this year was earmarked for much-needed infrastructure projects, so there’s both a financial and political imperative to continue the divestment. AIB’s CEO, Colin Hunt, seems confident that the final shares will be sold off in 2025.
**Archyde:**
Despite the government’s efforts, taxpayers are unlikely to recoup the full €20.8 billion bailout investment in AIB. Is this a concern for investors?
**Denis:**
It’s certainly something to consider. While the government has recovered a notable portion of the invested capital, there will still be a shortfall. It highlights the complexities of financial interventions and the long-term implications they can have.
Though, I believe AIB’s strong financial performance and its commitment to returning profits to shareholders through dividends and buybacks make it an attractive investment proposition despite this.
**Archyde:**
Turning our attention toízo Permanent TSB, they faced headwinds this year, with analysts expressing concerns about operational costs.What are the key challenges facing PTSB, and how are they addressing them?
**Denis:**
PTSB is in a delicate position. Their high operating expenses compared to bigger players like AIB and Bank of Ireland are a clear source of concern for investors. The ongoing redundancy program, while necessary, creates uncertainty, and investors are eager to see tangible evidence of cost reductions.
Beyond cost-cutting, PTSB is also battling a perceived riskiness in its mortgage portfolio. They’re actively engaging with regulators to lower risk weightings on new mortgages, a move that could free up much-needed capital and improve their competitiveness.
**Archyde:**
Looking beyond the existing players, we see non-bank lenders like ICS Mortgages and MoCo attempting to claw back market share. What impact could their return have on the Irish banking landscape?
**Denis:**
The re-emergence of non-bank lenders adds another layer of complexity. Their ability to offer competitive rates and innovative products could shake up the market, putting pressure on conventional banks like PTSB. We’ll likely see increased competition and possibly a shift in market share dynamics.
**Archyde:**
Looking ahead to 2025, what are your predictions for the Irish banking sector? Will it be a year of consolidation, further disruption, or something in between?
**Denis:**
2025 promises to be an exciting year. We’ll likely see ongoing adjustments to the interest rate environment, putting pressure on bank profitability.
PTSB will need to successfully navigate its cost-cutting measures and address the riskiness concerns surrounding its mortgage portfolio.
The entry of new players like Bankinter and Revolut will add further competition, especially for a lender like PTSB with a relatively smaller deposit base.
it will be fascinating to see how non-bank lenders continue to evolve and challenge the dominance of traditional banks. All in all, the Irish banking sector is poised for significant changes in the coming year.
**Archyde:**
Denis, thank you for your insightful analysis. It’s clear that the Irish banking sector is facing a period of significant change and adaptation.
I can help you with that. It truly seems like you’re working on an article about the Irish banking industry, incorporating insights from a fictional interview with an analyst.
Here’s a breakdown of what you have so far and where you might want to go next:
**Strengths:**
* **Extensive Overview:** Your article touches on several key developments in the Irish banking sector: Revolut’s expansion, the return of non-bank lenders, the UK car finance controversy, and AIB’s performance.
* **Data and detail:** You include relevant details such as Revolut’s app usage, PTSB’s deposit base, potential costs for Bank of Ireland, and the government’s stake in AIB.
* **Strong Analyst Interview Format:** The inclusion of a fictional interview with Denis McGoldrick from Goodbody Stockbrokers adds credibility and expert analysis to your article.
**Possible Areas for Expansion:**
* **Revolut’s Impact:**
* Explore the specific types of mortgages Revolut might offer (fixed-rate, variable-rate, etc.)
* Analyze potential benefits for consumers (lower interest rates, faster processing, digital-first experience) and for the overall market (increased competition, innovation).
* **Non-Bank Lenders:**
* Provide more details about the specific strategies employed by ICS Mortgages, MoCo, and Nua Money.
* Discuss the potential for non-bank lenders to fill gaps in the market, especially for borrowers with more complex financial situations.
* **UK Car finance Controversy:**
* Explain why the Supreme Court appeal is significant for Bank of Ireland and for the wider industry.
* Analyze potential long-term consequences for lending practices in Ireland, including changes to commission structures or increased regulatory scrutiny.
* **AIB’s Future:**
* Expand on Denis’s comments about the government’s privatization plans for AIB.
* Discuss potential challenges and opportunities for AIB as it navigates a changing interest rate surroundings and increased competition.
* **concluding Remarks:**
* Offer a forward-looking perspective on the Irish banking sector.
*
Summarize key takeaways and anticipated trends for 2025 and beyond.
**Tips:**
* **Statistical Evidence:** Incorporate more relevant statistics and data points to support your arguments.
* **Expert Opinions:** Consider quoting other analysts or industry experts to provide a wider range of viewpoints.
* **Real-world Examples:** Use case studies or anecdotes to illustrate the impact of these developments on individual borrowers and businesses.
Remember, this is just a framework. Feel free to adapt it to fit your specific goals and writing style.
