LVA Chief Executive Donall O’Keeffe admits that he’s “hugely concerned by the decision of BoSI to withdraw from the Irish market. It’s an incredibly difficult time for publicans to be seeking alternative finance providers and the BoSI decision also significantly lessens competition within the banking sector. It adds further pressure and insecurity to those publicans banking with BoSI and is an unwelcome development at this difficult time”.
Perhaps the decision was not unexpected. In February 2010 Lloyds had announced the decision to close its Halifax retail banking operation. Now it has decided to close its business banking arm BoSI which has about eight per cent of the Irish business banking market and about 150,000 customers.
Interestingly, when BoSI first entered the Irish retail banking market, the then Irish Life and Pensions Chief Executive David Went described BoSI as “suitcase bankers” who would cut and run as soon as the going got tough. He was widely criticised at the time for saying this – now he has the last laugh.
At its peak in 2007, BoSI made pre-tax profits of €272 million but plunged to pre-tax losses of €250 million in 2008 — and a massive €2.9 billion loss in 2009.
BoSI has been in the Irish market for over 10 years and acquired many SME customers in 2000 when it bought the former state-owned ICC Bank for €340 million.
BoSI’s loan book is in big trouble with around €10 billion of its loans impaired. Without offloading billions of damaged loans from its balance sheet, there was no chance of a slimmer viable operation being able to continue in Ireland.
The loan book includes €14 billion of real estate loans and around €10 billion in a corporate loan book to hotels, pubs, pharmacies and other small businesses.
Even before the announcement, some of the bank’s loans to pubs were in trouble. For example in 2008 BoSI sent in a Receiver to the Shaw Arms in Crumlin which was subsequently sold for €2.5 million and to the Fairview Inn in Dublin 3.
This year, BoSI moved to take control of Ulysses Taverns, part of the Tweedy Group based in Waterford.
And in May 2010, BoSI put the GPO nightclub in Galway into Receivership over a €5 million debt. The bank moved against Freestand, the company behind the club, on foot of a charge against the company’s assets.
BoSI has installed Kieran Wallace, Head of Insolvency with KPMG accountants, as Receiver. The club continues to trade while he attempts to find a buyer for the premises on Eglington Street. According to company filings Freestand is controlled by Noel O’Dywer and Michael Gilmore.
And in recent weeks, BoSI installed a Receiver over the Citywest Hotel complex in west Dublin and Finnstown Country House in Lucan, County Dublin. Both properties were owned by developer and hotelier Jim Mansfield.
It was BoSI that provided the finance for the consortium that bought Flannery’s pub in Camden Street in Dublin 2 in 2008 for €14.5 million, a price that bucked the downward trend, even allowing for the development potential of the adjoining property included in the sale (see Drinks Industry Ireland Feb-March 2009).
BoSI was not alone among banks in having to take over pubs and nightclubs. The Licensed Vintners Association (LVA) has written to the chief executives of the six main banks complaining that long receiverships are destroying the turnover and profitability of the pubs and damaging the hospitality industry.
Jamie Kennedy, Senior Public Relations Manager at BoSI, explained to Drinks Industry Ireland that customers with a loan product – whether a term loan or a long-term loan – will continue to pay it until the contract expires, with the only difference being that repayments will now be made to Bank of Scotland plc.
“We’ll be here on the ground to manage the loans and help these customers,” he stated, “The loan repayments will just go to the UK”.
Jamie Kennedy is referring to the third party company now being set up which is expected to employ some of the existing BoSI staff.
“Customers with a working capital arrangement, revolving lines of credit, overdrafts will unfortunately have these facilities terminated at the end of the year.
“However, we will help these customers, providing they are not in arrears, if they cannot find another lender. We will arrange a term loan for them until 2012 when things should be better and these customers can then find other banking facilities.”
Drinks Industry Ireland had spoken to Jamie Kennedy back in January 2009 for a feature on commercial bank lending (see ‘Who’ll Buy A Pub?’. Drinks Industry Ireland, February-March 2009). Then, while he admitted that the banks were now looking “more closely” at all proposals and it was tougher to get credit, he said, “If a good opportunity comes along we’ll look at it”. He told us of a €1 billion package for SMEs announced late 2008, half of which had already been allocated.
Given that most banks are running away from new SME business in the current climate, it’s likely that pubs will have to ask for BoSI to keep them on for the two further years – but at what cost in interest rates? No business big or small has negotiability nowadays.
The Financial Regulator has told BoSI that it must ensure customers’ rights are protected and that they must treat their customers honestly and fairly during the process and ensure that all relevant regulatory requirements are complied with.
Definitely, BoSI pub customers will struggle to find a new bank. BoSI was an energetic player in the SME market and given current credit dry-ups and the economic environment, all small businesses are now running out of options.
Will other foreign-owned banks follow now that growth opportunities are zero?
ACC (owned by the Dutch Rabobank) was also hit by the collapse of the Thomas Read Group. Danske Bank owns NIB and about half of NIB branches have been closed. The Royal Bank of Scotland owns the Ulster Bank though most commentators don’t expect the Ulster Bank to leave.
Foreign-owned banks who had moved into the Irish market were lending generously in order to get a toe-hold in what was seen as a lucrative market. In fact, insiders say that the Irish banks were encouraging riskier customers to the new operators who were eager for business.
AIB and BoI are both shrinking their balance sheets. Both banks have provided facilities to pubs and nightclubs and have seen big losses on the loans, such as that to the Thomas Read Group, which have collapsed.
However, the good news is that AIB is targeting BoSI customers and has set up a special BoSI helpline at 1 890 40 80 90 which will be open from 8am to 9pm Monday to Friday and 9am to 6pm on Saturdays. With its 270 branches and 15 Business Centres nationwide, ex-BoSI customers may find banking with AIB more convenient. And with an existing SME base of 180,000 customers AIB has considerable expertise to offer new customers.
Robbie Henneberry, Managing Director of AIB Republic of Ireland told Drinks Industry Ireland that, “AIB is sending a very clear invitation to Bank of Scotland (Ireland) customers to talk to us to discuss their alternative banking arrangements. They can call our dedicated enquiry line or go directly to any AIB Branch or Business Centre. We are ready to discuss payment services, deposits, working capital, asset finance or any other banking requirements”.
There’s no doubt that choices for all business customers, whether publicans or otherwise, are reduced by the BoSI’s decision to close.
The question is, how much more limited are those choices going to get?