TONY CAMPBELL On the road
Concentration in commercial real estate lending turned Anglo Irish Bank into Ireland’s third-largest bank, but the bank’s laser-like focus is now being cited as a liability by a major credit rating agency and an investor.
The $95 billion institution, whose U.S. headquarters are in Boston, was issued a negative outlook rating last week by Standard & Poor’s and slapped with a recent “sell” recommendation from Citigroup analysts.
However, S&P rival Moody’s Investors Services offered the bank a “stable” outlook in May.
Tony Campbell, North American operations president and chief executive officer for the Dublin, Ireland-based bank, was traveling last week and was unavailable for comment. Bank officials said only Campbell was authorized to respond to questions.
Despite the sell recommendation and negative outlook, David Sidon, founder and owner of Gloucester-based bank consulting firm The Navis Group, said Anglo Irish looks solid to him, based on information the bank released last fall.
“Their capital ratios, return on assets and return on equity all look strong,” said Sidon, who is a risk management specialist. Information about the bank’s loan loss reserves, which was not available, could be the wild card, he noted.
In May, Moody’s said its rating reflected “the bank’s stable market position and solid track record as a secured lender to medium-sized corporates, professional property investors and high-net-worth individuals.”
Anglo Irish Bank’s “good credit quality and rigorous lending approach” and current market conditions were also taken into account, Moody’s said.
Standard & Poor’s credit analyst Claire Curtin said in a statement that the downgraded outlook, which was issued on June 30, was “triggered by the accelerating economic slowdown and an increasingly challenging operating environment.”
She said the bank’s “monoline” focus on commercial real estate lending left it more exposed to economic fluctuations than its peers.
Citigroup also recently downgraded its opinion on Anglo Irish stock, recommending on June 6 it be sold rather than held.
The company said Anglo Irish Bank has increased risks because 80 percent of its loans are secured by commercial property in Ireland and the United Kingdom.
‘Guilt by Association’
Bloomberg News reported last week that mortgage lending in Ireland rose at its slowest pace in 16 years during the month of May and that the Irish economy, a European success story dubbed the Celtic Tiger in the press, “may be heading for its first recession in more than two decades.”
Anglo Irish Bank describes itself online as a “focused business bank with a private banking arm.”
According to The Warren Group, Banker & Tradesman’s parent company, which tracks loan statistics, the bank holds mortgages on at least 61 commercial properties in the city of Boston alone.
One Boston finance industry professional said that since arriving on the Boston scene a half-dozen years ago, the bank has done “hundreds of millions in loans Â… [and] loaned money to some of the biggest developers.”
Timothy O’Donnell, a principal at commercial brokerage Fantini & Gorga, who was a guest at Anglo Irish’s holiday party last December, said several “A-list borrowers” were also in attendance.
Eastern Bank’s Senior Vice President for Commercial Lending Gary Leach said S&P’s downgraded outlook is probably a combination of the “guilt by association” that commercial mortgage-backed securities share with subprime mortgage-backed securities and the crisis that ensued when subprime mortgage loans failed to perform.
Credit rating agencies have been taken to task for not being tough enough on subprime mortgage-backed securities before they developed problems, he said. As a result, they have been afraid of being criticized for being too lenient in ratings of commercial securities.
“Many of the analysts have taken a negative view on commercial real estate” in general, Leach said, even though in Massachusetts, at least, the industry has strong fundamentals.
Anglo Irish is one of the few financial institutions in the United States that focuses solely on commercial finance, Leach said, noting that it’s a “rare” specialty.
While Anglo Irish Bank’s actual credit rating of A/A-1 (good for the long term/ excellent for the short term) was not affected by S&P’s revised outlook, it still represents a step down from the “stable” outlook the agency gave it in March.
The bank’s generally good ratings reflect “a highly efficient business model, robust profitability, high level of internal capital generation and prudent liquidity policy,” Curtin said.
Anglo Irish Bank is headquartered in Ireland and is publicly traded in both Europe and the United States.
