We noted yesterday that Portugal appear to be the latest Country considering options to convert Deferred Tax Assets (DTAs) to government guaranteed tax credits (following the Italian precedent and recent similar moves from Spain). When announcing plans last year to implement its scheme, the Spanish Minister for Finance stated that the new DTA measures were expected to facilitate a sale of its nationalized NCG Banco, making the asset more attractive to investors. With almost half its capital in the form of DTAs (H1 2013: €3.9bn), AIB would be a clear beneficiary of similar legislative changes by the Irish State. <p>

A mechanism to alleviate the Irish banks tracker mortgage profitability drag would be another area where a systemic solution could add value. However despite significant technical work by the Irish authorities and Troika on this matter, a solution has remained elusive (and is likely to be capital destructive in any event in our view). In reality and aside from further policy intervention in the property markets, tough commercial decisions by the Government may be needed in order to enhance the valuation of the banks from here. It is possible that the banks may take internal action to address the tracker mortgage issue, potentially seeking Central Bank approval to levy fees on this cohort of customers. However such an option is likely to be politically unpalatable in the near-term, especially with a general Election looming in early 2016 (though we would not be surprised to see such a move from the foreign banks operating in Ireland as they strive to return to sustainable profitability).
<p><h5>Ciaran Callaghan</h5>

Disclaimer: www.merrion-capital.com/disclaimer

Merrion Stockbrokers Limited (registration no. 307878)
is a limited liability company whose registered office is at
Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.