AIB considers writing off some debt

AIB would consider writing off debts for some mortgage holders who cannot repay loans as a long-term way of resolving problem cases, the bank’s executive chairman David Hodgkinson said.

Debt forgiveness was one option being considered, the bank said, as it posted a record loss of €10.4 billion for 2010 and unveiled plans to shed more than 2,000 staff – one in seven jobs at the bank.

Mr Hodgkinson said there was a range of possibilities for distressed borrowers, including a reduction on repayments by extending a loan period or writing off some debt.

“That is one of the possibilities we will actively consider,” he said. “But it does depend on the situation of the customer, how transparent they are with us on their financial affairs and how deep a hole they are in.”

In hardship cases where there is no prospect of borrowers repaying mortgages, AIB is exploring possible “intergenerational” mortgages and debt forgiveness where part of the loan is written off in return for the bank taking a share of the home.

A spokesman for the bank emphasised these were options being considered internally and that agreement would have to be reached with the Central Bank, the Government and the other banks.

AIB, which is 93 per cent owned by the State, requires a further €13.3 billion following the Central Bank stress tests, pushing the Government’s bailout to €20.5 billion.

This is second only to Anglo Irish Bank, which will receive €29.3 billion from the State.

This cash will make AIB “one of the best-capitalised banks in any country around the world”, said Mr Hodgkinson. AIB will use this “as firepower” for “longer-term solutions to business and homeowners under stress”, he said. The increased capital gave AIB the means to seek “better solutions” for customers.

The number of homeowners who had fallen three months’ repayments or more behind on AIB mortgages doubled last year.

The number of landlords with buy-to-let mortgages at the bank who had missed a similar number of repayments tripled in 2010.

AIB repossessed eight properties last year, though all were handed over voluntarily.

The bulk of the job losses announced yesterday will be in Ireland. Some 650 staff at EBS building society – which will be merged with AIB to form the “second pillar” bank in a restructured sector – will not be affected.

AIB will only resort to compulsory redundancies if it does not secure the 2,000-plus job cuts voluntarily.

Larry Broderick, general secretary of the Irish Bank Officials Association, said it was “extremely disappointing” the bank did not provide details of where the job cuts would be sought or the terms of severance on offer.

Staff would be offered “generous” payments, the bank said.

Mr Hodgkinson, a former senior banker at UK bank HSBC who worked in the Middle East and the Far East, said he had worked through five property crashes but had never encountered so many property-related problems as he had at AIB since joining last October.

The bank had “got things badly wrong by overlending to all aspects relating to the Irish property boom, and dealing with this legacy will take time”, he said.

He described the bank’s losses for 2010 as “very disappointing” and said that there was “very understandable hurt, anger and frustration” among investors who lost about €18 billion in the bank.

The bank set aside €13 billion to cover losses on loans, including €8.5 billion on property loans transferred to the State’s National Asset Management Agency.

Mr Hodgkinson said the “vast bulk” of the €13 billion to be injected in the fifth bailout of the banking sector would be repaid to the State as AIB slimmed down.

The bank plans to move €61 billion of its €86 billion in loans into a new “core” that, with EBS, will form a “second pillar” in banking to compete with Bank of Ireland.

EBS will remain a separate business within AIB for the time being.

The bank doesn’t expect to need any further cash beyond the new bill after last month’s stress tests.

AIB plans to increase prices on loans to generate returns that will “reward Irish taxpayers for their support of the bank” but promised to do so in a transparent way.

It plans to lift a promotion and recruitment freeze this month to appoint staff to more senior positions and for pay rises. Mr Hodgkinson said the bank would appoint new senior management made up of insiders and outsiders before the end of June and a new chief executive before the end of September.