AIB sheds most remaining crisis-era problem loans to Cerberus for €100m

AIB has managed to shift most of its remaining crisis-era problem loans, after selling a portfolio of mainly commercial property debt for about €100 million to US distress debt giant Cerberus and loan servicing company Everyday Finance, according to sources.

The price is understood to be close to the carrying value of the portfolio on AIB’s balance sheet, but a deep discount to the original value of the loans. The Irish Times reported in September that AIB was working on a potential loan sale, code-named Project Joshua.

The portfolio also includes land and development and small-business loans, according to sources. It mainly comprises debt from customers in arrears or a legal recovery process, with the average loan classified as a non-performing exposures (NPEs) for about six years.

“The bank recently sold a portfolio of non-mortgage NPEs to Everyday Finance DAC,” a spokesman said, confirming the sale. “Borrowers whose loans are sold are afforded the same regulatory protections they had before the sale.”

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The spokesman declined to comment on Cerberus’s ultimate financing of the deal or the financial terms of the transaction.

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AIB had about €200 million of so-called legacy problem loans on its books before it started marketing Project Joshua. The timing of the deal has come as a surprise, however, as sources had previously said that the portfolio was unlikely to be sold before next year.

The bank, currently led by chief executive Colin Hunt, has reduced its non-performing exposure levels from a peak of €31 billion in 2013 to €2.2 billion, or 3.4 per cent of gross loans, as of September, amid wide-scale restructuring of loans following the crash and portfolio sales. The current portfolio of soured debt is dominated the loans handed out following the crash and includes issues stemming from the Covid-19 pandemic.

“For customers in difficulty, our focus has been to put in place sustainable solutions to help them to get back on track. The bank’s preference is to provide solutions through customer engagement on a case-by-case basis,” the spokesman said. “AIB continues to support customers through a comprehensive range of forbearance solutions, and we have done so in over 150,000 cases.”

AIB has committed to reaching an NPE level of about 3 per cent in the medium term, which is in line with European norms.

The bank’s second-last portfolio disposal took place in the middle of 2022, when it sold a batch mainly deep-in-default loans for €400 million to a consortium led by Cerberus and also included Everyday Finance and London-based investment firm LCM Partners.

AIB has set also aside more than €400 million of impairment provisions since the middle of last year to cover potential problem loans stemming from the cost-of-living crisis and the effects of rising interest rates and commercial property values.

However, executives at AIB and the other Irish banks have so far said that they have not yet seen a noticeable increase in problem loans.