AIB could lose €19m in MT write-downs

AIB WOULD lose an estimated €19 million if MT, the US bank in which it holds a 25 per cent stake, has to write down its investment in Fannie Mae and Freddie Mac under the US government's bail-out of the mortgage giants.

AIB's exposure through MT to the state bail-out of Fannie Mae and Freddie Mac was "not material", said NCB Stockbrokers in a note, as it represented about 1 per cent of the broker's 2008 earnings estimate for the Irish bank.

MT has an exposure of $162 million (€115 million) in preferred stock in Fannie Mae and Freddie Mac and $190 million in un- secured debt. Some 1 per cent of MT's investments is in preferred stock in Fannie Mae and Freddie Mac, the bank told a Lehman Brothers conference yesterday.

MT had taken losses of $42 million on its preferred stock in Fannie Mae and Freddie Mac in the second quarter of this year.

The US government has taken control of Fannie Mae and Freddie Mac and agreed to inject up to $200 billion in the companies to ensure they can meet their debts.

"It is likely that the move by the US government will help support the circa $36 billion of preferred securities by Freddie and Fannie, and MT will benefit from this," said NCB in its research note.

Eamonn Hughes, analyst at Goodbody, said the fallout from the state support may lead to possible impairment of MT's debt holding in the companies.

"With the likely issue of new capital instruments, existing holders are likely to get diluted and preferred shareholders will be second in line to equity holders as mortgage losses build up."

Sebastian Orsi, analyst at Merrion Stockbrokers, said writing down the full value of MT's exposure would reduced the bank's earnings per share (EPS) by about 95 cent this year, while the reduction in the "associate contribution" from MT would cut AIB's group EPS by about 2 cent.