BANK'S PLANS:ANGLO IRISH Bank plans to use the multi-billion euro proceeds from the sale of its property loans to Nama to pay back the exceptional liquidity support it has been receiving from the European Central Bank (ECB).
Nama will acquire €28 billion in loans from Anglo, representing almost 40 per cent of the total loan book in the nationalised bank. This will be the largest loan portfolio going into the asset management agency. Payment will be by way of Nama bonds or IOUs.
While Anglo declined to reveal the extent of the discount that will be taken from the book value of the loans when they go into Nama, the average 30 per cent discount suggests it may receive as much as €19.6 billion from Nama.
Some €16 billion of Anglo’s Nama loans are in the land and development category and are subject to significant impairment. The remaining €12 billion reflects “associated” loans, where there is a lesser degree of impairment.
The 43 per cent proportion of associated loans in Anglo – including cross-collateralisation transactions, investment loans and loans on completed building projects – is greater than in other Nama participants.
The precise extent to which Anglo has been borrowing from the ECB over the last year remains unclear but it is understood to be very significant. The ECB will in effect be repaid with its own funds because it is funding the Nama project: Nama bonds can be used as collateral in exchange for cash from the central bank. The remainder of Anglo’s Nama bond proceeds will be used to bolster its funding position in the interbank market.
Although the prime objective of the Nama project is to foster economic recovery by stimulating bank lending, the extent to which Anglo will engage in new lending in the future remains unclear.
The bank is making extensive revisions to a business plan submitted to the Government in advance of its recapitalisation last May. Original drafts of the plan centred on strategies to derisk and shrink Anglo’s business.
However EU regulators sought a fundamentally different plan as part of its scrutiny of the recapitalisation process, largely because state-aid to state-owned enterprises raises competition issues.
The new business plan, likely to be submitted to the EU in November, embraces detailed restructuring proposals which are likely to lead to the elimination of a large number of jobs. The closure of certain branch offices and some individual bank units is also on the table. However, strategies to expand the business are also under discussion.
