AIB to sell €850m non-performing loan portfolio to Cerberus at 18% discount

A limited number of the loans are understood to be owner-occupier residential properties

AIB said it was committed to reducing non-performing loans to a ‘more normalised level’. Photograph: Cyril Byrne

AIB said it was committed to reducing non-performing loans to a ‘more normalised level’. Photograph: Cyril Byrne

 

Majority State-owned AIB has agreed to sell a portfolio of non-performing loans with a face value of €850 million to US private equity group Cerberus at a discount of 18 per cent.

The portfolio is predominantly underpinned by investment properties – including buy-to-let properties, commercial property and land and development assets.

It is understood a limited number of owner-occupied residential properties that were put up as guarantees on loans are included in the portfolio.

AIB will receive about €700 million from the deal. The bank said the proceeds would be used for general corporate purposes, including the continuation of support for customer restructuring.

The portfolio involves about 1,000 customers, with three-quarters of the loans non-performing for more than two years, and half for more than five years, the bank said.

The average balance per customer is €900,000 and the portfolio extends across about 2,800 assets.

AIB said the move was part of a consortium arrangement with Everyday Finance DAC and affiliates of Cerberus Capital Management.

“This is another important step in our non-performing exposure deleveraging strategy and we remain on track to reach circa 5 per cent by end 2019,” an AIB spokesman said.

Significant engagement

The loan portfolio has a gross value of €850 million. In the year to December 2018, the loan portfolio incurred a loss of €52 million.

The sale is expected to have a negative impact on AIB’s profit and loss account but overall will be capital accretive due to the reduction in risk-weighted assets, once the proceeds have been received in early 2020.

AIB said it continued to restructure some of the loans during the sales process. This, along with “significant engagement and business-as-usual activity”, led to a €250 million reduction of loans that might have been included in the portfolio.

Link ASI will service the portfolio on behalf of Everyday under an outsourcing arrangement between the two parties.

AIB said it will contact impacted borrowers to inform them that their loans are being transferred, and to confirm existing legal and regulatory protections remain in place.

The bank has reduced its non-performing loans from €31 billion in 2013 to €4.7 billion at June 30th. AIB said it was committed to reducing this exposure to a “more normalised level” and is on track to reach 5 per cent by the end the year.

All lenders in Ireland are under pressure from regulators to reduce their non-performing loans exposure.

“We continue to have 1,500 people working with customers who are in difficulty across the country and our preference remains to provide solutions through customer engagement on a case by case basis,” added the bank.