Anglo Irish Bank
NAMA IS set to take over €28 billion worth of loans from State-owned Anglo Irish Bank, which has already received €3.8 billion from the Government this year.
Anglo Irish Bank was one of the biggest property lenders during the development bubble, and fears about its solvency prompted the Government to place it in State ownership in January.
The bank has received €3.8 billion in exchequer funding since then in a bid to recapitalise the institution, which was forced to take a €4 billion hit on the value of its loan book earlier this year.
Just before it was nationalised, it emerged that former chairman, Sean FitzPatrick had received a total of €127 million in secret loans from the bank.
Yesterday, Minister for Finance Brian Lenihan announced that Nama will take on €28 billion of the loans on its book, meaning that in return it will receive that figure in Government bonds.
Figures published yesterday by the Government show that the bank’s customers owed it a total of €72 billion at the end of March.
Of this €17.7 billion was related to land and development. There was a further €11 billion loans associated with these debts. The numbers also show that 60 per cent of this was in Ireland, 28 per cent in Britain, 8 per cent in the US and the balance in other jurisdictions.
The figures also show that the quality of its loan book is poorer than those of its rivals, AIB, which is also receiving €28 billion in support from Nama, and Bank of Ireland, which has been earmarked for €16 billion.
The figures show that at the end of March, €23.6 billion worth of loans to its clients were either overdue or “impaired”, meaning that €1 in every €3 that it lent to clients was at risk not being repaid. The vast majority of its impaired loans related to commercial and residential property development.
In Bank of Ireland’s case, €11 billion of its total of €135 billion loan book was overdue or impaired, a total of 8 per cent. AIB has classed €33 billion, 25 per cent of its loan book, as “criticised”, while it says just over €10 billion of these are impaired.
The Department of Finance pointed out yesterday that Mr Lenihan has said several times that the State-owned bank would have to be included in the process.
Sources suggested yesterday that the bank has more problems with liquidity, that is cash at its disposal to generate new business, than either AIB or Bank of Ireland.
Banking analysts pointed out that while the State owns the bank, it will have to be treated in the same way as its rivals, and will have to meet any liabilities to the exchequer that arise as a result of the Nama process.
Anglo was the worst hit of the Irish banks when the global financial system collapsed a year ago.
Along with the loans to Mr FitzPatrick, a number of other scandals hit its reputation.
It emerged that it lent money to high-profile clients to buy its shares, placing no real obligation on them to repay it. Irish Life Permanent deposited cash with Anglo for a short period in a bid to allow it disguise the fact that it was losing deposits.
BARRY O’HALLORAN
Bank of Ireland
BANK OF Ireland is selling €16 billion worth of development and associated loans to the Government through Nama. This is slightly lower than anticipated.
Analysts estimated that the Government pay about €12.2 billion for the loans, representing a discount of about 24 per cent on the face value as they sit on the bank’s books. The bank’s loan book is being reduced in size by about 12 per cent as a result of the transfer.
About €12 billion of the face value of the loans being acquired by Nama are development, including €6.8 billion in Ireland and €5.2 billion in the UK. The remainder being acquired are loans associated with developers such residential properties and commercial property investments, including offices and shops.
The losses incurred in the transfer of the loans to Nama is expected to leave the bank requiring further capital of €300 million to €500 million, which is in addition to the Government’s investment of €3.5 billion taken by way of preference shares in return for a 25 per cent indirect stake.
Market analysts expect the bank to be able to raise capital privately through a rights issue, which is likely to be underwritten by the Government. Minister for Finance Brian Lenihan said that the Government expected institutions “to explore all available options for raising such capital”.
He said that it was “the Goverment’s preference that private market solutions are found and implemented”. He added that he expected the banks and building societies participating in Nama to increase the equity component of their capital – in other words, the loss-absorbing reserves – as the bad loans are transferred.
While the bank is likely to be able to tap private investors for capital, the Government is poised to take a stake in the bank by way of ordinary shares should it fail to raise money. This could leave the State with a minority stake in the country’s largest bank based on its current market capitalisation.
The bank’s share price rose 3 per cent closing at €2.86 valuing the bank at almost €2.9 billion.
The potential for the Government taking a stake in the bank – and the possible size of that stake – depends on variable factors.
However, if the bank held a rights issue, selling new shares in the bank at €1 a share and was unable to raise capital privately to bring its core tier one capital ratios – the measure of loss-absorbing reserves – up to the 5 per cent, then the State could be left with a stake of 30 per cent based on capital it would need.
Since the Nama plan purges Bank of Ireland of its most toxic assets, the institution may well be able to raise money privately.
Bank of Ireland’s share price has performed better than its rival, Allied Irish Bank (AIB), this year as investors have fewer concerns about the strength of the business post-Nama. Bank of Ireland’s stock has risen 335 per cent this year compared with AIB’s 155 per cent increase since January.
Bank of Ireland has a smaller development loan book and being more conservative, its loan-to-value ratios on development loans were lower than those of AIB.
Bank of Ireland will issue a trading statement today and is expected to outline its loan writedowns and losses from Nama.
Irish Nationwide Building Society
THE COUNTRY'S second largest building society, Irish Nationwide, will undergo the most significant changes of any of the five financial institutions participating in Nama.
Minister for Finance Brian Lenihan said that the Government would be buying loans with a face value of €8 billion on the books of the building society. This amounts to a staggering 76 per cent of the lender's €10.5 billion loan book - the highest of any of the lenders.
This is hardly surprising given that the building society had one of the largest property development and commercial investment loan books in Ireland as a percentage of overall loans. The lender also suffered from having a very high concentration among a very small number of borrowers.
According to the figures from the Department of Finance, the building society had total land and development loans of €5.57 billion at the end of June last, all of which will end up in Nama. This would suggest that the building society will be transferring an additional €2.4 billion in associated loans linked to its developer customers.
Of the development total amount, the building society has €2.7 billion owing on UK loans, €2.4 billion in Ireland and €475 million across the rest of Europe.
As a result of its massive exposure to developers and land speculators, the future of the building society is most uncertain among any of the participating lenders.
Analysts estimated that Irish Nationwide is also facing the largest "haircut" on the knockdown price on the face value of its loans. It is estimated to be in the order of 40 per cent, well in excess of the estimated discount being applied to Anglo Irish Bank.
Irish Nationwide is likely to need well in excess of €1 billion in additional capital to fill the hole in its capital as a result of the expected losses incurred in Nama's purchase of its loans.
In that context, the society's future as an independent institution would appear to be doomed.
While Minister for Finance Brian Lenihan failed to outline how he sees the Irish banking sector being restructured specifically, he did signal that he sees Nama leading to "a reformed and reinvigorated banking system".
Irish Nationwide's involvement in the creation of an enlarged "third force" banking group to challenge AIB and Bank of Ireland makes sense given that it will be a shadow of its former self with just €2.5 billion in mostly home and residential loans left on its books.
The building society is likely to benefit from a Government investment but only in the context of it joining in a future merger with Permanent TSB and EBS.
Irish Life & Permanent
IRISH LIFE & Permanent’s banking division Permanent TSB avoided development lending, sticking to home loans and personal lending, and is therefore not participating in Nama.
The company is the only exclusively Irish-owned bank guaranteed by the Government that is not participating in the plan.
Minister for Finance Brian Lenihan has said he will insist on Nama leading to “a reformed and reinvigorated banking system” and that participating institutions will be required to restructure their operations.
While Irish Life & Permanent is not partaking in Nama, it will play a crucial role in the future restructuring of the banking industry.
It has been widely suggested for some time that Permanent TSB will be merged with the State’s two building societies, Irish Nationwide and EBS in the so-called “third force” to rival Bank of Ireland and AIB following Nama.
Irish Life & Permanent is expected to take a 40-45 per cent stake in the enlarged bank, which will essentially be a savings and home loans bank with a strong mutual ethos.
The State may take a similar stake, with the remaining shareholding split shared between Irish Nationwide and EBS.
Allied Irish Bank
THE STATE’S largest bank, Allied Irish Banks (AIB), accounts for the second-largest tranche of loans being acquired by Nama among the five financial institutions participating in the plan.
The bank is transferring total loans with a face value of €24 billion on the books.
This will reduce the bank’s overall loan book by 17.9 per cent.
The bank said in a statement issued last night that the loans comprise about €17 billion in land and development and about €7 billion in associated loans, of which more than 90 per cent are performing, meaning they are generating interest payments.
AIB said that the aggregate total purchase discount of 30 per cent – the so-called “haircut” – on the face value of the loans is higher than the discount as it applies to the bank’s loans.
Analysts estimate that a discount of about 27 per cent has been applied to the bank’s loans. This does not include any provisions that the bank has already taken against these loans.
The bank said in its statement that the net writedown would be €3.7 billion (before tax) for this year, having already set aside €3.5 billion this year to cover losses.
“Our expectation of a lower discount for AIB than the average industry-wide discount would have a material positive effect on the writedown,” the bank said.
AIB calculates that for every 1 per cent reduction in the discount, the writedown on the loans would be about €240 million.
The bank said it planned to raise about €2 billion in additional capital over the next 12 to 18 months and that it has “a range of sources of capital” available to it to meet the Government’s demands that all participating institutions rebuild their capital over time.
The capital could be raised in three ways, the bank said – through a strategic investment, the sale of assets and business disposals or a rights issue where new shares are issued to investors.
The bank hinted at the approach that it received from Canadian Imperial Bank of Commerce (CIBC), which expressed an interest in taking a minority stake.
The bank said it would “continue to explore strategic options, including potential investments”.
AIB also suggested in its statement that it could raise additional capital through a rights issue.
“We believe that we are now moving towards sufficient clarity to enable existing and potential shareholders to consider an investment proposition,” the bank said.
Potential asset sales could include the sale of the bank’s stakes in US bank MT and Polish lender Bank Zachodni.
The bank said it believed there is “strong third-party interest in these assets” and that it is continuously reviewing these options.
However, a decision to sell these assets will be based “on strategic rationale, likely sales proceeds, capital impact, funding and earning effects”, the bank said.
If the bank fails to raise this additional capital to meet the Nama-related losses, it may be forced to turn to the Government. Based on the likely capital investment needed, the Government could end up taking a majority stake of between 67 and 70 per cent.
However, given that AIB will be substantially cleansed by Nama, the prospect of it raising private investment has greatly improved.
EBS
THE LARGEST of the State's two building societies, the Educational Building Society (EBS), has the smallest property development loan book of any of the financial institutions participating in Nama.
The building society will sell Nama development loans with a face value of €527 million on its books as well as an additional €400 million to €475 million of associated loans, primarily secured on developers' homes and residential investment properties.
The total loans being acquired by Nama represent almost 6 per cent of the building society's overall €17 billion loan book so the institution will remain largely intact following the loan transfers.
Analysts have estimated the discount applying to the Nama-bound loans from EBS is in the region of 32 per cent, which is higher than the aggregate 30 per cent "haircut" being applied across the five participating lenders.
Fergus Murphy, the chief executive of the building society, said at the EBS half-year results on Monday that the lender will need about €300 million in capital following the transfer of the loans to Nama but that the building society saw itself playing a core part in the establishment of a larger banking group or "third force" in banking.
This is also likely to comprise Irish Life & Permanent's banking division Permanent TSB and the rump of Irish Nationwide remaining after Nama. Given that Permanent TSB has a loan book of €40 billion, that bank will play the most significant part in the creation of the enlarged group.
Permanent TSB may take a stake of between 40 and 45 per cent in the newly merged group, with the Government taking a similar sized stake, and EBS and Irish Nationwide sharing the reminder.
The building society said that it expected the Government to invest the required capital before any potential merger takes place.
Most of the first EBS loans heading to Nama relating to the biggest developer borrowers are not actually development loans, the building society said this week.
EBS's first €200 million to €250 million loans heading to Nama include home loans secured on prime properties in south Dublin and residential investment properties belonging to borrowers whose large development loans are owing to other institutions.
The building society has about 70 borrowers who each owe in excess of €1 million across the €527 million development book.
A late arrival to development lending, the building society first started providing loans on landbank and development in 2005. It has withdrawn from this sector.