NAMA: BANK BAILOUTS AND RESULTS:STATE-OWNED ANGLO Irish Bank has posted a loss of €12.7 billion – the largest in Irish corporate history – for the 15 months to the end of December 2009 after writing off €15.1 billion on bad loans.
Some €10.1 billion of the write-offs were on loans of €35.6 billion – half the bank’s loan book – moving into the National Asset Management Agency (Nama).
The loan write-off relates to a 28 per cent discount on the Nama loans, which is significantly lower than the 50 per cent haircut applied by the agency this week on the first €10 billion in loans moving to the agency this month.
The Government has injected €8.3 billion into the bank this week to replenish its capital after the 15-month loss wiped out the bank’s loss-absorbing reserves.
The latest bailout, invested in the bank yesterday, came in the form of a promissory note, essentially an IOU, from the State.
This is in addition to the €4 billion injected into Anglo last year which was also to bolster reserves after record half-year losses.
This brings the capital injections to €12.3 billion. Minister for Finance Brian Lenihan outlined in the Government’s recapitalisation plan on Tuesday that the State may have to invest up to €10 billion more to cover future losses.
Mike Aynsley, Anglo’s chief executive, told The Irish Times the bank was not expecting Nama to apply such a large haircut on the first loans and had to account for possible higher losses. He admitted that he was surprised with the haircut applied. “There is some surprise in the assumptions on property values but Nama doesn’t want to find itself in a hole.” Mr Aynsley said that the bank may appeal against some of the loan valuations applied by Nama.
He said the bank had only received a small number of loan valuations from the agency ahead of the transfer of the first €10 billion in loans early this month.
Pending European Commission approval, Anglo plans to split itself in a restructuring into a good bank and a bad bank, reinventing the good bank primarily as a business lender and running down the bad element over a period of time in its own asset management firm. “The split is the best option,” said Mr Aynsley. “It is very aggressive far-reaching restructuring.”
Outlining revised figures, Mr Aynsley said that liquidating or running down the bank over time would cost more than the potential €22 billion bailout of the bank under the plan to keep it open. “This is a cost limitation exercise that we are putting into play.”
Following the Nama transfers, the bank will be left with €36.5 billion in loans which will be split.
Some €4.9 billion of the bank’s bad debt charge for 2009 relates to non-Nama loans, representing a charge of 13.9 per cent of the book. Mr Aynsley declined to comment on the size of the good bank emerging from the restructuring ahead of EU approval which is expected by the end of June.
It’s believed that the bank plans to create a so-called good bank with loans of about €20 billion on a balance sheet of between €35 billion and €40 billion, which includes investment assets, though these figures may change.
The bank has said that its aim is to create a “mid-sized commercial bank” out of the restructuring.
Deposits at Anglo fell to €27.2 billion at the end of December 2009 from €34 billion at March 31st, 2009, the end of the bank’s previous reporting period. Reliance on central bank funding rose to €23.7 billion from €23.5 billion in March 2009 and €7.5 billion at September 2008.
Anglo’s Irish loans rose to €44 billion from €43.3 billion between March and December 2009. Mr Aynsley said the bank was only lending to existing customers. Anglo realised a capital gain of €1.8 billion last summer on a debt buyback which helped reduce the bank’s pretax loss to €12.8 billion.
