The strength of Anglo's US loans, as well as the possible effect of sales on the UK property market, have piqued interest, writes SIMON CARSWELL
THE PROSPECT of Anglo Irish Bank selling its US or British loan books in one-off deals has piqued interest, not just from possible buyers, but from rival banks and British officials assessing the effect on the overseas property markets.
Anglo Irish Bank chairman Donal O’Connor told an Oireachtas committee on Tuesday that there was some interest in the bank’s €10.3 billion US loan book.
“Some have expressed an interest in that part of the loan book and we are talking to all of them,” he said. “If people are interested in parts of our book or particular groups of loans, we will talk to them because that would be in the interests of the bank.”
The half-year accounts from Anglo showed that just 3 per cent of the bank’s US loans are impaired compared with 20 per cent on the €43.3 billion Irish loan book and 10 per cent in the €18.7 billion loan book in the UK.
Given the strength of the bank’s loans in the US – and indeed the UK book compared with the Irish loans – suitors may be encouraged to place a bid on the loans.
Mr O’Connor signalled that the bank would be open to the quickest option available to de-risk and stabilise the bank, and this could involve selling loan books.
The sale of Anglo’s €18.7 billion loan book in the UK at a heavy discount could have ramifications for the British property market, given that most of the bank’s loans are secured on commercial property.
The discount could have a knock-on effect on the valuation of property loans on the books of the UK banks. It is understood that Royal Bank of Scotland, owner of Ulster Bank in the Republic, is monitoring the Irish banks’ exposures in the UK closely and the likely effect of a distressed sale of assets on its own loan portfolios.
Paul Myners, financial services secretary to the British treasury, who visited Dublin last week to discuss the State’s “bad bank” plan, has taken an interest in the effect of bank rescues on institutions straddling several countries.
Mr Myners met Minister for Finance Brian Lenihan and officials working on the National Asset Management Agency (Nama) to assess how the scheme would affect banks in the UK.
The difficulty facing the two governments is that Ireland and Britain are dealing with the toxic assets on their banks’ balance sheets in very different ways.
The “bad bank” plan adopted by Mr Lenihan forces Irish banks to take upfront losses on their toxic loans, namely property assets, when they sell them to Nama.
On the other hand, the UK government has chosen to the asset protection route, whereby financial institutions write off losses on loans over time and avoid the “big bang” hit upfront and the resulting depletion on capital.
The transfer of large portfolios of development loans from the Irish banks to Nama include large amounts of property assets in the UK, which when transferred at a knock-down value will have same effect on the British property market as a discounted sale of a UK loan book by the Irish bank.
In both scenarios, the write-down on the value of the property assets will crystallise similar reductions across UK property values.
For example, AIB has development loans of €3.6 billion in the UK, while Anglo Irish Bank has €4.7 billion. Both portfolios will be transferred to Nama and, regardless of the size of the development market in the UK, the reduction on the property values in the transfer will have a ripple effect.
Likewise, the UK-owned banks in Ireland will come under pressure to write-down the value of property in the Republic when the development loans of the Irish banks are transferred into Nama.
About 35 per cent of the €80 billion to €90 billion in bank loans being transferred to Nama are foreign and mostly based in the UK.
It is no surprise, therefore, that the UK government and the British banks are taking a keen interest in the effect of Nama – and the potential sale of Irish bank loan books – across the Irish Sea.
