BANK OF IRELAND:BANK OF Ireland has said the discount to be applied to €16 billion in loans being sold to Nama will fall below the 30 per cent industry average outlined by the Government.
The bank’s chief executive, Richie Boucher, told analysts in a conference call that holding a rights issue between the announcement of the bank’s results for the six months to September 31st in early November would be difficult.
However, he refused to rule out raising further capital from private investors via a rights issue.
Shares in Bank of Ireland climbed 18 per cent, or 51 cent, to €3.38 after figures released by the bank showed that the discount to be applied to the loans is estimated to be less than 20 per cent.
This means Nama is expected to pay about €12.6 billion for loans with a face value of €16 billion on the books of Bank of Ireland.
The bank is expected to push to hold a rights issue before a December 1st deadline set by the Government under the €3.5 billion recapitalisation which would enable the group to cut the State’s indirect stake in the bank from 25 per cent to 15 per cent by repaying €1.5 billion of taxpayers’ money.
Shares in the bank rose to their highest level since last October as the Government announced the total amount it would pay for bad loans across the domestic banking sector, ending months of uncertainty about the future ownership of the country’s two largest banks.
The bank will transfer €10 billion of the loans which were advanced to developers and land speculators and a further €6 billion worth of associated loans.
The development loans of €10 billion heading to Nama cover 452 “connections” or customers.
While the bank has a total land and development loan book of €12.2 billion, only €10 billion is being sold to Nama as individual loans of less than €5 million will be retained by the bank in a move that will ease the administrative burden on the State loans agency.
The bank said that the approximate loan-to-value ratio (LTV) – one of the key measures used by Nama to value the loans – was 69 per cent, meaning that that loan was provided on the basis of a 31 per cent equity stake or deposit when it was advanced by the bank.
This is below the 77 per cent LTV figure provided by the Government as the industry average, reflecting the more conservative approach adopted by Bank of Ireland on development lending compared with the other institutions participating in the Nama plan.
The level of interest rolled-up or postponed by the bank on the €16 billion portfolio was €1 billion.
This represents 6 per cent of the overall face value of the loans being acquired by Nama, which is below the industry average of 12 per cent for rolled-up interest.
Illustrating the risk that Nama is assuming, Bank of Ireland raised its bad-debt forecast for the three years to March 2011 by about €900 million to about €6.9 billion.
The bank said in a trading statement that the write-down on the value of the Nama loans would be between €1.2 billion and €1.4 billion, but that the impact on its financial position would be set by the timing of the loan transfers.
The sale of the loans may result in the need for additional capital, the bank said, but said it could raise this capital internally by buying back existing debts or “through access to capital markets” without turning to the Government for further investment.
The bank said it would set aside €1.6 billion to €1.8 billion to cover bad loans for the six months to September 30th, up from €267 million on the same period last year.
Total lending for the period would be about 2 per cent lower on last year.
