AIB AND Irish Life & Permanent may already be facing paper losses on the purchase of deposit books from Anglo Irish Bank and Irish Nationwide Building Society.
The €12.2 billion in deposits were backed by bonds issued by the National Asset Management Agency (Nama), the price of which has been cut by the European Central Bank (ECB) since the deposits transferred on February25th.
There is no liquid market for the bonds – which were issued to the banks in exchange for land and development loans – but they can be used as collateral to borrow funds from the ECB.
The ECB last week cut the value it puts on the Nama bonds from 98.5 per cent of face value to 95 per cent of face value.
The size of the deposit transfers and associated bond purchases means that the paper losses created as a result could be substantial.
AIB – which is owned by the State – bought Nama bonds with a face value of €12.2 billion from Anglo Irish which were valued at €12 billion based on the then ECB valuation of 98.5 per cent.
They would be valued at €11.6 billion, a fall of €400 million based on a valuation of 95 per cent.
Similarly Irish Life & Permanent (IL&P) bought Nama bonds and other bonds from Irish Nationwide with a face value of €3.7 billion. Applying the lower of the ECB valuations to the bonds would imply a paper loss in the region of €125 million.
The price change could have similar consequences for the value of the €11 billion of Nama bonds already held by AIB, which it received as payment for approximately €20 billion of land and development loans transferred to Nama.
Bank of Ireland held just over €5 billion of Nama bonds at its year end in December.
A spokesman for IL&P said the bank “is very happy with the acquisition of the Irish Nationwide deposit book and associated bonds including Nama bonds”.
He said: “The recent pricing change announced by the ECB was simply a timing issue which reflected the fact that the bonds rolled over in early March and are now further away from their next coupon payment than would otherwise have been the case similar to a share going ex-dividend. As the calendar moves on, they will return to 98.5 cent at the end of year and then the cycle will recommence in a year’s time.”
He added that there had been no change to the haircut which the ECB is taking on the bonds when used as collateral to borrow funds. It remains at 1.5 per cent.
“As such, the finances underpinning the transaction are as originally envisaged,” he said.
AIB said last night: “The ECB quoted price on Nama bonds, like all bonds, does vary from time to time. However, this is not expected to have an effect on our underlying valuation of Nama bonds.”
AIB and IL&P bought the Anglo Irish and Irish Nationwide deposits in an auction process run by the National Treasury Management Agency.
Eight domestic and international financial institutions took part. The transfers are part of the winding up of Anglo Irish and Irish Nationwide as agreed with the International Monetary Fund and the European Union as part of the €67.5 billion assistance programme.
They movement of the deposits has bolstered the balance sheets of the two banks which have seen deposits exit due to fears over the stability of the Irish banking system.
