AIB unveils half year results. And a devilish scheme to prevent NAMA acquiring performing loans.

If you’re a NAMA financial institution and you’re fretting about good quality loans being transferred to NAMA (with a consequent hit in your books for NAMA enforcement and due diligence costs not to mention NAMA taking their slice off the top) then what do you do when NAMA come calling for these performing loans? Well if you’re Anglo you can dispute the eligibility of the loans and that’s apparently what Anglo did when they sought a review in respect of Paddy McKillen’s loans.

AIB on the other hand may have found another route. In their H2, 2010 results published today they reveal that their NAMA-bound loans may have reduced by a gross of €3.2bn (page 7 of the H2 results) from the original estimate of €23bn, because these €3.2bn of loans are UK-based loans and AIB expects to sell its UK business by September 2010. Now the UK has suffered less than Ireland in respect of property prices, residential is off 9% from the peak (according to the Nationwide Building Society the average price of a UK house at the end of July 2010 was £169,347 compared with a peak price in October 2007 of £186,044) and commercial capital values are 36% off the peak (by reference to the IPD monthly index) plus both sectors have turned in reasonable increases in the last 7-8 months (~9% for commercial and ~4% for residential) – the UK is not by any stretch back to the boom years in terms of either transaction levels or prices but it is recovering.

So eligible loan or not, if AIB sell their UK operation then that will apparently take €3.2bn of gross loans out of NAMA’s reach. The 2009 accounts (note 25 on page 183) show that the gross UK NAMA-bound loans were €3.722bn and had a provision of €0.232bn (6%) compared with a provision level of 20% for NAMA-bound loans on Irish assets (€3.722bn provision on €19.444bn of gross loans). So has AIB found a way of sending the non-performing trash to NAMA whilst selling off the better-performing UK loans? It certainly looks that way.

Also of interest, though peripheral to the above, is AIB are maintaining an 18% haircut provision (the same as the provision level in the 2009 accounts) on the remaining NAMA-bound loans which compares with a haircut of 42% on tranche 1 and 48% on tranche 2. What will our increasingly low-profile Financial Regulator have to say about that.