Following the press statement from Allied Irish Banks (AIB) over lunchtime today, it seems that the bank has transferred a second mini-tranche of €9.3bn with an average haircut of 59%. So far AIB has transferred the following tranches and mini-tranches
Tranche 1 notified on May 10th, 2010 (€3.29bn at par value with an actual haircut of 42.25% (equating to €1.39bn) meaning NAMA paid €1.9bn)
Tranche 2 notified on August 23rd, 2010 (€2.73bn at par value with an actual haircut of 48.5% (equating to €1.324bn) meaning NAMA paid €1.406bn)
Mini-tranche 1 notified on 8th November, 2010 (€3.2bn at par value with an estimated haircut of 60% (equating to €1.9bn) meaning NAMA paid €1.3bn)
Mini-tranche 2 notified on 20th December, 2010 (€9.3bn at par value with an estimated haircut of 59% (equating to €5.5bn) meaning NAMA paid €3.8bn)
With net capital at 30th June, 2010 of €9.466bn which included a 22% haircut provision on €20.405bn of NAMA loans (including UK NAMA loans) equating to a provision of €4.5bn, it looks like AIB is in dire need of new capital today.
Since 30th June, 2010 Tranche 2 and Mini-tranche 1 and 2 have been transferred and the haircut on these has been €8.724bn. That means that today AIB is left with a balance from June 30th, 2010 NAMA-bound loans at par value (less the transfers to date) of €5.175bn with a remaining provision of minus €4.224bn. If the remaining balance of €5.175bn of €5m+ exposures is to have a discount of 60% that means that AIB needs book a loss and provision for future losses of €7.329bn today. Ouch!
However since June 2010 it has been decided that AIB must also transfer land and development exposures of €0-5m. Along with BoI the total €0-5m exposures is estimated to be €10bn. The split between AIB and BoI has not been revealed but it was previously reported that the €5-20m exposures totaling €6.5bn were split €4.4bn to AIB and €2.1bn for BoI. So on that basis you might expect AIB’s €0-5m exposures to total well over €5bn.
AIB’s non-NAMA commercial property was provisioned at 15% approximately in June 2010. If AIB transfers half of the €0-5m exposures and they attract a 60% haircut (the betting is that it will be higher as the lower value loans relating to land and development are likely to have fallen 75-90%) then AIB will need an additional €2.25bn provision (€5bn at (60%-15%)). These loans are supposed to be transferred by year end.
So exclusively examining AIB’s NAMA lending it would seem that capital has dropped from €9.466bn in June 2010 by €7.329bn to €2.137bn today. So whilst not insolvent, capital of €2.137bn on €81bn of non-NAMA loans would certainly be in breach of the Financial Regulator’s capital requirements. And should AIB transfer its €0-5m exposures at a 60% haircut and assuming €5bn of such exposure at par value then the bank will be insolvent. Of course AIB has been trying to raise capital from the disposal of non-core operations. EU approval of the sale of AIB’s 70.5% share in Bank Zachodni in Poland to Santander is expected shortly which will contribute €2.5bn. The sale of the bank’s share in M&T contributed €0.9bn in capital but that will prevent the bank breaching its capital requirements today and it would only mean minimal solvency once the estimated remaining €0-5m is transferred.
I would have expected some conversion of the NPRF’s AIB preference shares to ordinary shares to shore up the capital but we seem to be all at sea with the Credit Institutions (Stabilisation) Bill to be discussed by the Council of State tomorrow with a possible referral to the Supreme Court and the ECB seems to be demanding amendments in any case which might see the Bill returned to step 1 in the Oireachtas.
Not only is AIB insolvent – the government is insolvent. An symptom of this is that property rental payments from the OPW are being delayed.
The State has always insisted on removing a clause in its leases that allows interest on delayed rental payments on the basis that the State is obliged to pay promptly – and always does. But that is not happening and it would be interesting if some alert investigative journalist enquired as to the length of the delays and the amounts involved.
It’s difficult for banks to insist on prompt payment from their customers when the government is setting such an example!
Let’s simplify it.
Lloyd’s TSB has made a loan loss provision of €8 billion on BOSI’s loan book of €28 billion – approximately 28.5%.
AIB’s and BofI’s loan books were approximately €125 billion each. Assuming that Lloyd’s TSB is telling it as it really is and that the losses on AIB and BofI are on a par (which is not an unreasonable assumption as they all competed for the same business), then the loan losses on our two major banks (and this excludes Anglo, INBS, mortgage losses at IL&P, EBS etc) are €35.5 billion each or a total of €71 billion.
So is AIB bust?…. Is the Pope a Catholic?
A good question is could (and should) the Directors be charged with reckless trading as the company is insolvent?
I’m serious. All directors need to be aware of the statutory duty they owe to the company not to trade recklessly and of their potential personal liability for the debts of the company if they do so.
They should reflect on it.
http://www.accountancyireland.ie/Archive/2005/June-2005/Insolvent-Companies—Advising-the-Directors/
Hi WSTT, maybe this is a pre-Christmas thing with Brian Lenihan but I remember that this time last year, the Minister for Finance was giving written undertakings to both Anglo and INBS with respect to the State shoring up any shortfall in capital and the new-ish Financial Regulator, Matthew Elderfield who came on board on 4th January, 2010 accepted these undertakings. The EU was less impressed and gave us two slaps on the wrist for giving written undertakings to both INBS and Anglo on 22nd December, 2009 without EU approval – “the Commission regrets that Ireland put the aid in question into effect, in breach of Article 108(3) of the Treaty on the Functioning of the European Union.”
I have a feeling that something has broken down and AIB is in uncharted waters. The Credit Institutions (Stabilisation) Bill should have been signed into law by the President on Friday last. Instead she has decided to convene a Council of State at 2.30pm today where the 22-member brain trust will consider the compatibility of the draconian Bill with the Constitution. I would say that it is 50:50 that it will be referred to the Supreme Court and we are now at 21st December and Paddy McKillen’s case is being heard by all seven Supreme Court judges until tomorrow. Add to that the ECB’s deep unease with the Bill and the implicit demand for amendments and I think this Bill might remain a Bill for another few days if not weeks. AIB is not Anglo on 22nd December 2009 when the Minister gace his seasonal undertakings last year – it’s not 100% nationalised and is subject to stock exchange listing rules.
Perhaps a journalist might contact the Financial Regulator and ask him if AIB is in breach of capital rules following the latest NAMA transfer and if so, will he revoke the bank’s licence.
Who shot the Tiger
Taking your comment seriously, they are trading, but not making new loans as they cannot find anyone who wants to take on the liability in a depression, at least that can offer twice the loan as security……
The recklessness is all in the past and there should be prosecution. But we know there will not be, don’t we?
The whole point now is cleverly to extract as much money as possible from the taxpayer while they are still stunned and stupid, so no hurry there.
By continuing, we must pump in billions every month. If they were to wind up, that would be impossible!
The matter of the guarantee might then arise, but as I say, until the stupor in the body politic wears off, they can get away with anything.
Wake up, somebody?
Could someone explain the role of the Credit Institutions (Stabilisation) Bill in the current crisis at AIB?
Why can’t the bank simply be recapitalised in the same way as on previous occasions? Or am I missing something?
It’s not quite clear but the likelihood is that the State will own ~95% when it recapitalises AIB and that would normally lead to the stock being delisted from the stock exchange. The Bill would allow the State to maintain a listing with 95% plus and that seems to be an unstated objective. There may be other angles.
WStT, don’t you mean “Is the Pope German?”
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