It promises to be one of the year’s finest clashes. In one corner, you have the Financial Regulator striving to restore confidence in Irish banking by ensuring banks are adequately capitalised. In the other corner, you have NAMA charged with maximising the return from the loans for the Irish taxpayer (sorry Vincent Browne, “citizenry”). And along comes AIB.
Here’s the problem. AIB want to sell “non-core” operations to help bolster its capital. The Financial Regulator stands over them with a stick to make sure they are carrying through on plans that will see them adequately capitalised by the end of December 2010. On the other hand NAMA identified some €23bn of eligible loans that NAMA had been saying in April 2010 at the Oireachtas would be transferred to NAMA by “quarter three of 2010”. Some of this €23bn of loans are for assets located in the UK – €3.2bn in fact. These loans would appear to be better quality than the Irish stuff (reflected in the fact that the UK NAMA-bound loans had an impairment provision of 6% at the end of 2009 whereas the Irish NAMA-bound loans had a provision of 20%). So NAMA want to get their hands on these loans – in addition to getting a standard 5% enforcement cost reimbursement from AIB, NAMA get to discount the value of the loans and should make a tidy profit if they are repaid in full. On the other hand, remove these performing loans from the UK operation and what would AIB have left to sell?
So who will win? My guess would be the Financial Regulator. NAMA has another 10 years before its losses are crystallised. Recapitalisation of AIB is an immediate problem. The fact that AIB yesterday were saying that the sale of the Polish and UK operation should be complete by September [2010, I assume] and the fact that the €3.2bn of UK loans were highlighted in the H2 results indicates that much of this clash may already have taken place.
UPDATE:6th August, 2010. K-O to the Financial Regulator? The Independent reports today that “AIB yesterday revealed that it had agreed that some €3bn of UK loans that had been ear-marked for the National Asset Management Agency (NAMA) could be sold with the UK business. “That implies that the UK sales process is actually pretty advanced,” said one market source.” The article doesn’t reveal the party with whom AIB has “agreed” the sale of these NAMA loans. NAMA?
NAMA Wine Lake 
