The Educational Building Society (EBS) today released its results for the six months to the end of June 2010 (I am still trying to obtain full results including notes to the accounts). EBS is a participant in the NAMA scheme though it is expected it will contribute an less than €1bn of the total of €81bn loans that NAMA is absorbing from the five Irish financial institutions (AIB, Anglo, BoI, EBS and INBS). And thus far EBS has transferred €180m (€157m at the end of the six month period ending June 2010) of loans with a cumulative average discount of 38% (just behind top of the class BoI with 36%).
Like the other NAMA financial institutions, EBS is engaging in fairytale accounting for its losses on NAMA-bound loans and is presumably hiding behind the fact that IFRS 9 is optional until 2013 so that it does not have to take realistic provisions for losses against its loan portfolio until the loans are actually transferred to NAMA or realised. After deducting the NAMA tranches 1&2 and adding a further €52m to the provisions (as reported in the interim report), EBS still only has a 20% provision for losses against the residual NAMA loanbook. Of even more interest is EBS is showing net loans for transfer to NAMA at €409.6m which implies that some €232m of net NAMA-bound loans are no longer going to the agency. Are these more performing loans that NAMA is letting slip through its fingers perhaps to sweeten any sale of EBS?
Thus far EBS has received a total of €350m in state funding – €100m in cash and €250m in the form of a state-backed promissory note. The Irish Times today reports that the State may have to inject further sums up to a maximum of €437m, though it is unclear what provision for losses gives rise to that figure, and accordingly if there is risk of that figure rising.
EBS is of course presently up for sale with reports of three venture capital companies (JC Flowers, Cardinal and Doughty Hanson) and Ireland’s Irish Life and Permanent bancassurer making up the four potential bidders. It is expected that the four will be whittled down to two at the end of September 2010 and that a final purchaser will be selected at the end of October 2010.
UPDATE: 22nd October, 2010. The Minister for Finance, Brian Lenihan, has announced (or possibly confirmed newspaper reporting from 15th October onwards) that the two biddets for EBS will be Irish Life and Permanent (as expected) and a consortium led by Dublin’s Cardinal Capital Group which includes US leveraged buyout firms Carlyle Group and WL Ross and Co. Cardinal is led by Nigel McDermott and Nick Corcoran. The two bidders will now prepare detailed bids in “the coming weeks”. EBS’s CEO, Fergus Murphy played down the imminence of concluding a sale some weeks ago and indeed the betting is that the sale may only conclude in principle at the end of 2010.
NAMA Wine Lake 
In the USA the banks are operating a “pretend and extend” policy whereby they do not “fess up” to the toxic loans on their books. Pundits reckon that they are running out of creative accounting options and the real extent of those losses will have to be divulged in 2011.
Still, it seems that the EBS, Bank of Ireland and AIB have decided that Boston is better than Berlin!
The NAMA principle is that the losses on a major proportion of our banks’ loanbooks will be recognised now through stringent valuation and due diligence of the loans – that’s fair enough and should in principle place Ireland at an advantage. Except it seems the scale of our property losses is far greater than our competitors who may be kicking their problems forward but if their property markets are recovering or if they have seen smaller declines then they may be able to work through their problem loanbooks without the “mortification of the flesh” that NAMA is effecting.
horrors!