NAMA issues pre-Christmas update (UPDATED)

NAMA has now published its pre-Christmas update. The highlights –

(1) NAMA claims to have convinced developers (three according to Laura Noonan in today’s Independent – that would be 3 out of 850 by the way) to reverse the transfer of €130m of property which will be used for future development. Who valued the transfers at €130m? When will the transfers be reversed?  As commenter JR below asks, why will this property not be used to offset loans due and why is it being risked on future development spending by NAMA.

(2) €1.6 billion in assets held by Nama developers has been approved for sale under NAMA’s auspices since March 2010 with proceeds being used to repay NAMA and non-NAMA loans. I’d guess that the €1.6bn includes Derek Quinlan’s €200m-odd car park on South Audley Street, the sale of which seems to have stalled though is likely to be continued in the New Year.

(3)  11,000 loans held by 850 developers with a nominal value of €71.2 billion have been acquired. There are likely to be another 10,000 smaller loans worth another ~€18bn.

(4) NAMA has issued bonds with a total value of €30.2 billion and applied an average 58% haircut. With the smaller exposures remaining to be acquired and with betting that they will attract deeper discounts, I would guess the final haircut will be in the 60-65% range.

(5) The agency has now concluded its review of the business plans of the top 30 developers the statement said. Information reaching here suggests that not one single agreement has been signed by both NAMA and the developer.

(6) NAMA has individually valued and conducted due diligence on 43% of the €71.2bn par-value loans acquired (NAMA say the 43% relates to acquisition value which is €30bn approx) AND that the 43% has been approved by the EU. Well done to NAMA on that. In addition NAMA has undertaken the same detailed work with a further 17% of loans though the EU has not yet approved these valuations. That leaves 40% which has been acquired at estimated valuations that will need be validated in Q1, 2011.  Plus NAMA needs acquire a further €18bn of smaller exposures. I’d guess that the transfers will be completed with granular valuations in Q3, 2011.

Keywords: Christmas message 2010 Frank Daly

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Is AIB insolvent?

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 10^th, 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 23^rd, 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 8^th 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 20^th 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 30^th 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 30^th 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 30^th, 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.

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