AIB books profit on €1bn bad loan sale

Irish Independent - - Business - Gretchen Frie­mann

US pri­vate eq­uity group Cer­berus yes­ter­day swooped on €1.1bn of soured loans from AIB. The fi­nal deal rep­re­sents less than a third of the ini­tial as­sets on of­fer from the State­backed bank.

AIB will re­ceive €800m from the trans­ac­tion, a dis­count on the loans of close to 25pc – that’s bet­ter than the dis­counted value the loans were car­ried at on the bank’s books how­ever. It leaves the bank with a pa­per profit on the deal.

But the whit­tling down of the once €3.76bn Project Red­wood has raised ques­tions about the lender’s appetite for fur­ther port­fo­lio deals.

It’s un­der­stood most of the loans sold to Cer­berus are at­tached to com­mer­cial prop­erty and in­vest­ments af­ter AIB stripped out buy-to-let mort­gages, small-to-medium busi­ness loans, a num­ber of de­vel­op­ment loans, and re­volv­ing fa­cil­i­ties – all of which were in­cluded in Oc­to­ber’s ini­tial sale doc­u­ments.

While the deal clips 12pc off AIB’s non-per­form­ing ex­po­sures (NPE), which stood at €9.2bn at the end of the March, the trans­ac­tion made lit­tle im­pres­sion on the share price which closed just 0.02pc higher at €4.96.

How­ever, it marks a mile­stone in the bank’s mis­sion to bring NPEs in line with the Euro­pean av­er­age and free up cap­i­tal.

Soured ex­po­sures ac­counted for 14.5pc of AIB’s to­tal loan book at the end of De­cem­ber and In­vestec’s Owen Cal­lan an­tic­i­pates the much-scaled back Project Red­wood will re­duce that to 13pc – still some dis­tance from the 5pc norm in the eu­ro­zone.

Ac­cord­ing to Good­body, the deal adds about 30 ba­sis points to the bank’s com­mon eq­uity tier one (CET1) cap­i­tal ra­tio – a con­ser­va­tion buf­fer that re­flects a lender’s abil­ity to with­stand a down­turn – and in a note to clients an­a­lyst Ea­monn Hughes said “sim­plis­ti­cally, this adds about €100m to AIB’s ex­cess cap­i­tal”.

The deal comes af­ter a lengthy pe­riod of prepa­ra­tion by AIB.

The bank, which re­turned to nor­mal trad­ing on the Lon­don and Dublin stock ex­changes last year in a €3.4bn IPO, first ap­pointed ad­vis­ers, KPMG, on Project Red­wood in April 2017.

By the time suit­ors were run­ning the num­bers on an ac­qui­si­tion at the end of last year, the num­ber of loans on the block to­talled 10,901.

Ac­cord­ing to sources, the port­fo­lio was stripped back partly be­cause bid­ders baulked at pay­ing up for un­se­cured debts and be­cause the bank feared a re­peat of the po­lit­i­cal mael­strom trig­gered by Per­ma­nent TSB’s sale of 18,000 res­i­den­tial mort­gages, the ma­jor­ity of which were owner-oc­cu­pier mort­gages.

The bank’s de­ci­sion to launch a block­buster auc­tion of home loans prompted op­po­si­tion politi­cians to pro­pose leg­is­la­tion de­signed to re­strict the sale of loans to reg­u­lated en­ti­ties.

But Cer­berus’s ac­qui­si­tion of AIB’s lat­est port­fo­lio, would qual­ify even if the rules changed.

The US heavy­weight had joined forces with re­tail credit firm, Ev­ery­day Cap­i­tal, to ac­quire the AIB port­fo­lio.

It is un­der­stood Ev­ery­day Fi­nance, which is reg­u­lated by the Cen­tral Bank, will re­tain a nom­i­nal eco­nomic in­ter­est in the as­sets. Sources said the con­sor­tium was as­sem­bled in the past few months.

US pri­vate eq­uity group Cer­berus has swooped on €1.1bn worth of soured loans from AIB, with the bank get­ting €800m of it

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.