STATE-OWNED Anglo Irish Bank applied a lower value to the first State-backed bonds received from the Government’s National Asset Management Agency than Allied Irish Banks and Bank of Ireland on the first loan transfers, according to the banks’ half-year accounts.
The decision by Anglo to value the Government-backed bonds or IOUs from Nama at a lower value than AIB and Bank of Ireland may cost the State an estimated €1.4 billion, depending on the final value assigned to them in its accounts.
The potential for the additional loss was covered in the bailout approved by the European Commission last month when it sanctioned the State to increase its capital support of Anglo to €22.9 billion and up to €1.4 billion more, depending on Anglo’s final valuation of the bonds in its accounts.
Anglo said in its accounts that a different approach could give rise to an increased value and that it “may reassess” its approach when preparing its full-year accounts.
The differing valuations applied by the banks has the potential to create confusion on how the bonds should be valued and on possible losses arising.
This may not result in additional losses over time as the value of bonds generally rises as they reach their maturity, sources said.
Talks have taken place between Anglo and officials about how it values them and the potential cost.
Nama is buying loans of about €80 billion at a discount from five lenders, paying them in the form of Government-guaranteed bonds.
The bonds can be exchanged for cash at the European Central Bank with a 1.5 per cent discount.
While AIB and Bank of Ireland applied this discount, Anglo used an estimate of how the market would value the bonds, assigning a discount of almost 9 per cent.
The bank set the valuation based on the interest rate paid by Nama on the bonds, the rate on the equivalent Irish sovereign debt, the “extendible feature” of the notes and the repayment dates outlined in Nama’s business plan.
Spokesmen for AIB and Bank of Ireland had no comment on how the banks valued the Nama bonds.
Had the two banks applied Anglo’s valuation, their loss on the discount on the bonds received for the first Nama loans would each have risen by over €100 million.
An Anglo spokesman said its accounts were approved by the board. A spokesman for Nama said it was the responsibility of the banks under accounting rules to assign a fair value to their assets.
The regulator said there was “a degree of discretion” for each bank and its auditors on how they value the Nama bonds.
