BoI and AIB face €12bn losses on property loans

BANK OF Ireland and AIB face losses totalling up to €12 billion on the property loans that they will be handing over to the State rescue agency Nama, according to statements issued by both yesterday.

The Republic’s two biggest banks also warned their shareholders that if they do not vote in favour of taking part in the scheme both will ultimately face the prospect of nationalisation.

The two banks yesterday outlined what their participation in Nama, the State agency established to take over banks’ property loans, will entail.

AIB estimates that Nama will acquire land and development loans from it with a total value of €24.2 billion. It pointed out that the Minister for Finance has already estimated that the agency will buy the loans at a 30 per cent discount to their value.

The bank added that there was no reason to believe that the discount that would apply to its assets “will fall significantly outside this guidance”.

Similarly, Bank of Ireland estimated that it would be transferring loans worth €16 billion to the agency and would receive approximately €11.2 billion in return.

It stated that the 30 per cent discount “represents the maximum loss likely to be incurred on the sale of loans to Nama”.

On the basis of both their statements, AIB expects to lose €7.3 billion on its Nama loans, while Bank of Ireland believes that its losses will be a maximum of €4.8 billion.

Bank of Ireland pointed out that it wrote €1.4 billion off the value of the loans involved at the end of the first half of its financial year on September 30th.

It added that, as a result, it will have to account for a further €3.4 billion losses before tax, and said that it may have to do this over a number of accounting periods, depending on how quickly Nama does its work.

AIB wrote €2.3 billion off the value of its loans at its half-year stage on June 30th.

The bank did not go into any detail about recognising further losses.

The potential losses indicated by both statements are higher than those indicated by both banks at the time that the Nama legislation was published in September.

Bank of Ireland said then that on the basis of a number of measurements, it expected its write down to be less than the 30 per cent estimated by the Minister.

AIB also said in a statement that it expected its discount to be less than the predicted 30 per cent.

Yesterday, a Bank of Ireland spokesman pointed out that when the institution made its statement in September it also made it clear that the final figure would depend on Nama’s final estimate of its assets’ value.

He explained that the bank used a number of measurements, including total loan value and interest roll-ups, to supports its original statement.

Both banks’ share prices fell by more than 5 per cent yesterday as investors reacted to their statements by selling their stock.

The deeper the discounts paid by Nama, the more likely it is that they will have to receive aid in the form of taxpayers’ money to keep going.

It could also mean that the Government could be forced to convert its preference shares in both banks to ordinary stock.

The Department of Finance last night confirmed that this was being considered should the financial institutions require any further capital after Nama has done its work.

The banks will have to hold general meetings to get shareholders’ approval to take part in Nama and dispose of their property loans.

The two institutions warned that if shareholders vote against their taking part in Nama this would make it increasingly difficult for them to raise capital.

They said this could in turn force their partial or total nationalisation.