AIB plots final debt sale as 220 home loans tied to Cerberus deal

AIB is considering the sale of a final batch of problem loans later this year to allow it start releasing billions of euro of excess money on its balance sheet to shareholders, after it emerged on Monday that about 220 owner-occupier mortgages were included in its latest portfolio sale.

The 71 per cent State-owned lender said before the Dublin stock market opened that it had agreed to sell €1 billion of non-performing loans (NPLs) against 5,000 assets, mainly made up of investment properties, to a group led by US distressed debt giant Cerberus.

The Irish Times previously reported that the original value of the portfolio, known as Project Beech, was €3.4 billion. While the bank never disclosed the original value of the loans, it said on Monday that €500 million of the loans ringfenced for sale were taken out as they were restructured, driven by “significant engagement” by borrowers in default.

Non-performing

The bank said that Project Beech ended up as a portfolio of 2,200 non-performing borrowers, about 95 per cent of whom were deemed to have been “non-performing” for more than two years, with 80 per cent in that category for over five years.

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“While not categorised as a principal dwelling home (PDH) portfolio sale, for circa 10 per cent of customer connections, the PDH property has been included as it was cross-secured to wider commercial connected debt,” it said.

“In all of these cases, extensive and renewed efforts were made by AIB to engage with the customers, resulting in some customers being excluded where they availed of the opportunity to be restructured.”

While Permanent TSB and Ulster Bank have sold non-performing owner-occupier loans in the past year as banks come under increasing regulatory pressure to lower their bad debt ratios, this is understood that this is the first time AIB has included such loans in a portfolio sale. AIB sold a €1.1 billion pool of non-performing commercial and investment property loans last year to the Cerberus-led consortium. Both Cerberus deals also involved regulated debt-servicing firm Everyday Finance.

Surplus capital

AIB cut its NPLs from 16.1 per cent to 9.6 per cent of total loans over the course of this year, and has set its sights on beginning discussions with regulators on returning excess capital on its balance sheet to shareholders, led by the State, after it lowers the ratio to 5 per cent by the end of this year. Davy analysts estimate that the bank may have €2.5 billion of surplus capital on its balance sheet.

The latest deal will reduce the NPLs ratio to about 8.2 per cent. Goodbody Stockbrokers analyst Eamonn Hughes said that the fact that AIB has forecast that the transaction will boost the group's capital levels "should provide reassurance in relation to the quality of the remaining" NPLs.

AIB has cut its NPLs from a peak of €31 billion in 2013 to €6.1 billion at the end of 2018. “Over 90 per cent of this progress was achieved through case by case restructuring and working with customers to rightsize sustainable debt based on customer affordability,” it said. “We continue to have circa 1,500 people working with customers who are in difficulty across the country and our preference remains to provide solutions through customer engagement on a case by case basis.”