B of I sells discounted loans to Tokyo bank

BANK OF Ireland is to sell a portfolio of loans to Sumitomo Mitsui Banking Corporation for €470 million. The bank said it would sell the project finance loans at 85 per cent of their original loan value, which was put at €590 million.

It said the loans related to infrastructure and energy assets in North America and Europe, and that proceeds from the sale would reduce its funding dependency from the Central Bank and European Central Bank. It said it was continuing to make good progress on sales of other non-core loan portfolios.

The announcement came as French bank BNP was said to be considering selling a private-equity portfolio. This could be worth more than $700 million, according to the Financial Times. "BNP is considering several options, and this is one of the options," the source said, without confirming the value.

European banks could ditch up to €3 trillion of loans to raise capital ratios and meet the new capital rules, raising fears economic recovery efforts will be affected. The biggest shake-up will be in areas such as project finance, shipping finance, aviation and infrastructure as banks cut their risk-weighted assets and seek to get rid of assets in dollars, where funding is tight.

Major banks in France, Britain, Germany, Spain and Ireland have pledged to sell assets and run off existing loans in a bid to shrink their balance sheets and respond to a sudden and dramatic squeeze on funding since the summer.

Bank of Ireland has to sell €10 billion in loans and accept repayment of another €20 billion by the end of 2013. The bank said the discount taken on the sale to Sumitomo was within the base case discounts assumed in recent stress tests. Goodbody Stockbrokers had assumed Bank of Ireland would take a 15 per cent discount for its remaining €4 billion-€5 billion non-core portfolio. It expected Allied Irish Banks to take a haircut of 25-30 per cent on its asset sales. However, the discount was larger than the 11 per cent haircut taken on the sale of a €570 million portfolio in October. – (Additional reporting: Reuters)