Nationwide expected to report annual loss of €300m

IRISH NATIONWIDE is expected to report a loss of almost €300 million for 2008 when the building society issues its upcoming annual results, sources close to the institution have said. The 2008 result compares with a profit of €391 million in 2007.

The building society is expected to set aside close to €500 million to cover bad debts on its €12 billion loan book, which has the heaviest exposure to the property development sector in Ireland and the UK of the six financial institutions guaranteed by the taxpayer.

It’s understood the building society’s auditors, KPMG, yesterday signed off on the lender’s 2008 accounts, which are expected to be announced in the coming days.

A spokesman for the building society declined to comment and was unable to say when Irish Nationwide would publish the results. The building society is now expected to hold its annual meeting on May 12th at the RDS in Dublin.

Davy stockbrokers has said that Irish Nationwide has development loans of €7.2 billion, the equivalent of 60 per cent of its loans, although analysts at investment bank JP Morgan recently estimated these loans at €3.8 billion.

The bank’s analysts expect Irish Nationwide to write off €1.3 billion, or 11 per cent of its loans, over two years and that the building society will need €900 million in capital from the Government.

The building society’s chief executive Michael Fingleton has agreed to retire at the end of this month. His retirement follows political pressure over a €1 million bonus paid to him after the guarantee, which he has since agreed to repay to the society, and his €27.6 million pension scheme.

Meanwhile, the State’s two largest banks, Allied Irish Banks and Bank of Ireland, had their debt ratings downgraded by credit rating agency Fitch, which said the banks may need additional capital investments to cover losses on their property loans.

The Government is investing €7 billion in the two banks through preference shares, but has said it may have to take majority stakes through ordinary shares if they have large losses on property loans being bought by the State.

The lenders had their ratings lowered to A- from A, which will increase their borrowing costs.

The Government is buying up to €90 billion of risky property loans from the six guaranteed institutions through the new National Asset Management Agency in an effort to remove “systemic risk” from the Irish financial system.

“This might result in an acceleration of credit losses potentially exceeding the banks’ pre-impairment operating profit in the current financial year and probably absorbing some of the bank’s capital,” Fitch said in a statement.

The agency said it would examine the size of the potential losses over the coming weeks.