Bank shares fall over NAMA price concerns

BANK of Ireland and AIB shares plunged more than 5% yesterday as the banks said non-participation in NAMA could have led to nationalisation.

Bank of Ireland and AIB are likely to receive a combined €28.2 billion for the toxic property loans they are selling to NAMA.

Based on the Government applying a 30% discount to assets, Bank of Ireland should get €11.2bn and AIB €17bn, both said yesterday in statements.

The revelations sent Bank of Ireland shares falling 5.3% to €1.61 and AIB’s were down 5.5% to €1.55.

Bank of Ireland said it will take a pre-tax loss of about €3.4bn on the portfolio, on top of the €1.4bn for which provision has been made.

“This potential loss on disposal represents the maximum loss likely to be incurred on the sale of loans to NAMA,” it said.

Bank of Ireland said however, that the discount it will book on loans to be transferred to NAMA could be higher than initially thought, potentially increasing the amount of extra capital it will need to raise.

Ireland’s biggest lender by market value said it expected the discount applied to up to €16bn in loans it is selling to NAMA would not be above the anticipated 30% industry average. In September, the bank said its discount would be significantly below 30%, though it had issued a warning in early November that the final figure was uncertain.

Chief financial officer John O’Donovan said the market consensus forecast for the discount on the BOI loans was “less than 25%”, which is higher than some analysts had expected.

Bank of Ireland chief executive Richie Boucher said the bank’s own view of its portfolio had not changed but it had found out more about the Government’s valuation methodology.

“We have got greater information about it,” Mr Boucher said.

He said the final discount would also depend on the total amount transferred and the mixture of land, development and associated loans within the portfolio. AIB said it had no reason tobelieve its discount would be far from the 30% mean.

Both banks said a number of uncertainties exist as to the specific quantum and timing of loans which may transfer, the price, the fees due and the “fair value” of the consideration.

The two banks recommended that investors back their participation inNAMA. AIB said if shareholders rejected joining the agency, it would have to seek more government aid.

Merrion Capital analyst Sebastian Orsi said he believes investors will vote in favour of the proposals.

“At this point they will probably have to, recognising the downside risk if they don’t,” he said.

Goodbody analyst Eamon Hughes agreed, saying: “We would anticipate that both banks will be part ofNAMA when it is up and running.”

AIB will hold an EGM on December 23, while BoI shareholders meet in early January, when NAMA plans to start buying loans. Bank of Ireland said all of the loans going to NAMA, about 12% of its overall loan book, will be transferred by the middle of 2010.

The bank also said the Government had confirmed to it that NAMA will be the only scheme implemented to provide assistance to banks to deal with the issues created by challenged property loans.

NAMA and the banks

* Bank shares fall more than 5% yesterday.

* Bank of Ireland expects €11.2bn from the transfer of assets to NAMA.

* AIB expects €17bn from the transfer of assets to NAMA.

* 30% is the discount expected to be applied to assets that NAMA plans to buy.