EU bad bank proposal could boost AIB sale outlook

A proposal under discussion by Klaus Regling and other senior European officials to create a Nama-like ‘bad bank’ to buy out bad loans weighing down Europe’s banks could boost the Government’s hopes of selling shares in AIB this year, according to an Irish expert.

Eugene McErlean said any plan would help banks “from Italy to Ireland” to realise the losses sitting on their balance sheets that are holding back normal lending and reining in EU growth.

A eurozone bad bank would boost banking markets and thus help the prospects for a start to selling down AIB shares, he said.

Finance Minister Michael Noonan last week said an initial public offering of AIB shares could be launched in May or June.

EU policymakers have said in recent days that the EU should create a bloc-wide bad bank to help tackle the €1.2 trillion of soured loans on lenders’ books.

Andrea Enria, chairman of the European Banking Authority, proposed setting up a common asset management company to take over and manage the sell-off of the loans. 

The bad bank would bridge the gap between the banks’ bad loans and the price investors are willing to pay.

The entity would pay the seller the transfer price and seek to realise it, and would be entitled to claw back the difference if it failed to do so.

Mr Regling, managing director of the European Stability Mechanism, said the target is to move up to €250bn of non-performing loans to the bad bank.

“This means you would have to transfer millions of loans,” he said.

“In Greece alone, there are more than half a million corporate” and small-business soured loans, he said.

The ECB has ramped up efforts to help eurozone banks get out from under a mountain of doubtful and non-performing loans.

The ECB said in September it expects banks with high levels of non-performing loans to implement “realistic and ambitious” targets for reducing those loans.

The European Commission has also taken a crack at easing banks’ bad-loan burdens by overhauling insolvency rules as part of an effort to develop the bloc’s capital markets.

Additional reporting: Bloomberg

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