BoI sells €4.5bn of assets to pay off central banks
Surprise at speed of deals as lender remains on course to raise €10bn between now and 2013
Published 15/10/2011 | 05:00
Bank of Ireland has sealed a number of deals to sell €4.5bn of assets, allowing the bank to start repaying central banks that have been providing the company with emergency funding.
The bank is trying to sell €10bn of assets between now and 2013 and the latest deals go a long way toward that goal.
Market analysts were last night assessing the deal, but expressed surprise the bank was able to sell so many assets this early in its deleveraging plans.
The €4.5bn proceeds are most likely to go to the Irish Central Bank, which has been giving the lender emergency liquidity assistance since last year.
The ECB may also be paid off as part of the arrangements.
The sell-off has benefits and drawbacks for the bank. Selling the assets means the bank no longer has to put reserves aside in case the assets reduce in value. But equally, the assets produce income, so selling them will reduce the bank's annual earnings.
Banking analysts described the assets sold as good quality in the main, with the US assets the highest quality.
However, the bank said the main benefit was the sale would be capital neutral, meaning the bank received sufficient funds earlier this year to absorb any reduction in value of the assets compared to their balance sheet values.
The bank's US commercial real estate portfolio was sold to Wells Fargo for $1.13bn (€815m), with the bank saying the price received "reflected the high quality of the portfolio''.
Its UK commercial real estate loan portfolio was sold for £1.07bn (€1.21bn) to Kennedy Wilson, the US fund that has already purchased Bank of Ireland assets.
This company, listed on the New York Stock Exchange, is a shareholder in the bank. To make sure of no conflicts in this relationship, the bank said it commissioned a fair value study before it sealed the sale with Kennedy Wilson.
The bank said yesterday the stock exchange did not regard the sale as a related party transaction.
The bank also agreed to sell mortgages secured on residential property assets in the UK to a subsidiary of Nationwide Building Society. The price for these loans was £1.13bn.
The bank also agreed to sell a portfolio of project finance loans of about €0.67bn to GE Energy Financial Services.
"The total proceeds from these divestments of circa €4.54bn (before taking account of transaction and related costs) will reduce the bank's funding from monetary authorities in line with the bank's deleveraging plan,'' said a statement released after trading last night.
The combined impact of these disposals will be neutral to the group's core Tier 1 ratio.