Wednesday 14 November 2018

AIB books profit on €1bn bad loan sale

US private equity group Cerberus has swooped on €1.1bn worth of soured loans from AIB, with the bank getting €800m of it
US private equity group Cerberus has swooped on €1.1bn worth of soured loans from AIB, with the bank getting €800m of it

Gretchen Friemann

US private equity group Cerberus yesterday swooped on €1.1bn of soured loans from AIB. The final deal represents less than a third of the initial assets on offer from the State-backed bank.

AIB will receive €800m from the transaction, a discount on the loans of close to 25pc - that's better than the discounted value the loans were carried at on the bank's books however. It leaves the bank with a paper profit on the deal.

But the whittling down of the once €3.76bn Project Redwood has raised questions about the lender's appetite for further portfolio deals.

It's understood most of the loans sold to Cerberus are attached to commercial property and investments after AIB stripped out buy-to-let mortgages, small-to-medium business loans, a number of development loans, and revolving facilities - all of which were included in October's initial sale documents.

While the deal clips 12pc off AIB's non-performing exposures (NPE), which stood at €9.2bn at the end of the March, the transaction made little impression on the share price which closed just 0.02pc higher at €4.96.

However, it marks a milestone in the bank's mission to bring NPEs in line with the European average and free up capital.

Soured exposures accounted for 14.5pc of AIB's total loan book at the end of December and Investec's Owen Callan anticipates the much-scaled back Project Redwood will reduce that to 13pc - still some distance from the 5pc norm in the eurozone.

According to Goodbody, the deal adds about 30 basis points to the bank's common equity tier one (CET1) capital ratio - a conservation buffer that reflects a lender's ability to withstand a downturn - and in a note to clients analyst Eamonn Hughes said "simplistically, this adds about €100m to AIB's excess capital".

The deal comes after a lengthy period of preparation by AIB.

The bank, which returned to normal trading on the London and Dublin stock exchanges last year in a €3.4bn IPO, first appointed advisers, KPMG, on Project Redwood in April 2017.

By the time suitors were running the numbers on an acquisition at the end of last year, the number of loans on the block totalled 10,901.

According to sources, the portfolio was stripped back partly because bidders baulked at paying up for unsecured debts and because the bank feared a repeat of the political maelstrom triggered by Permanent TSB's sale of 18,000 residential mortgages, the majority of which were owner-occupier mortgages.

The bank's decision to launch a blockbuster auction of home loans prompted opposition politicians to propose legislation designed to restrict the sale of loans to regulated entities.

But Cerberus's acquisition of AIB's latest portfolio, would qualify even if the rules changed.

The US heavyweight had joined forces with retail credit firm, Everyday Capital, to acquire the AIB portfolio.

It is understood Everyday Finance, which is regulated by the Central Bank, will retain a nominal economic interest in the assets. Sources said the consortium was assembled in the past few months.

Irish Independent

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