Anglo capital fears as loan transfers get 61pc discount
The second tranche of Anglo Irish Bank loans finally transferred to the National Asset Management Agency (NAMA) at the weekend, attracting about a 61pc discount, or 'haircut', prompting fresh fears the lender could need extra capital. Poor security on the loans was a key factor in the discount.
Nama chief executive Brendan McDonagh has written to five banks involved in NAMA telling them to "step up" their work in processing loans so that most are transferred over by year-end, banking sources revealed.
NAMA has also appointed Deloitte, the accountancy firm, to review the banks' procedures in handling loans.
The amount of information required from banks in third and subsequent tranches is also set to reduce in order to speed the process up.
Finance Minister Brian Lenihan rejected the idea of shutting down Anglo when speaking in Cork yesterday. He said it would be a catastrophe.
"Solutions that would make Ireland an international pariah, walking away from our financial commitments or from our EU obligations, are just not credible. We must be realistic in our approach to this crisis," he said.
"Fury is quite a reasonable response to the incredible recklessness and incompetence which fuelled the banking mania of the Celtic Tiger years," he added.
NAMA will release a statement on the second Anglo transfer today or tomorrow, confirming the loans have moved over. The loans have been moving over gradually during the past three weeks.
The NAMA team dealing with Anglo have discovered defective securities on a large number of the €7bn of loans going over. Some loans were moved over and Anglo received no payment for them, sources pointed out.
Non-recourse loans and loans backed up by multiple securities have been the chief problems pushing up the Anglo discount.
The first tranche attracted a 55pc discount and the concern for the Government and Anglo is that the discounts are continuing to worsen.
The book value of the loans transferring was €7bn and applying a 61pc discount would mean NAMA paying €2.73bn for the loans. The prevalence of development land in the loan portfolios was a key factor, but the issue of defective or inadequate securities on the loans pushed up the discount considerably.
The third tranche of loans, for banks generally, is due to happen in September, with the fourth tranche going in October, the fifth in November and the sixth in December, Mr McDonagh has told the banks.
It is possible a small number of the loans will still have to be transferred early in 2011, but the amount of loans involved at that stage will be small.
September is also the month when NAMA expects to sign off on a number of business plans from leading developers.
Enforcement action is planned against several development companies, but others will have their business plans approved. This in itself does not guarantee a clean bill of health, sources say. The development companies still have to hit targets and sell off assets.
Nama is still seeking information from some developers and is not happy with their assumptions about the property market.