Inside AIB's blockbuster €2bn Redwood portfolio sale
AIB's blockbuster loan sale, Project Redwood, will top €3.76bn in face value, the Irish Independent can reveal.
As this newspaper reported yesterday, the State-controlled bank intends to begin the largest-ever portfolio deal in its history at the end of next month.
But internal confidential documents, seen by the Irish Independent, lay bare the full scale of its ambition.
In total 10,901 crisis-era loans have been earmarked for the portfolio sale as AIB ramps up efforts to purge its balance sheet of soured debts amid a fresh crackdown on the sector from the European Central Bank.
According to the document up to 2,712 of the loans are buy-to-let mortgages with a face value of €702m. The average amount outstanding on these loans is €260,000.
But it is the portfolio's stack of soured commercial property investment loans that are worth the most, accounting for €941m in value. AIB intends to offload up to 1,242 of these exposures with the average balance remaining sitting at €760,000.
The portfolio also includes €108m of commercial development loans and €693m worth of mortgages attached to land, all of which are likely to whet the appetite of potential bidders. At this stage it is understood Deutsche, Goldman Sachs, CorVal, Cerberus and Oaktree have all expressed interest in the upcoming deal, although the field may include an array of financial services firms and private equity buyers including KKR which remains active here.
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According to sources Project Redwood may change hands for over €2bn - reflecting a 40pc-plus discount on the loans.
But it is not just the ECB clampdown that has spurred AIB's efforts to cleanse its balance sheet. AIB's return to normal trading on the London and Dublin stock exchanges in June also creates pressure, as investors snapped up €3.4bn worth of shares in the bank partly on the basis that its return to health would free up capital and lead to a bigger dividend - as well as one-off payouts in the form of special dividends.
Investec's Owen Callan predicts the lender will return close to €300m to shareholders next year, possibly in two instalments, but that figure is projected to grow to €500m by 2020.
A smaller load of legacy loans also avoids further punitive measures from the ECB, which is tackling banks with stubbornly high levels of non-performing exposures (NPEs).
Under new rules, set to be introduced in January, banks must hold higher levels of capital against new NPEs.
There are fears these measures may be intensified - possibly by extending them to the legacy book --on those banks still burdened by double-digit NPE ratios.
As at June 30, NPE's accounted for 19pc of AIB's total loan book, or €12.1bn. It aims to cut this to €3bn-€4bn in the medium term, bringing it in line with the European norm.
However the bank counts the impaired book, which stands at €7.76bn, as its key challenge, since these represent the toughest loans to restructure and are likely to pose the greatest drag to the balance sheet.
Project Redwood will cut a swathe through this figure and the bank hopes to finalise a deal by the time it publishes its annual results in early March.
AIB declined to comment.