Loan cuts to be far more severe than anticipated
AIB's could be up to 40pc -- not the mooted 30pc
Discounts, or 'haircuts', on loans for the main Irish banks have come back far worse that originally anticipated by the Government, the Irish Independent has learned.
The original 30pc discount expected to be imposed on the loans generally and announced by Finance Minister Brian Lenihan last year will be abandoned.
The condition of AIB's property loan book is the chief reason why the haircut on its first tranche of loans is reaching up to 40pc.
Mr Lenihan will admit next week that AIB and Bank of Ireland have both suffered discounts well beyond 30pc on their first tranches. While the first tranches were always going to be in the worst condition, the overall blended rate across the banks is now likely to be in excess of 30pc.
Mr Lenihan will emphasise that the 30pc number was always purely notional, but the opposition parties are likely to accuse the Government of being over optimistic when setting up the National Assets Management Agency (Nama).
Irish Nationwide, which is disputing some of the valuations put on its loans, could be hit with a discount of 45pc.
This building society is going to lose about €2.5bn for 2009 and will ultimately become part of a third force in Irish banking, although the actual make-up of this force is not known.
AIB is due to put €24bn of loans into NAMA, with Bank of Ireland expected to put in €15.5bn, according to the draft business plan of the toxic loans agency. These figures have changed, however, in recent months and Mr Lenihan will provide the up-to-date details on the totals next week.
AIB's heavy exposure to development lending is what caused the problem, with loans secured on sites outside Dublin believed to have taken their toll on the final valuation.
NAMA planners have also emphasised that security on some loans has been imperfect and this has had to be reflected in the prices offered for the loans.
It is understood Irish Nationwide has a difficulty because much of its UK loan book was not advanced to developers or their companies specifically, but to Special Purpose Vehicles (SPVs), which are kept at arm's length from developers' main trading companies.