Business Irish

Wednesday 22 November 2017

NAMA losses raise AIB's capital targets by €450m

Laura Noonan

Laura Noonan

AIB's CAPITAL targets could be raised by as much as €450m today as the Financial Regulator forces the bank to provide for higher-than-expected losses on loans transferring across to the National Assets Management Agency (NAMA).

The news comes as AIB faces an uphill struggle to complete its massive disposal programme ahead of the €7.4bn year-end capital target that already looms.

US bank M&T falls into a close period today, narrowing AIB's options for selling its 22pc stake. The market also believes the €1bn sale of AIB's UK operations has been put on the back-burner after the bank failed to attract sufficiently high bids.

The Financial Regulator is expected to make an announcement on AIB's "revised" minimum capital requirements today, alongside an announcement on the capital requirements for nationalised Anglo Irish Bank.

The AIB target is understood to provide for the bank suffering a higher "haircut" on the loans it's transferring than was originally assumed when the first exercise was performed back in March.

At that stage, the Financial Regulator was pencilling in a 43pc haircut on AIB's €23bn of NAMA-bound loans, generating a NAMA hit of €9.9bn. The average discount on the loans already transferred over to the bank has come in at close to 45pc.

If that discount was applied across AIB's NAMA-portfolio the hit would come in at €10.35bn, implying the bank now needs €450m more than it did back in March.

The Financial Regulator, AIB and the Department of Finance all declined to comment on the prospect of a higher capital target being announced today, but market sources last night expressed dismay.

"Any increase on the €7.4bn would be negative," one said, pointing out that even though the increase could be relatively small in nominal terms it was still a negative trend.

Another source described the development as "bad timing", given AIB's ongoing efforts to reform its balance sheet by the end of the year.

The bank is at a crucial stage in its capital-raising programme. A €2.5bn capital uplift has already been secured from the sale of its Polish interest, but assets in the US and the UK remain on the block.

The market is also losing confidence in AIB's ability to sell its First Trust operations in the North and AIB GB across the water. At a recent analysts' briefing, AIB made only minimal mentions of the UK operations.

Market sources now expect AIB to begin its equity raise before a deal on the UK is struck. AIB is likely to go to the market for about €3bn to bridge the gap between its disposal proceeds and the year-end capital target.

Any remaining shortfall will be made up by the State.

Irish Independent

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