Value of loan book written down by one-third
Irish Nationwide posted a €2.5bn pre-tax loss in 2009 -- having written down the value of its loan book by a third over the past two years.
"The collapse of the property markets both in Ireland and abroad gave rise to the impairments but this was exacerbated by the nature of the operation of the business which was clearly a flawed model," said Danny Kitchen, chairman of the society for the past year.
Irish Nationwide booked €2.8bn of bad loan provisions last year, up almost 10-fold from what it had set aside in 2008.
The Government has bailed out the society this year by way of a €100m capital injection and issuance of €2.6bn of promissory notes -- or IOUs -- to shore up its capital reserves and cushion it for future losses.
The society's operating profit of €374m for last year was flattered to the tune of €287m by a once-off gain as it bought back a batch of its riskier -- or subordinated -- bonds at a deep discount in the market.
Irish Nationwide has had to stomach a 58pc discount on the first batch of loans it has transferred to NAMA -- making it the worst hit of all five participants in the 'bad bank' scheme.
New chief executive Gerry McGinn said the discount reflects the society's practice of lending on high loan-to-value ratios, lax paperwork and security, as well as its tendency to take profit shares in developments it funded.
"There were gaps of some pretty basic information in the paper trail (of commercial property loans)," Mr McGinn said.
"The banking discipline of making sure your loan documentation and security documentation reflect the nature of transactions (was often missing)."
He cautioned against extrapolating the initial haircut to further tranches of its entire €8.5bn NAMA-bound portfolio, but said: "Given what we know, we'll always be on the outer end of the spectrum (of industry-wide discounts)."
The net interest income of the society plunged to €109m from €258m for the previous year, reflecting an increase in borrowing costs to the building society.
"Competition for customer deposits intensified dramatically in 2009 and this, together with the higher cost of refinancing wholesale debt, led to an increase in borrowing costs," the group said.
Customer deposits dropped by €1.5bn last year to €5.3m -- mainly as a result of outflows from its Isle of Man banking subsidiary. The group raised €800m by parking €1.2bn of residential loans with the ECB -- taking a 33pc haircut in the process.
It also refinanced more than €2.2bn of maturing debt through the issuance of bonds under the original guarantee scheme.
New chief financial officer John McGloughlin said that the society aimed to go to the market over the coming weeks with a €2bn bond covered by the State's new guarantee, which enables lenders to issue debt of up to five years in maturity.
The €800m funding line falls due in July and the society hopes to refinance this with government-backed bonds it is receiving for its NAMA loans.