Thursday 14 December 2017

Liquidator's work cut out as it carves up the bust bank's assets

ANGLO IS DEAD, LONG LIVE NAMA: Tales of the reconstruction

David Drumm, former head honcho at Anglo Irish Bank
David Drumm, former head honcho at Anglo Irish Bank
Michael Fingleton

Tom Lyons

IT'S the bank that just refuses to die. Documents circulated to potential bidders for what remains of Anglo Irish Bank reveal what a difficult task is ahead of special liquidator KPMG.

A 17-page document given to international sovereign wealth funds and private-equity buyers picks through the skeletal remains of the bank that helped bust Ireland.

It details the remaining €22.2bn worth of loans on the bank's balance sheet, which started at more than €100bn when it was nationalised in 2009.

The documents prepared by KPMG (special liquidator of Anglo and Irish Nationwide), reveal a detailed timeline for the sale process, which will take place in four chunks, codenamed 'Projects Evergreen, Rock, Sand and Stone'.

The sale process began this month, with all four projects due to be sold off by May 14.

Nama will act as what is termed a 'back-stop' bidder, meaning it will buy any asset that does not receive a bid above a reasonable threshold.

This benchmark is designed to prevent a fire sale but it will also ensure that the legacy of Anglo will live on for years following the sale as some loans are unlikely to receive decent offers until the Irish economy shows much greater signs of recovery.

By comparison, IBRC's old management had planned to shrink Anglo's loan book to €11.1bn by the end of 2013; €7.7bn by the end of 2014; with a rump of €2.9bn left by close of 2015. At this stage it was expected the bank would be placed into liquidation in a controlled manner.

Broadly then, the decision to liquidate Anglo overnight – which led to threats of legal action from wiped-out creditors – has speeded up the process by only about 18 months.

Whether it will cost more to liquidate Anglo versus a gradual sell-off of assets by a solvent bank is unclear.

Industry experts have estimated it could cost €3bn- €4bn more to sell off assets in a liquidation scenario but, in theory, the back-stop of Nama should prevent this.

The Department of Finance has refused to disclose KPMG's fee structure for liquidating the bank, but it will certainly be in the low tens of millions given the scale of its task.

An analysis of what is up for sale reveals what the process will involve:

Project Evergreen

Closing date: March 14, 2014

Sample loans: Cash-generative businesses and borrowings of rich individuals etc

Project Evergreen relates to 52 borrowers with 475 Irish-originated loans between them worth €3.5bn.

It is an indication of how distressed this book is that some 56 per cent of all loans are classified as 'non-performing'.

Most of the loans relate to corporate borrowers, but a few are the personal facilities of various high-rollers during the boom.

Almost 90 per cent of this book is owed by a mere 20 borrower groups.

Ten borrowers owe more than €110m each. Evergreen's biggest borrower, 'Connection', owes €833m, made up of 91 loans; about €301m of this is considered 'non-performing' by the bank.

Its second-biggest borrower owes IBRC €392m, of which all but 1 per cent of its loans are performing. Evergreen does not identify its borrowers by name but this case is thought to be a well-known wealthy individual.

Its third-biggest borrower owes €251m, all of which is considered non-performing. In total, 98 borrowers who between them owe more than €1bn have been in arrears for more than one year.

Another 10 borrowers who owe €560m have been in arrears for between six months and a year.

Since Anglo was placed into liquidation at the start of this year, it appears that about 16 borrowers owing €400m between them have gone into arrears. Most borrowers appear to be on lower interest rates than they are likely to be able to get in the marketplace, so it is little wonder that many borrowers have chosen to sit tight rather than refinance.

Project Evergreen's loan book is scheduled to be sold by March 14, reflecting the fact that Anglo's old management had intended to sell these loans by about now, so most of the work preparing for a sale had been done.

The sale will be watched closely as the businesses employ tens of thousands of people.

Project Rock

Closing date: April 14, 2014

Sample loans: Commercial property in UK, Europe and US

Project Rock relates to a €7.6bn commercial property loan book in the UK, Europe and the US. The largest individual borrower owes €440m.

There is likely to be the biggest appetite for this loan book, which generated rents of €553m in the eight months to May 2013. About €1.9bn worth of these loans are in the Greater London area, with 77 per cent of the €7.6bn in the UK. The top 22 borrowers in this loan book owe €5bn and own 1,000 properties worth an estimated €2.8bn.

In four of the borrowers up for sale, Anglo has an equity position in the borrower and these stakes will be sold off too as part of the process.

Remaining loans are based 13 per cent in Germany, four per cent in America and one per cent in Poland. The last five per cent of borrowings are in Eastern Europe and the Far East.

To get a sense of the scale of the sell-off, these loans relate to 104 hotels, 257 shopping centres or retail units and 415 pubs.

Project Sand

Closing date: April 14, 2014

Sample loans: Irish Nationwide mortgage book

This is, predominantly, the Irish residential property loan book of Irish Nationwide, which is worth €1.84bn. It also contains a 'tiny' €28m leasing loan book.

The documents show that 50 per cent of Irish Nationwide's old mortgage book is now non-performing, reflecting the poor lending quality of Michael Fingleton's former empire.

On the upside, however, it is a relatively well-seasoned mortgage book, with 24 per cent of all loans more than 10 years old and 95 per cent more than five years old. A total of 85 per cent of all loans owe more than €500,000.

Project Stone

Closing date: May 14, 2014

Sample loans: Hotels in the Czech Republic, stakes in hospitals, holiday homes etc

This is the kitchen-sink part of Anglo's loan book. Totalling €9.2bn and owed by 2,931 borrowers it includes practically every asset class Anglo ever lent to, including offices, houses, retail, medical facilities, pubs, industrial units, hotels and lands spread across 11 countries.

It includes holiday homes in Portugal and Spain, loans to celebrities and well-known business people, art works and, essentially, anything that isn't easily bundled up and sold off. A total of 52 borrowers in this tranche owe more than €100m each, or €2.4bn in total of this portfolio. A mere 32 per cent of all loans are performing in this portfolio.

Sunday Independent

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