BoI, AIB to Get EU28.2 Billion From NAMA

[verbatim]

Bank of Ireland, Allied Irish to Get EU28.2 Billion From NAMA

By Ian Guider
Nov. 30 (Bloomberg) – Bank of Ireland Plc and Allied Irish
Banks Plc may receive a combined 28.2 billion euros ($42.5
billion) for the toxic property loans they are selling to the
country’s bad bank, the National Asset Management Agency.
Bank of Ireland would get 11.2 billon euros for the loans
it’s selling to NAMA, the Dublin-based lender said in a
statement today. That figure is based on the government applying
a 30 percent discount to assets NAMA plans to buy, the bank
said. Allied Irish said today it may receive 17 billion euros
based on the same discount.
Ireland’s government plans to rid the country’s lenders of
toxic property assets by buying about 77 billion euros of loans.
The purchases will be made at an average discount of 30 percent
to reflect the decline in property values. The government
estimates that Irish property prices have fallen by half since
peaking in 2007.
Bank of Ireland and Allied Irish recommended that investors
back their participation in NAMA. Bank of Ireland will hold a
shareholders’ meeting in January, while Allied Irish investors
will vote on December 23.

AIB’s statement to the stock exchange is here

ise.ie/app/announcementDetai … D=10291333

8:01 *BANK OF IRELAND FALLS 5.9% IN DUBLIN TRADING
7:29 *BANK OF IRELAND TO HAVE LIMITED GROUNDS APPEAL ON NAMA VALUES
7:26 *BANK OF IRELAND: LOSS ON DISPOSAL BANK ASSETS TAX DEDUCTIBLE
7:25 *BANK OF IRELAND SAYS LARGEST BANK ASSETS TO BE SWITCHED FIRST
7:25 *BANK OF IRELAND EXPECTS ASSETS TO BE TRANSFERRED FROM JAN. 2010

All numbers are still based on 30% discount.

With regards to the losses being tax deductible, will those losses have to be realised in the current reporting period or can they be realised over the lifetime of the loans?

[verbatim]

Comments from Goodbody

In mid-September, the Minister for Finance indicated a NAMA gross haircut of c.30% for the
€77bn of loans to be acquired from the financial system. Back then, AIB anticipated its average
discount to be “below” this figure, with BOI indicating it would be “significantly less” than the
average. In its mid-November IMS, AIB indicated that there is no reason to believe that the
average discount applicable to AIB’s NAMA assets “will fall significantly outside” the Minister’s
guidance of 30% (for the industry) and it reiterated this comment in yesterday’s RNS on the
NAMA process. On the other hand, BOI in its RNS statement yesterday on the NAMA process
(and follow-up conference call) indicated that the discount applicable to its eligible assets “should
not be greater than the estimated average discount for all participating institutions of 30% as
indicated in the Minister’s speech”. We originally applied an 18% haircut to BOI’s NAMA loans
(less development exposure and more outside Ireland), but we are uncomfortable with this
estimate after the RNS and conference call, so are now moving it to 26.5%. We are also taking
the opportunity to revise our AIB haircut from 28% to 33%.

Revising our figures for the new haircut estimates now sees AIB require €2bn of equity at the
bottom of the cycle to fall no lower than a 4% core equity ratio and €4.1bn in total (from €3.3bn
previously) to get to our target 8% core equity ratio over the medium term. BOI needs an
estimated €1.5bn at the bottom (for 4%) and €3.3bn (from €2.4bn previously) over the medium
term. These medium term targets equate to a very challenging 3x AIB’s current market cap and
2x for BOI, though AIB could reduce its requirement by €1.1bn through a disposal of BZWBK (we
already model a sale of its M&T stake). Feeding the adjustments through to our fair values sees
AIB cut from €2.55 to €1.60 (Add, unchanged) and BOI from €2.10 to €1.20 (from Add to
Reduce). Since July, the share prices of AIB and BOI have moved in tandem, with generally no
more than a 5-10 cent differential each day, which tells us that the market hasn’t grasped the
capital requirements and normalised earnings at either bank. The huge volatility in capital levels
and fair values from even modest tweaks to our NAMA haircut assumption means it is clear that
the share prices of both banks (betas of c.2.5x to the E300 index) and our fair values (and
possibly our recommendations) are likely to remain highly volatile until we get full clarity on the
final NAMA haircut and any EU state aid ruling, which are months away (note to follow). Also,
the announcement from AIB this morning on its hybrid coupon (see below) will add to the
uncertainty, highlighting risks of further dilution.