Government may take controlling stake in AIB

12 April 2009  By Richard Curran, David Clerkin and Pat Leahy

There is growing speculation that the state will take a majority shareholding in AIB following the purchase of property loans by the new National Asset Management Agency (NAMA).

AIB’s development and land bank loans amount to €21.4 billion. W hen other loans from the country’s biggest bank are also sold at a knockdown price, the subsequent write downs could leave the bank requiring a significant level of fresh capital from the state.

Government sources suggested last week that Bank of Ireland might require a level of new funding from the state, but not enough to see majority ownership of the bank changing hands.’ ‘AIB is in a different situation because of the extent and nature of its development loans," said one source.

A government source suggested that the price paid for the loans by NAMA would involve a discount of about 50 per cent to their current book value. This could see AIB taking write-downs of at least €10.7 billion and possibly as much as €15 billion. AIB declined to comment. However, a source close to the bank said it was just speculation at this stage as to what price the new agency would pay for the loans.

Finance minister Brian Lenihan last week at a press conference declined to comment on whether he would use his 25 per cent voting rights in the banks to oppose the re-election of directors to Bank of Ireland and AIB at their forthcoming agms. AIB is holding its agm on May 13 and said it would publish its notice of the motions for the meeting last Thursday, but has so far not done so.

According to informed sources, ministers want to see the new agency seizing houses, cars and other assets of defaulting property developers. Many developers who have debts that they can no longer service have offered their houses as security for some of the loans. Some ministers believe that, unless the public sees high-profile cases of developers’ property being seized by the state, they will believe that politicians are protecting developers.

In a separate development, the ability of NAMA to deal with certain developers could be hindered by complex borrowing relationships involving banks both inside and outside the proposed scheme. Banking sources told The Sunday Business Post that banks that did not transfer assets to NAMA might attempt to block the participation of other banks in the scheme in cases where a developer owed money to more than one institution. Complications may arise in cases where loans have been syndicated among more than one bank.

If one member of the syndicate seeks to transfer its loan to NAMA while others do not, accounting rules would dictate that the transfer trigger automatic write downs at all the banks.