Ireland fears deeper property loan writedown

Published 14th Aug 2009

A court decision to appoint a liquidator to one of Ireland’s leading developers has raised concerns that the country’s banks could be hit by deeper property loan writedowns.

Bankers and fund managers expressed fears that a fire sale of the properties owned by Liam Carroll, as lenders seek to be repaid, could drive prices down for all property assets just as the government is poised to take over the troubled property loans of the main banks, under its plan to form a bad bank agency.

Draft legislation setting up the National Asset Management Agency said the agency would pay a “significant” discount to the book value of the bank loans but it would be based on long-term returns.

The recovery in Irish bank shares since the plan was revealed in April suggests investors believe the government prefers to over-pay for the assets, in order to avoid having to engage in a large recapitalisation, as the bigger the discount the larger the writedown the banks will incur.

Ireland is transferring €90bn (£77bn) of impaired bank loans to Nama.

But Eamonn Hughes, analyst with Goodbody Stockbrokers, said: “The risk is any fire-sale disposals would set a reference rate on property valuations that could impact the taxpayer’s perception of how the Nama valuations are set.”

Frank O’Dwyer, chief executive of the Irish Association of Investment Managers, which includes the main banks’ asset management arms, said the government “understands that while it has to be fair to the taxpayer, the key audience is international financial markets. An excessive haircut, with any taint of political motivation . . . would erode confidence”.

Allied Irish Banks shares increased 1.49 per cent to €2.04, while Bank of Ireland rose 0.4 per cent to €2.02.

ACC Bank’s move to seek the appointment of a liquidator to two companies controlled by Mr Carroll followed a court decision on Tuesday to refuse to have an examiner appointed, which would have protected Mr Carroll’s empire from its creditors.

Mr Carroll, a reclusive entrepreneur, owes about €1.2bn to eight banks.

In a proposal supported by his main Irish bank lenders, he sought a moratorium on interest payments and a standstill on loans due. ACC, which was owed €135m, declined to back the plan, and demanded repayment, prompting Mr Carroll’s unsuccessful examinership bid.

Source: ' FT '

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