EXPOSURES:ANGLO IRISH Bank has a number of "very large exposures", with about 15 customers each owing more than €500 million, according to a summary of the PricewaterhouseCoopers (PwC) report into whether the bank can absorb future losses on its loans.
The summary of extracts from the report shows that PwC concluded there were “likely to be significant losses for individual developers and in turn the bank” due to large loans to developers who had “effectively mothballed” residential landbanks and developments sites in south Dublin and Wicklow.
PwC found during the last of three reviews of the bank on December 17th, 2008 that it would be difficult for the bank to permit “interest roll up on facilities where loan-to-value is high, interest cannot be funded and another security is unavailable”.
The firm said that “the successful disposal” of these land banks and residential developments would “take many years” and appear unlikely to be sold at current property price levels.
The summary provides further detail of the pressure Anglo Irish was under at the end of September following heavy deposit losses amid concerns about its survival as the banking crisis deteriorated.
During its first review on September 27th – four days before the State bank guarantee was introduced – PwC found that the bank had lost €10 billion in corporate and retail deposits “consistent with recent deterioration”.
The accountants found that Anglo Irish was forecasting a negative cash position of €12 billion by October 17th, 2008 due to the loss of the €10 billion in deposits.
“There has been a €5 billion deterioration in corporate deposits and €440 million deterioration in retail deposits in the last week,” PwC said on Friday, September 27th.
The accountancy firm said that the negative cash position assumed that the bank could raise €2.2 billion from selling part of its loan book on to investors in a so-called securitisation deal and successfully bidding for funds from the European Central Bank.
The heavy loss of deposits occurred around the time Anglo Irish benefited from a circular €7 billion transaction with Irish Life Permanent over the end of September and start of October.
PwC found during its second review on November 27th that high-risk borrowers were not on the bank’s watch or impairment list of weakening loans, “all of whom exhibit potentially serious short-term liquidity issues”.
However, the accountants found that the bank were regularly monitoring the loans and management said would update its watch and impairment lists from September to include these clients.
PwC reviewed the top 20 investment loans totalling €11.7 billion, the top 20 land and development loans totalling €6.4 billion and later the top 70 land and development loans valued at €12.6 billion.
The firm said that it applied a stress-case scenario on November 17th, 2008, which was more severe than the bank’s own worst-case scenario for loan losses over two years to September 2010.
PwC said that the bank could absorb loan losses of €2.3 billion in the first year and €3 billion in the second, and still have more than the minimum capital ratio set by the regulator of 4 per cent.
Anglo Irish revealed in its annual report published yesterday, hours before the PwC summary, that it would write off €300 million on the loans to the 10 “long-standing” customers who purchased 10 per cent of the bank’s shares last year.
The bank gave no further details on bad debt projections but anticipated a higher level of impaired loans due to the deterioration in the economy.
The bank said it had taken a hit of £156 million (€174 million) on a foreign exchange funding position due to the strengthening of the Japanese yen against sterling.
