Bank of Ireland to join NAMA scheme

Bank of Ireland is to join the National Asset Management Agency (NAMA) asset acquisition programme.The bank’s announcement follows hot on the heels of a similar announcement on Monday by its fellow Irish bank, Allied Irish Banks (AIB).As with AIB, the size of Bank of Ireland’s participation in the programme has yet to be determined, but the company said the portfolio of potential eligible bank assets to be transferred could comprise a gross book portfolio of around €16bn.The price paid by NAMA for any acquisitions transferred will be somewhere between the market price and the long-term economic value, with the latter being defined as an amount that could be realised in a post-crisis stable environment.The Minister for Finance has provided guidance that an average industry discount of 30% to the gross value of the NAMA assets could be applied, but this has not been guaranteed.A 30% ‘haircut’ on €16bn of assets would have the following effect on the bank’s ratios:Tier 1: reduces from 6.6% to 4.2%Core tier 1: reduced from 10.1% to 8.3%Total tier 1: reduced from 11% to 9.5%.Bank of Ireland will receive bonds equal in value to the purchase price of the assets, and will have the ability to use these as collateral to raise liquidity from monetary authorities.Once the assets have been transferred there will be a loss of income but the bank expects this will be partially offset by the interest the company will receive from the bonds issued to it by NAMA, although the interest rates on these securities is not yet known.Shareholders will get to vote on the bank’s participation in the scheme some time in early January 2010.