Irish Nationwide Annual Report

The Irish Nationwide were pretty tardy in putting their annual report online. However, it’s up now, available here.

I’m not sure what to add to what’s already been said about the multi-layered failures at this institution. That said, one useful aspect of the report is that it gives us some additional information on the quality of the loans going into NAMA. The INBS loans are being purchased by NAMA at a discount of 58% relative to their original face value. The report tells us that, of these loans, €1.4 billion of the total of original €8.7 billion face value are currently counted as neither past due or impaired. (I’m not a big fan of the phrase “performing”.)

12 replies on “Irish Nationwide Annual Report”

I’ve read a few annual reports — really, I have strange hobbies — but I’ve never seen anything like the opening paragraphs of the “Chairman’s review” of this document:

“It is with great disappointment that I have to present to you the
accounts for the year to 31 December 2009 which reflect unprecedented
levels of impairment on our loan book which gave rise to losses on a
massive scale in the context of the Society. The collapse of property
markets both in Ireland and abroad gave rise to the impairments but this
was exacerbated by the nature of the operation of the business which was
clearly a flawed model.

As you will have noted it was necessary in December to approve
Government investment by way of the Special Investment Share and we are
grateful to the Minister for the financial support this will provide.”


that’s because it is an irish financial institution we are dealing with here…..we wouldn’t see this report if it wasn’t because the company would already be out of business!!

Apologies that I haven’t had time to read the report yet but if Anglo is transferring €8.3bn to NAMA and will be subject to a 58% writedown (assuming the writedown in the 1st small tranche is typical of the rest), then would that not suggest a provision for losses on those loans at €5bn (58% of 8.3bn)? The provision appears to be 1/2 that and from what I’ve heard the difference is not made up in previous year’s provisions. Maybe there’s a clear answer in the report itself ….

@ Jagdip

It was a similar story with Anglo’s report, also released after the NAMA first-tranche haircut annoucement. Anglo’s report valued the NAMA-bound assets with a face value of €35.6 billion at €25.5 billion and it seems clear now that the discount will be more like 50%. Applying this, NAMA would be paying €17.8 billion for these assets.


Thanks for pointing that out (and I of course made to refer to INBS and not Anglo in my first message). Isn’t the difference between Anglo and INBS that with Anglo the 22.3bn recap (4 + 8.3 + 10) is supposed to cover all losses whereas with INBS, the recap of 2-3bn will only cover half of the losses (if the first tranche discount is representative of the remaining 93% coming from INBS) – are we going to hear in the not-too-distant future that the INBS recap bill will double?

Again, apologies that I haven’t had the chance to read the report and what I have written may be complete nonsense if adequately addressed in the report.

@ All,

I believe at this stage, it is less helpful to think of INBS or Anglo as banks or lenders. It is more helpful in understanding where we are, to think of those two institutions in particular, as having become more like hedge funds. That is, something that operates outside of regulations, has the reputation of performing alchemy with the funding it receives, and gets to a stage where they run out of ideas for what to do with the money. That is largely what happened with Long Term Capital Management in the 1990s. Except the staff at Anglo or INBS were no where near as skillful.

As to the on-going legal investigations, there is always going to be the charge, that if the regulator had signed off on activities, then it takes culpability away from the institution and puts it on to the regulator. But if, investigators in the various legal inquiries adopted a different approach – and said, these were basically un-regulated entities operating within the small Irish economy, would that not make things a lot clearer? BOH.

Of interest is that the impairment provision is 25% of the loan book (page 6). Didn’t NAMA predict a 20% default rate by taking a UK bank’s experience in the early 1990s (reportedly Barclays who less than 10% bad debts apparently) and doubling it?

I wonder is NAMA betting that the deterioration in recoverability will be offset by more interest receivable from performing lenders and a hope that the property market recovers by markedly more than 10% in 10 years? And that although the components of the business plan may have changed very significantly the bottom line is still a profit.

The reference to that Barclays report was very misleading.

Barclays wrote off 10% of their full loan book, including mortgages, business lending, commercial property etc.

NAMA is only taking on commercial property loans that are already severely impaired. The losses on this class of loans would be far far higher that 20%.


You’re right that if you exclude residential mortgage impairments (38m and 3%) from the impairment table on page 6, the impairment goes to 28.2%.

I wonder if Brendan McDonagh is doing NAMA any favours by not at least giving a steer on the numbers in the new business plan. If the components turn out to be significantly different even if the bottom line is the same, I wonder if there’ll be strong accusations of politically-inspired news management?

Having now skimmed the 128-page report, AND ASSUMING THE DISCOUNT APPLIED TO THE FIRST TRANCHE IS THE SAME AS FOR FUTURE TRANCHES,I think that a further €2bn recap is in prospect on top of the €2.7bn already provided by the government via the special investment share and promissory notes.

Note 39 to the accounts on page 65 sets out details of the NAMA transfer (8.7bn in total gross) and the impairment provision booked against that (2.289bn or 34%). The first tranche as we know had a discount of 58%. If the entire 8.7bn had a 58% provision then impairments in respect of NAMA would rise from 2.989bn to 5.062bn.

INBS say on page 8 “At 31 December, the Society had a tier
1 ratio of 12 % and a total capital ratio of 15 % which will allow the Society absorb further losses which will probably arise on the transfer of loans to NAMA.” Looking at the balance sheet on page 24, INBS have total reserves of €1.35bn. If another €2bn provision on NAMA loans were to be taken then INBS would need further capital of €650m just to remain solvent! And would need close to €2bn to comply with capital requirements.

INBS state on page 11 that the 58% “relates to tranche 1 only and may not be representative of the total portfolio”. I would have thought that the accounting concept of prudence would force INBS to recognise losses at a 58% discount unless there was compelling evidence to the contrary – I couldn’t find any such evidence in the rest of the report. On page 7 INBS say ” It is probable that additional losses will arise on the transfer of loans to NAMA.” but I would not expect that simple statement to get over the hurdle of the prudence accounting principle – if the detailed evidence on the first tranche is that 58% is the number then what makes the rest of the portfolio different?

The other noteworthy point is that the analysis of the NAMA loans under note 17 tells us that at December 2009 5115m out of the 8729m was due within 3 months!

@Jagdip Singh
“The other noteworthy point is that the analysis of the NAMA loans under note 17 tells us that at December 2009 5115m out of the 8729m was due within 3 months!”

I think that is pretty much the same across the full NAMA portfolio. About 80%+ of the loans are are due within in the next 12 months.

Will be interesting to see what % get rolled over in that period.

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