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DE RUEHDL #0280/01 2091245
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R 281245Z JUL 09
FM AMEMBASSY DUBLIN
TO RUEHC/SECSTATE WASHDC 0082
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBL/AMCONSUL BELFAST 1030
RUEATRS/TREASURY WASHDC

UNCLAS SECTION 01 OF 02 DUBLIN 000280 
 
SENSITIVE 
SIPDIS 
 
STATE FOR TREASURY VIMAL ATUKORALA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN EI
SUBJECT: IRISH BANKS -- HANGING ON BY A THREAD 
 
REF: DUBLIN 183 
 
DUBLIN 00000280  001.2 OF 002 
 
 
¶1. (SBU) Summary: ACCBank, the Irish subsidiary of Rabobank 
has begun to aggressively pursue non-performing loans to 
property developers through the Irish legal system.  To date, 
the courts have allowed the borrowers 100 days to reorganize, 
enabling the National Asset Management Agency (NAMA) to 
assume related assets held by banks covered by the guarantee 
scheme at a discount rate of its own choosing.  Should future 
cases be decided in favor of ACC (or another bank), the major 
Irish banks could be pushed to a point where nationalization 
would be the only viable option and NAMA would need to 
dispose of its assets more quickly than expected. End Summary. 
 
ACC- The Giant Killer? 
--------------------- 
 
¶2. (U) In recent weeks, ACCBank, Rabobank's Irish unit has 
taken legal action against several large developers in an 
effort to collect on underperforming loans.  ACC has exposure 
of just Euro 21 million to one of the development companies 
(Tivway), well under ten percent of Tivway's total 
borrowings.  By contrast, Ireland's largest bank, AIB, has 
exposure of roughly Euro 300 million.  To date, ACC has been 
unsuccessful in its attempts to collect, with courts deciding 
to place both Tivway and another property development 
company, Zoe Group, into examinership.  Both now have 100 
days (roughly until the end of October) to restructure and 
during that time, none of their debts can be enforced. 
Rabobank, which carries a AAA credit rating, has made it 
clear that exiting the Irish market is a priority, as 
insiders have recently expressed concern that the bank's 
exposure to the Irish market may cause the rating to slip. 
Industry analysts predict the pace of these legal actions to 
quicken as other foreign banks seek to maximize their 
recoveries. 
 
Whither NAMA? 
------------ 
 
¶3. (SBU) Should a legal challenge by ACC (or any other bank) 
result in a borrower being placed into receivership, NAMA 
could crumble.  Initial expectations are that assets would be 
transferred to NAMA at a 30% discount to book value.  The 
logic behind this is that the market will eventually 
stabilize and holding assets would allow the value to recover 
from the current lows.  However, receivership would 
necessitate an immediate fire-sale, with most assets of 
troubled developers worth at most 25% of book value.  As 
loans to developers often have a complicated cross-guarantee 
structure, placement of a small loan into receivership could 
force the liquidation of a much larger enterprise.  In such 
an event, banks would be forced to mark to market a large 
portion of their asset bases, necessitating substantial 
capital injection.  Under this scenario, it is unlikely that 
either AIB or Bank of Ireland could escape nationalization. 
 
¶4. (SBU) On July 21, Emboff spoke with Rossa White, Chief 
Economist for Davy.  White indicated that while receivership 
would create significant problems for NAMA, it is highly 
unlikely that such an action would occur.  Further, NAMA 
legislation is expected to be in place by the end of 
September, and all assets from the six largest banks will be 
transferred to NAMA prior to the end of the 100 day 
examinership period. 
 
¶5. (U) On July 23, NAMA officials indicated that they were 
making plans for foreign banks not covered by the state 
guarantee scheme.  However, nothing is definite at the 
moment, and officials indicate that they expect asset 
transfer to begin in December. 
 
Comment 
------- 
 
¶6. (SBU) While the current time horizon indicates that the 
six banks covered by the state guarantee will remain 
sufficiently well-capitalized to return to business as usual 
following the transfer of assets to NAMA, trouble remains on 
the horizon.  Virtually all large loans to developers were 
syndicated across multiple banks, several of which are 
outside of the state guarantee plan.  These banks have little 
incentive to bide their time, and unless a satisfactory plan 
to include them in the guarantee plan is finalized, they will 
most certainly press for a quick settlement of the 
underperforming portion of their asset bases.  NAMA officials 
may find that they need to dispose of assets more quickly 
than they had anticipated. 
 
DUBLIN 00000280  002.2 OF 002 
 
 
ROONEY