Irish Bank Fills Pension Hole with Balance Sheet Assets

(August 17, 2012) — One of Ireland’s largest banks has created a solution for both its pension shortfall and balance sheet deleveraging by transferring loans worth €1.1 billion from one to the other, it announced today.

Allied Irish Banks (AIB) has transferred the loan assets to its underfunded pension plan “as part of its continuing strategy to meet non-core deleveraging targets as part of Prudential Liquidity Assessment Review (PLAR) 2011″.

The bank said: “The transaction was completed on an arm’s length basis with both the bank and the pension trustees conducting independent valuations of the assets.”

The move, the bank said, should allow its early retirement programme to continue, which would in turn lower contribution costs to the pension scheme and cut overall expenses.

Irish banks have been under pressure to offload loans from their balance sheets as part of a mass restructuring programme. AIB took €20 billion from the Irish government at the height of the financial crisis and has been making efforts to slim down and become more efficient.

The loans will be ‘written down’, meaning they will not transfer to the pension fund at initial face value. The discount on the loans has not been disclosed, but a statement from AIB said an independent valuation agency had carried out the exercise.

Mass deleveraging by banks around the world has provided options for pension funds to take up discarded loan assets. The strategy has been lauded by several market experts, with some even calling on the Bank of England to allow bank assets to be sold to investors as an alternative Quantitative Easing programme.