Archives for June 2019

AIB’s new chief executive, Colin Hunt, is set to indicate to Oireachtas finance committee members that the bank may sell more troubled loans this year to lower its non-performing debt ratio to 5 per cent.

“AIB is still carrying a large chunk of deep long-term arrears that simply must be reduced by year end,” Mr Hunt, who succeeded Bernard Byrne as group CEO early last month, will tell the committee on Thursday morning, according to a copy of his opening address, seen by The Irish Times.

Non-performing loans (NPLs) “inhibit banks’ primary function of lending to the economy and ultimately they increase bank costs, resulting in higher rates for businesses and home buyer,” he said. “It is also true to say that those individual customers who do meet their loan repayments are, in effect, negatively impacted by those who don’t pay.”

Sources said last week that AIB was considering the sale of a final batch of problem loans later this year, after it announced a deal to sell €1 billion of NPL loans against 5,000 assets, mainly made up of investment properties, to a group led by US distressed debt. The original value of the loans is believed to be almost €3 billion.

Vulnerable

The portfolio included about 220 owner-occupier mortgages where the property was “included as cross-collateral to a wider commercial connected debt”, it said on April 1st. AIB sold a €1.1 billion pool of non-performing commercial and investment property loans last year to the Cerberus-led consortium. Both Cerberus deals also involved regulated debt-servicing firm Everyday Finance.

The latest portfolio sale will lower AIB’s NPLs ratio to about 8 per cent, about half the bank’s rate of problem loans at the end of 2017.

“The European average is approximately 3.5 per cent and our aim is to reach circa 5 per cent by the year end – but this is a milestone, not a destination,” Mr Hunt said.

“AIB has to ensure it is not left vulnerable to future economic downturns, from existing non-performing loans and potentially new defaults. And while the bank is very well capitalised, I as CEO would find it unconscionable to allow the bank confront future shocks while still fettered to legacy issues that we can actually deal with now.”

More than 3,000 home owners to be affected, plus 400 buy-to-let loans

More than 3,000 home owners, who owe Ulster Bank €900 million, face the prospect of their mortgages being sold to a vulture fund.

The bank signalled late in 2018 that it intended selling boom-era home loans where borrowers are several years in arrears. The bank confirmed on Tuesday that it is selling 3,200 owner-occupier mortgages, where it loaned €810 million to people to buy their own homes. In addition the lender is offering for sale 400 buy-to-let mortgages, where it loaned €90 million to people to buy properties that they rented to others.

Figures

Ulster Bank’s figures show that the average owner-occupier involved owes arrears of €33,000 and is 58 months behind with repayments. The buy-to-let customers have fallen 41 months behind and owe €36,000 in arrears on average.

The bank is likely to sell the loans for less than the €900 million owed, but the borrowers will still be liable to repay the full amount to any buyer.

It is thought a “vulture fund”, that is an investor which buys debts or other assets in financial difficulty at a discount, could purchase the mortgages.

US company Cerberus, which over the past five years has bought Irish property debts on which more than €20 billion was due, has purchased several tranches of troubled loans from Ulster Bank.

Fianna Fáil finance spokesman Michael McGrath TD, argued that 3,600 homeowners faced “uncertain futures” as a result of Ulster Bank’s move.

“By selling the loans in this fashion, the bank is taking the easy way out and has demonstrated little regard for the long-term welfare of its customers,” he said.

Ulster Bank said that the borrowers have had multiple “forbearance arrangements” where the lender agreed to cut loan repayments while borrowers dealt with financial difficulties.

It is understood that these generally involved agreeing that the borrowers paid only the interest due on their loans every month for a set period of time. The owner-occupiers involved have typically had five such arrangements, while the buy-to-let clients have had three.

Customers

Ulster Bank said that it only included the loans against customers’ homes after concentrated efforts to ensure that borrowers with difficulties were given every opportunity to agree “sustainable solutions” allowing them to stay in a house they could afford.

“For all of these customers, the continued extension of forbearance cannot unfortunately be maintained,” the bank said. The bank pointed out that it was obliged to cut the level of home loans in serious arrears on its balance sheet.

“For mortgages that are not sustainable, additional forbearance will not bring them back to a performing position,” the bank said.

David Hall of the Irish Mortgage Holders’ Organisation claimed that the families involved could not afford to repay their home loans and faced homelessness as a result. He accused the Government of being complicit in the sale of family homes to vulture funds. “The taxpayer, of course, is the one who keeps on paying to house families,” he added.