IN PART 3 OF OUR SERIES ON VULTURE FUNDS WE EXAMINE WHAT EXACTLY IS HAPPENING WITH DISTRESSED LOAN SALES TODAY AT AIB, ULSTER BANK, PERMANENT TSB, BOI and KBC?
Irish banks have sold billions of euro in non-performing debt in recent years, most of it secured on buy-to-lets or business debt.
AIB, Ulster Bank, Permanent TSB, BoI and KBC have all sold off non-performing loans to vulture funds for massive write downs not offered to borrowers.
Recent loan portfolio sales by AIB and Ulster Bank worth €700m and €800m, and Permanent TSB’s €3.7bn ‘Project Glas’ sale last year caught the attention of the public.
Now state-owned AIB is getting ready to offload thousands of distressed mortgages secured on family homes in a loan sale code named Project Birch.
This sale, which is being planned for early next year, is likely to be met with fierce opposition due to the fact that thousands of family homes will be at stake, a new departure for AIB which is 71% owned by the taxpayer.
They are following in the footsteps of both Ulster Bank and Permanent TSB who have already sold owner-occupier loans to investment funds earlier this year.
In a statement released recently AIB said they have “reduced non-performing exposures from €31 billion in 2013 to €4.7 billion.”
“The vast majority of the reduction in (non-performing exposures) has been achieved through working with customers,” they said.
“We remain focused on reducing non-performing exposures to more normalised levels.”
Just last week however the Central Bank criticised the countries five main lenders for being too quick to sell distressed mortgages to vulture funds instead of ‘putting customers first’ and restructuring the debts.
Speaking at the Banking and Payments Federation (BFPI) annual conference in Dublin, Deputy Central Bank governor Ed Sibley said the financial regulator has had to put pressure on the banks to treat their customers fairly.
“On too many serious issues, be it tracker mortgages or to a limited extent in terms of Brexit preparations,” he said.
“The Central Bank has had to push retail banks and other financial institutions too hard over too long on too many of these issues in order for you to really put your customers first and make sure you continue to deliver.”
“Sustainable resolution of mortgage arrears has required determined and ongoing Central Bank intervention to protect consumers’ interests.
“Your commitment to delivering for your customers must continue to extend to those that are in difficulty if you truly want to be considered trustworthy.
‘Banks need to engage with their customers in a sensible and proactive manner with a view to finding long-term solutions that work for both parties.
He criticised AIB, Bank of Ireland, KBC, Permanent TSB and Ulster Bank, saying good customer service ‘requires more than branding and marketing slogans’.
“The Central Bank does not have a preference for loan sales,” Sibley said.
“We have a preference for sustainably reducing non-performing loans.
“There are multiple tools available, including: re-engaging with borrowers, restructures, accounting write downs, mortgage to rent, engaging through the Insolvency Service, sales and securitisations and the legal process.
“Your commitment to delivering for your customers must continue to extend to those that are in difficulty if you truly want to be considered trustworthy.”
Sinn Fein TD Pearse Doherty, speaking in the Dail last week, also criticised the behaviour of Irish banks.
“Speaking at the Banking and Payments Federation, the deputy governor of the Central Bank, Mr. Ed Sibley, said that Irish bankers were displaying echoes of pre-crisis arrogance,” Deputy Doherty said.
“My view is that it never left them and I am glad that the penny is dropping in the Central Bank.
“He went on to say the banks were hitting mortgage holders with double the interest rates needed for them to make a profit, that they were charging new customers between 2% and 3%, while in some cases existing and loyal customers were being charged almost double these rates, at 4.5%.
“It is complete discrimination.”
According to the Central Bank’s latest data, the number of mortgage accounts for principal dwelling houses (PDHs) in arrears over 90 days was mainly unchanged in the second quarter of this year (Q2 2019) with a minor decline of 340 accounts.
This is the twenty-third consecutive quarter of a fall in the number of accounts in this category.
“At the end-June 2019, there were 723,280 private residential mortgage accounts for principal dwellings held in the Republic of Ireland, with a value of €97.6 billion,” the report states.
“Of this total stock, 61,901 accounts were in arrears, representing a decrease of 933 accounts or 1.5 per cent over the quarter.
“Some 43,303 accounts (6.0 percent) were in arrears of more than 90 days.”
With regard to repossessions, the report reveals that during the second quarter of this year the Courts granted an order for repossession or sale of the property on 120 accounts.
221 properties were taken into possession by lenders during this time, up from 127 in the previous quarter.
233 properties were disposed of by lenders and as a result, lenders were in possession of 1,407 PDH properties at the end of June 2019.
Vulture funds are expected to acquire another €9bn worth of distressed Irish mortgages before this year is out.
The implications this will have for our society are frightening, both morally and economically.