Ulster takes on opposition in €1.6bn loan sale

By Eamon Quinn and Pádraig Hoare

Ulster Bank looks set to face political opposition head-on from Fianna Fáil and Sinn Féin after announcing the start of the sale of 6,500 loans worth €1.6bn of distressed mortgage debt, a move which is likely to embolden other main lenders to offload their troubled loan books too.

The sale includes 3,600 mortgages held by homeowners at a face value of €900m, as well as 2,900 buy-to-let or landlord mortgages, worth €700m.

Industry auctions like the one being conducted by Ulster Bank typically sell troubled loans for around 65% of their face value, though potential buyers are prepared to pay more for buy-to-let mortgages.

Opposition politicians have targeted advanced plans by Permanent TSB to sell €3.7bn of its mortgages which are underwater, as well as vaguer proposals by AIB. The sales would likely lead to all the main Irish banks offloading their crisis-era soured loans to foreign equity funds — vulture funds.

Advocates for the tens of thousands of households who are in long-term arrears have also criticised the lenders and the Central Bank for allowing the sale of distressed loans to new vulture funds owners, which have no long-term commitment to the country despite being the new owners of mortgages which were originally sold by banks to borrowers as long-term contracts.

The banks are unwilling to write off debt but are prepared to pass the borrowers to new owners who will flip the loans again in three or four years, said Paul Joyce, senior policy adviser at the Free Legal Advice Centres, or Flac. And the Financial Services Union said home borrowers will face additional stress amid fears their loans will be sold to vulture funds.

It also wants guarantees over jobs at Ulster Bank once the sale has been completed.

Lenders and the Central Bank say borrowers have the same level of protection through the service providers appointed by new equity fund owners.

The Ulster Bank sale does not involve split mortgages, which has been a particular area of contention in the Permanent TSB sale.

“Not all mortgages are sustainable and we are obliged to reduce of non- performing loans on our balance sheets” following pressure from the ECB, Ulster Bank said. Before the sale, Ulster Bank has around €4.3bn in soured loans in a total loan book of almost €24bn.

The sale will reduce the percentage of non-performing loans to 10%, closer to the 5% normal industry rate sought by regulators.

The sale is likely to be its largest for some time. Investec Ireland analyst Owen Callan said Ulster Bank will be testing the political opposition to the sale of distressed mortgages but is well placed to “see off the political flak”.

Permanent TSB faced a lot of political “invective” but British RBS-owned Ulster Bank has the advantage in terms of political opposition of not being owned by the Irish state, he said.

At the Oireachtas Finance Committee, Central Bank deputy governor Ed Sibley said he was working with the ECB to ensure clarity over the accounting on bank books of split mortgages.

Fianna Fáil finance spokesman Michael McGrath said Permanent TSB customers holding split mortgages needed clarity as they had been included in the banks’ sale of distressed debt.

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