IFG sells 50% of its mortgage business

IFG Group has sold 50% of its mortgage business to GE Capital for €13.3m.

IFG will use the funding to cut the group’s high debt and improve the health of its balance sheet after some costly expansion in the British market.

IFG’s shares fell 22 cent to €1.05 in late afternoon trading as the markets looked less than impressed by the news. By contrast, NCB Stockbrokers put a positive spin on the joint venture, saying it would boost IFG’s earnings.

The joint venture needs the approval of the Irish Financial Services Regulatory Authority.

GE Capital Woodchester provides personal, motor and equipment finance in the Irish market and is part of the giant General Electric group.

IFG Mortgages recorded mortgage completions of €606m in the first nine months of this year, up 46% on the same period last year.

The new joint venture will target those who have a bad history of mortgage repayments.

This is reckoned to be about 10% of the total annual mortgage market that IFG and GE believe they can fully exploit in the years ahead.

For the privilege of getting a loan when no one else will give you one the providers will charge between 1% and 2.2% more for the mortgage they make available to you only after conducting a very vigorous credit investigation of your current financial circumstances.

NCB’s John Kelly says the deal is potentially lucrative for IFG despite the loss of 50% of the business.

The mathematics of the deal are such that even at 50% IFG will make more money from its mortgage business than it did when it had total ownership.

The reduction of 10m from its debt will save €500,000 a year in interest repayments while the loss of 50% of the business will cost it €1m at the pre-tax level.

However, with tougher lending criteria being introduced, the mortgage business will save up to €900,000 in non-performing loans, resulting an annual net gain of €400,000, the equivalent of 5c on earnings per share.

One of the other important issues for IFG is the broad lending experience of GE across Europe, where it is a leading player in the personal finance market.

For IFG, the joint venture also rebalances its mortgage lending business away from first-time buyers and into the higher margin business described as the non-conforming mortgage market.

Having bought the I-group in Britain in 2001, GE specialises in this key market segment and the brokers view is that it can represent a win-win situation for each of the players.

The deal does not affect the existing shareholders in IFG and does not require an extraordinary general meeting to ratify the move.