ECB plan ‘to exclude tracker mortgages’
The ECB president, Mario Draghi, unveiled a new set of measures to stoke economic activity across the eurozone at the bank’s September monthly meeting, including a programme to purchase asset-backed securities.
The three domestic banks — Bank of Ireland, AIB and Permanent TSB — have just under €50bn of loss-making tracker mortgages sitting on their balance sheets.
The Government had been in negotiations with the troika during the bailout programme about looking at ways of moving these tracker mortgages either off balance sheet or setting up separate and cheaper funding lines. However, these talks failed to reach any agreement.
The ECB’s ABS programme includes mortgages, which potentially opens up a new avenue to Irish banks to solve the tracker mortgage problem.
But all securities will be split into three tranches: senior, equity and mezzanine. Lorcan Roche Kelly, head of Agenda Research, says that ECB will only buy senior tranches, which will exclude loss-making tracker mortgages from the programme.
However, Philip Lane, an economics professor at Trinity College Dublin, says that the full details of the programme will be released at the ECB’s next meeting on October 2. One proposal is that governments would provide guarantees for securities against future losses. Germany is opposed to guarantees, although it is supported by periphery member states including Ireland.
“This is where policymakers could step in,” says Mr Lane.
Over the past few months, Mr Draghi has introduced two interest rate cuts; a targeted long-term refinancing operation (TLTRO) and the ABS programme.
These measures, “have been driven by the extreme fears of deflation,” according to Investec chief economist, Philip O’Sullivan. But the success of the ECB’s unprecedented moves will be determined as much by the demand for credit, he adds.
It will be next summer before it becomes evident whether the ECB has been successful in breathing life into the increasingly sclerotic eurozone economy. The only remaining policy option available it quantitative easing, which is the purchase of government bonds.
“However, Draghi has spent so much political capital on ABS that it is not certain whether he will be able to deliver QE,” said Mr Roche Kelly.
