Political risk as PTSB eyes €4bn mortgage loans sale

Irish bank shares, and in particular those of Permanent TSB face political risks of tighter regulatory controls over sales of mortgage loans in long-term arrears to vulture funds, a leading analyst has said, writes Eamon Quinn.

Owen Callan, senior analyst at Investec Ireland, said that demands for controls have increased as the main Irish mortgage lenders — AIB, Bank of Ireland and PTSB — pitch their plans to sell off huge amounts of their non-performing mortgage loan books amid pressure from the ECB on Irish and other banks across Europe to get a grip on the problems 10 years after the property and banking crash.

According to industry sources, PTSB is likely to seek to sell off up to €4bn in long-troubled mortgage loans in one auction block.

The lender earlier this week confirmed plans to sell its non-performing loans, which account for a large chunk of its loan book, under a pitch it calls Project Glas through accountants EY.

Weighed by its non-performing loans, its shares have dropped 20% in the past year, while those of Bank of Ireland have risen 3.5% and AIB by 8%. However, the plans of PTSB and its rivals could face political pressure for tighter controls because of the gap in the Central Bank consumer protections.

Consumer and legal advocates have long argued distressed mortgage borrowers will face more stress if their loans are sold, and question why the lenders can sell off mortgages to equity funds at huge discounts but not write down the loans in the first place.

Michael McGrath, Fianna Fáil finance spokesperson, said yesterday the sales plans to “unregulated and unaccountable vulture funds” should be scrapped.

“Recently it emerged that AIB is gearing up to sell a portfolio of distressed loans called Project Redwood and it is clear that the same funds are preparing to buy these loans as in the past. Permanent TSB also looks set to sell on loan portfolios.

“We understand that the banks are getting pressure from the ECB to reduce the level of non-performing loans but in the same light the banks have done far too little by way of putting sustainable and workable solutions on the table for customers,” he said.

John McGuinness chair of the Oireachtas Finance Committee earlier this month told the EU Financial Services Commissioner Valdis Dombrovskis that banks here were ignoring the commission’s direction to write down household and business debt, and were selling troubled loans to vulture funds instead.

Mr Callan at Investec said lenders faced a Catch-22 of the Central Bank and ECB putting pressure on them to deal with loans in arrears.