No clarity on tracker mortgage sale

There is still no clarity on whether the ECB will be able to buy tracker mortgages from Irish banks following its latest monthly meeting.

The most important issue of the asset-backed security purchasing programme remains unanswered, said Frankfurt-based economist with ING Bank, Carsten Brzeski.

“The controversy about the riskier asset-backed security tranches has apparently not been solved yet,” said Mr Brzeski. “Remember that several eurozone governments, particularly France and Germany, had already given the ECB the cold shoulder, refusing to guarantee mezzanine tranches.

“However, without purchases of the riskier asset-backed security tranches, the programmes will be handicapped before they start. In the official text, the ECB only said that details of purchases of mezzanine tranches will be published at a later stage.”

Bank of Ireland, AIB, and Permanent TSB have just under €50bn of loss-making tracker mortgages sitting on their balance sheets. However, these would need either a Government guarantee or some other form of guarantee before they could be bundled into asset-backed securities and purchased by the ECB.

As expected, the ECB left the main borrowing rate at 0.05% and the deposit rate at -0.2%.

The bank’s president, Mario Draghi, signalled his intention to begin purchasing covered bonds this month and asset-backed securities over the next three months.

Mr Draghi confirmed what had been flagged in the last monthly meeting, that the bank’s balance sheet will expand by about €1trn, including the €400bn committed to the targeted long-term refinancing operation.

The ECB will do whatever it takes to push inflation close to its 2% target, he said, without giving further details.

He urged member states that had the capacity to pursue expansionary fiscal policies to do so in order to boost demand.

The market reaction to the meeting was broadly negative as there had been expectations that Mr Draghi would unveil more detailed proposals.

“The implemented measures have yet to strengthen demand and many think the asset-backed security programme will not be enough,” said Alasdair Cavalla, an economist with the Centre for Economic and Business Research in London.

“Its only remaining option is full quantitative easing through sovereign bond-buying, something that will be resisted by the Bundesbank for as long as possible. The aggregate demand deficiency also suggests a role for fiscal policy — hence today’s anti-austerity protests — yet that remains entirely beyond the ECB’s remit.


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