Struggling mortgage holders could get lifeline

IRISH banks could come under pressure to be more forgiving with mortgage holders in difficulty if a bid by a US billionaire for EBS is successful.

Analysts said a proposal from investor, Wilbur Ross, to allow some mortgage holders at EBS to reduce their debts could result in other Irish banks following.

The proposal would involve reducing the principal of a mortgage so that monthly repayments become more manageable for over-indebted borrowers.

This debt reduction is only expected to happen in limited circumstances and be applied “judiciously” with strict conditions attached, however.

NCB Stockbrokers said under the terms of the deal, any potential future profit from disposal of the property would have to be shared between the borrower and the institution.

“While the finer details of the scheme are not clear, we believe that the proposal would involve the building society releasing provisions that it has already built up, as a means of reducing the carrying value of selected properties,” they said.

NCB added that the scale of such an initiative may be limited, unless further equity injections were committed, as the solvency position of the group must be protected. “Nevertheless, this latest development will likely come as a thorn in the side of the other Irish lenders, as they renegotiate terms with their own troubled borrowers,” they said.

Bloxham Stockbrokers said such a move would likely place pressure on other banks to follow suit, which would have a further negative impact on margins.

WL Ross, a New York-based private equity company, has linked up with Carlyle and Dublin-based private equity vehicle Cardinal Capital to bid for EBS.

They are bidding against Irish Life & Permanent and two other buy-out firms – Doughty Hanson, owner of TV3 – and JC Flowers.

Experts said Mr Ross’s proposal could be seen as an attempt to win political favour at a time when mortgage arrears are rising.

Mr Ross said his proposal “can be useful to the country”.

“We’ll be able to give the people a lot of relief on the mortgages and yet be able to make the bank function well because of the level at which we’ll be coming in,” he said.

Cardinal has offered €550 million for a 70% stake in EBS.

Mr Ross said it was sensible for an institution to write off debts where there was little chance of repayment.