“It Is Not Simply About The Regulation Of The Vulture Funds”

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Earlier today.

During Leaders’ Questions, taken by Minister for Health Simon Harris.

Sinn Fein TD Pearse Doherty raised the Permanent TSB sale of €3.7 billion worth of residential mortgage loans.

Mr Doherty said the bank has been invited to attend the Oireachtas finance committee next Tuesday.

Mr Harris said the bank should go before the committee and said it would be good to see some “humility” from the bank.

Meanwhile…

Anyone?

Previously: ‘It’s Essential For The Long-Term Health Of Irish Banking’

17 thoughts on ““It Is Not Simply About The Regulation Of The Vulture Funds”

  1. GiggidyGoo

    Harris tried the smarty pants boy approach saying ‘some parties here changed their leader but not their policies ‘
    Today’s own goal.

  2. anne

    Many many customer..years & years.. sounds like Trump talk. These customers are engaging & making payments.. & they’re still be thrown to the wolves.

  3. johnny

    The total portfolio ‘value’ is approx 3.7 Billion-the number they don’t tell us is the LTV’s-or loan to value.

    That’s arguably the most important number as it determines both the buyers strategy and pricing.

    Given the rapid recent increases in all residential asset categories,its reasonable to assume that the LTV ratios are below 100-in other words lets say the house is worth 100 the outstanding loan is 70 then the LTV is 70%.

    If the buyer pays 30 for the loan-then the new buyer is enjoying a LTV of 30 which is astounding.

    The Irish public has a right to know the LTV of this portfolio,the minister should be challenged to provide this number.NAMA was severely criticized for not updating its valuations on Project Eagle and when challenged was unable to provide accurate LTV’s.

    “The paper submitted to the Board outlined three bases for valuing the Project Eagle loans. The examination found that two of the valuations underestimated the value of
    the loans. In the third case, no valuation was made.”

    LTV’s above 100 indicate negative equity,below 100 there may be an equity cushion.

    Buyers will factor in payment history etc but on a very basic basic level they are buying loans secured against real assets,with some hurdles to get to those assets,but a very low LTV will determine the strategy as the incentive to take the house and resell it is extremely high.

    All the noise about who paid or engaged is simply a distraction while it has some bearing on pricing,the most important number is the LTV !

    The other number that should be disclosed is the charges and ‘fees’,banks are notorious for gouging borrowers with outrageous fees/charges/penalty interest rates (often mid teens or higher) when a payment or two is missed.Its tacked onto the loan and artificially inflates the amounts outstanding.

    The sellers will have prepared a ‘loan tape’ or E&Y their agents have,the appropriate Dail committee should demand a copy,as it will contain all the required info that buyers use.

    http://audgen.gov.ie/documents/specialreports/Project-Eagle/Special_Report_94_-_National_Asset_Management_Agencys_sale_of_Project_Eagle_Summary.pdf

    1. Owen C

      uggh, i think you have this somewhat (badly) mixed up

      If the loan is 100 (this is the effective “price” the bank originally paid for the loan), and the house is worth 70 today, the LTV is 100/70 = 143%, which is pretty bad for all concerned. If the vulture fund buying it pays 30 for it, the LTV is still 143% (the loan has not been written down yet), but the VF has a huge margin to absorb losses as it only paid a price of 30. It could write down the loan to 70, bringing the LTV back to 100, and still have a profit margin of 133% or so (ie 70/30). That’s why what is actually likely to happen is the VF pays 50-60 for it, and has a 16-40% profit margin. It will have been marked on PTSB’s books at c.65% (ie a 35% provision), so they will take a c.10% loss on the sale of it. There is no reason for either the bank or the VF to bring the LTV below 100 for the borrower (why would you give them ‘free’ positive equity?).

      1. postmanpat

        This is what happened 12 years ago. connected consortiums and friends of the bank managers were getting mortgages approved and were buying and holding , (while missing every single mortgage payment by design) and selling 6 months later for huge profits in equity and paying back the mortgage arrears at the same time. = profit. Until the banks got caught out and it was everyone problem then.

      2. johnny

        no mix up, badly or otherwise, whats the point in going back and forward on this, when the real numbers are available,but you lost me a little here…
        are you seriously stating that vulture funds are going pay 60 for chronically non performing loans, primarily consisting off owner occupied homes,with the homes worth 70 as above ?
        I might know someone with a bridge for sale:)
        what did Danske Bank get for its recent 1.8 Billion PERFORMING loan sale to Goldman Sachs ?

        1. Owen C

          Danske got about 95c. But do continue…

          Vulture Fund return metrics usually look for 15-20% IRR. So a 40% upside (pay 50c on 70c collateral value) would fit with anything that can be resolved inside 2-3 years, and that’s before they juice that IRR up with some leverage.

          And obviously not everything within this NPL sale is chronically distressed – we’ve been hearing about how maybe 0.7bn of the 2.7bn for sale is actually performing to the restructured terms and conditions, so those one probably just need moderate write down (from 100 to 70) and then get someone else (ie BOI) to refinance them

          So there’ll be a blend of prices paid: 30-40c for the ultra crap (which PTSB has provisioned 60% against), 40-50c for the crap (which PTSB has provisioned 50% against), 50-60c for the ok stuff (which PTSB has provisioned 30% against)

          1. johnny

            eh great exhange,your just a BILLION off an actual real number, gotta dash but in your own words……..
            “uggh, i think you have this somewhat (badly) mixed up”

          2. Owen C

            there’s 1bn of BTL mortgages, and 2.7bn of residential owner occupier loans, included in this portfolio. The main focus is on the 2.7bn of owner occupier mortgages. but well done for confirming that 3.7 – 2.7 = 1 billion

        2. Owen C

          Like, the thing you need to realize, as you inadvertently acknowledged through your mention of the Danske Bank loan sale, is that you can pay more for the loan than the LTV might imply, or rather the LTV does not always hugely impact on the price that you would pay. Many people have always paid their loans, or have worked to sustainably restructure their loan without a debt write down, even when their LTV was well above 100 (ie negative equity).

  4. david

    And even worse was Noonan’s tax change that made all profits when the property was sold within a 7 year window exempt from capital gains tax
    And where has the 200 billion of distressed property revenue gone
    Its certainly not been taken off the national debt
    As the days come the real shit will come out
    Hopefully the stench will end the support of fianna fail
    But come election time Noonan Kenny and all his fellow KAPOs must be charged with defrauding the Irish people
    Since the disposal started our government have committed financial treason on the people of this country

  5. dav

    By this stage, surly any announcement form and irish bank should contain the disclaimer, “The following is probably not true”…

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