AIB is preparing to outsource the management of €13bn worth of its residential mortgage book in a radical cost-cutting move. The 99 per cent state-owned bank is seeking proposals from private sector players in Ireland and overseas to take over the collection and servicing of this mortgage book as the bank battles to survive.
The move to use an outsourcing firm to run a large residential mortgage book by a pillar bank is likely to be watched closely by other banks. The residential mortgage book AIB is currently seeking to outsource was formerly run by the EBS. Several hundred people are currently working on managing this residential book on the behalf of AIB. More than 60,000 individual mortgages are in the EBS book.
Potential bidders for the book include Certus, HML and Capita. All three have extensive experience managing assets like commercial loans on behalf of banks but there has never been anything of this scale before in Ireland.
AIB declined to comment on outsourcing. The bank said it had no plan to sell any residential mortgage book related to the EBS.
However, market sources said that based on international experience the bank may choose in several years' time to sell off these loans should market conditions improve in Ireland. At present large deleveraging efforts by Irish banks are hampered by the lack of international demand for non-prime assets at reasonable prices.
Certus has been extremely active in the area of outsourcing since its foundation by former Bank of Scotland (Ireland) management. Its biggest job is managing the run-down of the €30bn former Bank of Scotland (Ireland) loan book for British group Lloyds. This includes €8.5bn worth of former Halifax mortgages sold by Bank of Scotland (Ireland) to 40,000 customers.
It also already has a proven relationship with AIB where it provides the bank with the specialised service of helping it collect payments from some mortgages which have gone into arrears.
AIB has received a €20bn bailout from the Irish State and its new management led by David Duffy is anxious to return what money it can to the State.