Sunday 4 December 2016

Mortgage losses might mean BoI is no bargain

Published 26/02/2012 | 05:00

THE Wilbur Ross-led consortium's decision to pay €1.1bn for a 34.9 per cent stake in Bank of Ireland was looking like a smart move -- until Monday's publication of the bank's full-year results and the latest mortgage arrears statistics from the Central Bank.

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Ross and his fellow investors paid the equivalent of 10c a share last July. By the time the Bank of Ireland share price hit 15c earlier this month, the consortium was sitting on paper profits of €560m. Had the Government in its desperation to keep at least one Irish-owned bank out of majority state control, let Ross and his fellow investors in too cheaply?

Maybe not. The results revealed a 30 per cent jump in impairment charges to €444m to Bank of Ireland's Republic of Ireland mortgage book. This brings the total to €1.14bn since March 2008. However, this still represents just 4 per cent of its €28bn Irish homeloans.

Compare this to the latest Central Bank figures which show that almost 108,000 mortgages, 14 per cent of the total, were either more than 90 days in arrears and/or had been restructured.

Suddenly the €1.36bn-€2.36bn that the Central Bank reckoned that Bank of Ireland would have to set aside against mortgages at the time of last March's stress tests conducted by US financial consultancy Blackrock is beginning to look very optimistic. Blackrock itself estimated Bank of Ireland's likely mortgage losses would come in somewhere between €2.38bn and €4.28bn.

If Bank of Ireland's eventual mortgage losses even begin to approach Blackrock's higher figure then Wilbur Ross and his partners may not have got such a bargain after all.

Sunday Indo Business

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