The vultures are coming to do the dirty work
Published 26/05/2016 | 02:30
The decision by one of our leading banks to sell a loan portfolio which includes home loans means there will be trouble ahead. By putting the book up for sale, Ulster Bank has made it clear that it does not want to be the one that has to face the music and dance.
Instead, the bank expects to get a vulture fund to take over a loan book that it values at €2.5bn and let it deal with the messy business of repossessions and asset recovery.
It is the first mainstream bank to do this, but expect others to follow. AIB has already floated the idea this week of selling off some of its distressed loans in a move that was seen as a testing of the waters.
British-owned Ulster Bank does not have to worry about the sensitivity of taxpayers or shareholders here. It was bailed out by the British government.
The Ulster Bank loan book consists of 900 residential mortgages, most of which are three years or more behind on the repayments. About half of the loan book is in Dublin.
The bank maintains that many of the residential mortgage holders have steadfastly refused to contact it for years. All 900 are on the brink of repossession.
There are also some 2,000 buy-to-let mortgages in the portfolio being sold, along with farmers' loans. The majority of the portfolio is business loans.
The business loans are mainly to small and medium-sized firms, which have been in default for some time and typically involve a property element.
The fear of a backlash from anti-eviction groups and from the powerful farming lobby means that Ulster Bank is prepared to sell the portfolio at a huge discount and let a vulture fund deal with the messy business of cleaning up the book.
Like most banks, Ulster does not have the stomach for repossession cases.
Vulture funds pick over the carcass of bad loans, extract what they can of value and leave the remains. Such a fund won't care too much about a public backlash. And Ulster Bank can always buy back the loan book once the vulture fund has done its dirty work.