Tuesday 12 December 2017

Pension Reserve Fund ploughs €400m into residential loans

Emmet Oliver Deputy Business Editor

The taxpayer is now investing directly in home mortgages after the National Pension Reserve Fund revealed it has invested in groups of mortgages belonging to Bank of Ireland and Irish Life & Permanent (IL&P).

The pension fund has invested a total of €400m in residential mortgages issued by Bank of Ireland and IL&P. The investment is split equally between the two groups.

The pension fund comes under the control of the National Treasury Management Agency (NTMA), and the purchases would have been made during the period when the NTMA was run by Dr Michael Somers, who recently retired.

The pension fund is increasingly building up its exposure to Irish banks and has already invested €3.5bn each in AIB and Bank of Ireland.

These are described as "directed investments'' by the pension fund and come in the form of preference shares.

The purchases indicate that the pension fund is willing to make other types of investments in the banks, apart from straight- forward share purchases.

The investments were made in pools of mortgages which have been securitised by the two banks. In a securitisation, groups of mortgages are packaged up and sold off to individual investors. It was not previously known that the State had taken a position in Irish residential mortgages.

The pension fund made the following the statement about the investments: "Both investments were made in 2008 and the intention is to hold them to maturity. The IL&P instrument matures in 2011 and the Bank of Ireland Mortgage Bank instrument matures in 2013.'' The fund described them as "high- quality credit instruments''.

However, these pools of mortgages have deteriorated in quality over the last two years due to the property slump.

The pension fund currently has a total value of €22bn, including the €7bn worth of investments made in the two banks. The fund made a return of 20.9pc last year after world stock markets made strong recoveries from catastrophic losses in 2008.

Since the fund's establishment in 2001, it has delivered an annual return of 2.6pc.

The rating agencies have been monitoring rising mortgage delinquencies over recent months in Irish mortgages. A delinquency occurs when a mortgage borrower is 90 days or more in arrears.


In a report issued in October, Moody's said the average level of delinquency in Irish mortgages was 2.9pc, more than double the level of the year before.

The figure for borrowers more than 360 days or more in arrears was 0.7pc in October, more than triple the level a year before that. The pension fund declined to say why it decided to buy into the mortgage pools of IL&P and Bank of Ireland in 2008, as opposed to other banks.

The market for securitised mortgages was extremely stressed in 2008, the year of the Lehman Brothers collapse and this may have played a part.

None of the ratings agencies believe credit quality in Irish mortgages will improve in the period ahead. The Moody's report of October said: "Economic indicators do not show any signs of recovery in Ireland and mortgage performance may not yet fully reflect the depth of the current recession.''

Irish Independent

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