Saturday 20 January 2018

PTSB close to offloading its €22bn tracker burden

Finance Minister Michael Noonan. Photo: PA
Finance Minister Michael Noonan. Photo: PA

Charlie Weston Personal Finance Editor

MOVES to transfer €22bn worth of loss-making tracker mortgages out of Permanent TSB are gathering pace in a bid to get it lending again, it emerged last night.

AIB also wants to offload its trackers if Permanent TSB, which is losing an estimated €400m a year on them, succeeds in doing so.

Such a deal would not affect the terms or conditions for homeowners on tracker mortgages. These types of mortgages are regarded as the best value home loans. Any losses on the transferred trackers would ultimately be picked up by the taxpayers.

But Permanent TSB is virtually owned by the State, which means taxpayers are picking up the tab anyway.

The former Anglo Irish Bank, now called Irish Bank Resolution Corporation (IBRC), is thought to be anxious to take on the role of managing the tracker books on behalf of Permanent and AIB.

A deal would be likely to involve both the residential and buy-to-let trackers of the two banks.

It is understood that the IMF/ECB/EU have been concerned that the merging of AIB and EBS has sucked competition out of the banking market. This has meant there is an eagerness to see Permanent TSB become a properly functioning lender again.

This week's updated memorandum of understanding with the troika commits the Government to deciding on a restructuring of Permanent TSB by the end of April.

Finance Minister Michael Noonan conceded yesterday that talks involving all the domestic banks were taking place as part of wider discussions on the reduction of Ireland's debt burden.


This is understood to also refer to plans to deal with the loss-making trackers on Permanent TSB's books.

Some 60pc of Permanent TSB's €37.5bn loan book is made up of trackers. These products are pegged to the European Central Bank rate, meaning the rate can only change when the ECB rate changes.

Many trackers are set at just 1.25pc above the ECB rate, making them the cheapest mortgages in the market. So most trackers are on a rate of 2.25pc, compared with the bank's variable rate of 5.19pc.

This means the monthly repayments on a €250,000 variable-rate mortgage are €300 a month higher than on a Permanent TSB tracker.

Permanent TSB is losing an estimated €400m a year on its trackers. It is paying a higher interest rate on the funds it borrows on the markets than it is charging on its trackers.

If a deal is done to take an estimated €22bn worth of trackers out of Permanent TSB, they would be moved into what is known as an off-balance sheet vehicle, according to informed industry sources.

This is similar to the situation where Irish Nationwide's deposits were moved to Permanent TSB and Anglo.

The terms and conditions did not change. The products were just managed by a different institution.

Financial adviser Karl Deeter of Irish Mortgage Brokers predicted at the start of the year that banks would have their loss-making trackers transferred to a 'bad bank' to help them start lending again.

Mr Noonan told Fianna Fail's Michael McGrath yesterday: "Officials in my department and in the Central Bank are in constant ongoing dialogue with all of the covered institutions in respect of implementing structures and solutions which would seek to enhance the overall financial system."

Irish Independent

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