Sunday 19 November 2017

PTSB set to lure suitors with toxic loan book

Jeremy Masding, Permanent TSB chief executive
Jeremy Masding, Permanent TSB chief executive

Gretchen Friemann

Permanent TSB will finalise a clean-up strategy for its problems loans, including mortgages, by mid-year, the Irish Independent has learned, in a move designed to end investor uncertainty about the mounting regulatory pressures facing the lender.

Global distressed-debt funds are circling the troubled residential mortgage portfolio of State-backed Permanent TSB, amid intensifying expectations the recovering lender will launch a formal sales process within the next six months - including of home loans in deep arrears.

A handful of opportunist funds - including Lone Star, Cerberus and CarVal - are already eyeing the rump end of PTSB's toxic mortgages.

At its recent annual results presentation, the bank disclosed that close to €1.5bn of its €5.9bn of non-performing loans remained untreated as borrowers reneged on repayments or failed to engage with the lender. However, sources stressed PTSB - which is 75pc State owned - may confine any sale to the buy-to-let mortgages.

Yet the anticipated purge of PTSB's soured loan book comes as the same opportunists line-up for a major slice of AIB's €1.8bn impaired residential buy-to-let portfolio. Bids were reportedly submitted for the AIB loans earlier this year in a sales process dubbed Project Cyprus.

However AIB, which required a near €20bn lifeline from taxpayers to stave off its collapse, remains tight-lipped about the auction amid preparations for a potential initial public offering in May or June. The Government wants to offload a 25pc slice of its 99.8pc stake in the lender.

AIB declined to comment on the status of Project Cyprus. The deal will be closely watched since the market for large-scale distressed residential loans in Ireland remains untested.

While the global opportunist funds have hoovered up billions of euro of soured commercial mortgages, chiefly from Nama, lenders have clung on to toxic residential mortgage books fearing the political fall out from selling home loans.

In a recent note to clients Goodbody stockbrokers' banking analysts, said a sale of PTSB's untreated non-performing loan portfolio was the "most likely option".

Goodbody also emphasised PTSB has adopted a "robust" provision coverage of 42pc for its impaired book.

While this enables the bank to cast off the portfolio at a discount, it's understood part of the attraction for the loans stems from the number of borrowers still servicing the debt.

One source pointed out that at least a third of borrowers within this rump end of the book are repaying at rates higher than the interest charge.

PTSB, along with AIB and Bank of Ireland, is under pressure to resolve its non-performing loans amid a regulatory squeeze - including orders from the ECB to tackle bad loans.

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