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Vulture funds want big price cuts on Ulster and KBC loans

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Ulster Bank HQ in Dublin as the NatWest subsidiary is set to pull out. Photo: Brian Lawless/PA Wire

Ulster Bank HQ in Dublin as the NatWest subsidiary is set to pull out. Photo: Brian Lawless/PA Wire

Ulster Bank HQ in Dublin as the NatWest subsidiary is set to pull out. Photo: Brian Lawless/PA Wire

Private equity funds will be looking for deeper discounts than usual on distressed Irish mortgage books coming to market from Ulster Bank and KBC this year, according to market sources.

Big funds, which have bought billions in loan assets in Ireland over the last decade, have found it difficult get sufficient returns on some older bundles of non-performing home loans (NPLs) acquired after the financial crisis.

They want current prices to better reflect the difficulty of enforcing security on unpaid mortgages here, where 16,000 accounts are more than five years in arrears.

One fund that has bid for several portfolios over the years is understood to be pricing in multi-year repossession proceedings to any prospective bids.

The change in appetite comes as both Ulster Bank and KBC are coming to market with a combined €25bn in assets as they engineer exits from the Irish market.

AIB, Bank of Ireland and Permanent TSB are lining up to buy the performing commercial, retail and SME businesses from their foreign-owned competitors, but it will be left to so-called vulture funds to pick over the loss-making leftovers.

Private equity bidders are expecting NatWest to prioritise the sale of Ulster Bank’s NPLs this year ahead of potential deals with AIB and Permanent TSB as selling these would release more capital to the parent bank.

NatWest CEO Alison Rose indicated last week that said negotiations were ongoing with AIB over Ulster Bank’s €4bn commercial loan book and with PTSB and “other counterparties” regarding other parts of the bank.

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But she said that capital returns to NatWest would take place over the medium term and that there would be little change in the level of risk weighted assets at Ulster Bank in 2021.

No formal process has been announced yet although it is understood NatWest will not be looking for off-book deals.

Ulster Bank had been in discussions with Cerberus last year over possibly acquiring all of Ulster Bank in one transaction, but nothing came of the talks. Cerberus, a distressed debt specialist, had been a buyer of Ulster Bank assets in the past.

AIB’s Project Oak, a sale of €1bn in soured mortgages, came down in February to two bidders – Apollo and Lone Star – after being postponed.

Servus, known as an aggressive bidder in previous transactions, sat out the deal in what informed sources said was a sign that buyers were re-evaluating the Irish bad loan value proposition.

However, the legacy of bad debts in the Irish banking system remains a drain on both profits and capital, an issue which has come to a head this year with the departures of Ulster Bank and KBC.

The Banking and Payments Federation of Ireland (BPFI), which represents the sector, has argued that the high capital requirements on banks in the Irish market combined with the lack of repossessions has subdued returns even while interest rates on loans are high by European standards.

The BPFI is understood to be preparing a major report, due in late June, on the future of retail banking in Ireland, looking at why the market here has become unattractive to foreign investors.


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