Thursday 16 August 2018

Over 20,000 affected as former Bank of Scotland to sell €5bn of mortgages

Parent company Lloyds Banking Group is finalising its exit from the disastrous entry into the Irish market. Stock picture
Parent company Lloyds Banking Group is finalising its exit from the disastrous entry into the Irish market. Stock picture

Gretchen Friemann

The former Bank of Scotland Ireland will be selling €5bn of residential and buy-to-let mortgages, in a move estimated to affect more than 20,000 homeowners.

It comes as parent Lloyds Banking Group finalises its exit from the disastrous entry into the Irish market.

It has echoes of the Permanent TSB sell-off but the mortgages included in this portfolio are performing, as opposed to distressed, loans.

This means that they are far less palatable to vulture funds.

According to sale documents seen by the Irish Independent, the bank intends to conclude a deal by mid-August.

A preferred bidder will be selected in mid-May.

The deal will mark the largest sale of residential mortgages ever undertaken in the State with Lloyds bundling 27,090 loans into the portfolio, dubbed 'Project Porto', as it moves to clear its remaining exposure in Ireland.

The bank inherited the Irish mortgage book a decade ago as part of a UK government-engineered rescue of Halifax Bank of Scotland.

Owner-occupier loans dominate the portfolio, which is slated to change hands along with 4,023 buy-to-let loans. The book is tied to 22,742 properties.

Relatively few of the Lloyds mortgages are in arrears.

The sales documents show "96.2pc of the portfolio is performing in line with terms" while impaired loans - those on which "payments are over 90 days past due" - account for just 2.64pc of the book.

In scale, Project Porto dwarfs the impaired loan portfolio sales under way by AIB and Permanent TSB.

Yet while those deals have attracted the usual line-up of distressed debt hunters, including Lone Star and Cerberus, the contenders for the Lloyds book are predominantly large-scale financial services institutions.

According to sources, most of the participants in the €1.8bn race for Danske's residual Irish retail book, which was sold last year to a Goldman Sachs and Pimco consortium, have returned for a tilt at the Lloyds portfolio.

The two asset sales bare strong similarities as both portfolios are dominated by low-yielding loans.

Danske's book was weighted towards low-growth tracker mortgages.

The sale documents show 77.1pc of the loans, which are mostly tethered to homes in Dublin and the city's commuter belt, are pinned to tracker rates.

Borrowers are paying interest only on almost half, or 55.2pc of the overall portfolio, with 94.4pc of the buy-to-let loans on this arrangement. Interest-only repayments apply to 45.9pc of the owner occupier mortgages, according to the documents.

The weighted averaged indexed loan to value of the loans is 74.8pc, meaning the portfolio has an equity cushion of about 25pc.

As with the Danske book, sources argue the successful bidder on Project Porto is likely to pursue a securitisation of the book.

Goldman Sachs and Pimco bought the Dankse loans in October and launched a securitisation, which allows companies to raise money by packaging assets into bond-like instruments of varying levels of risk, in December.

Financial services heavyweight Prudential and the hedge fund Elliott Management made it to the final round of the Danske contest and had intended to securitise the loans.

Both firms are thought to have looked at the Lloyds book as have Goldman Sachs and Pimco, although it is unclear whether the organisations are working separately on this deal.

Irish Independent

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