PTSB re­fi­nances €1.3bn of mort­gages

Lender sought but failed to main­tain long-term re­la­tion­ship with bor­row­ers Move will re­duce NPLs to 10% of loan book, down from 26% in early Jan­uary

The Irish Times - Business - - BUSINESS / NEWS - JOE BREN­NAN

Per­ma­nent TSB (PTSB) has con­firmed that €1.3 bil­lion of its prob­lem mort­gages will be re­fi­nanced in bond mar­kets to move them off its books, but the bank has failed to de­liver on its aim of main­tain­ing a long-term re­la­tion­ship with bor­row­ers.

The Ir­ish Times pre­vi­ously re­ported that PTSB was plan­ning to shift th­ese mort­gages off its ac­counts through the sale of bonds to in­ter­na­tional in­vestors, who stand to re­ceive in­ter­est pay­ments funded by in­come from the loans. This is known as an off-bal­ance sheet res­i­den­tial mort­gage-backed se­cu­ri­ti­sa­tion (RMBS).

Most of the 6,272 mort­gages were re­struc­tured in re­cent years but con­tin­ued to be clas­si­fied as non-per­form­ing loans (NPLs) due to the na­ture of the new ar­range­ments. Th­ese in­clude 4,046 so-called split mort­gages, where re­pay­ments on a por­tion of the loans are frozen un­til a fu­ture date. The re­main­der of the loans are where bor­row­ers are cur­rently pay­ing part prin­ci­pal and part in­ter­est.

Se­cu­ri­ti­sa­tion

PTSB, strug­gling with the high­est level of NPLs among bailed-out Ir­ish banks, said yes­ter­day that it would put the mort­gages into a se­cu­ri­ti­sa­tion ve­hi­cle, called Glen­beigh Se­cu­ri­ties 2018-1 Dac, which will is­sue the bonds. The bank will re­tain 5 per cent of the notes.

How­ever, it will con­tinue to ser­vice the loans for only six months, with loan out­sourc­ing company Pep­per As­set Ser­vic­ing set to hold the ti­tle on the mort­gages and man­age the port­fo­lio on be­half of bond­hold­ers there­after.

Sources who had pre­vi­ously spo­ken about the plans had stressed that a key ob­jec­tive would be for PTSB to re­main the day-to-day con­tact for bor­row­ers, main­tain­ing long­stand­ing re­la­tion­ships.

It is un­der­stood that the bank’s aim of re­main­ing the on­go­ing ser­vices provider on the loans had been hampered by ac­count­ing rules. The bank needed to make a cleaner break, given PTSB’s primary ob­jec­tive of re­mov­ing the loans from its bal­ance sheet.

The 75 per cent State-owned lender said the RMBS deal, to­gether with the sale of €2.1 bil­lion of soured loans, an­nounced in July, will re­duce its NPLs to less than 10 per cent of its to­tal loan book. That com­pares with 26 per cent at the start of Jan­uary.

PTSB said it would re­ceive €890 mil­lion for the €1.3 bil­lion of par-value loans, re­flect­ing the state of the mort­gage book. This is slightly be­low the €910 mil­lion at which PTSB had val­ued the loans on its own books.

Still, the re­duc­tion in so-called risk-weighted assets on PTSB’s bal­ance sheet as a re­sult of the se­cu­ri­ti­sa­tion will boost the bank’s com­mon eq­uity tier 1 cap­i­tal ra­tio, a key mea­sure of a bank’s abil­ity to with­stand shock losses, by 0.3 per­cent­age points, the bank said.

“This trans­ac­tion en­ables Per­ma­nent TSB to re­duce its non-per­form­ing loan ra­tio and to en­sure it can grow,” said chief ex­ec­u­tive Jeremy Mas­d­ing. “We have sought to en­sure that the pro­tec­tions of cus­tomers will be main­tained as part of this trans­ac­tion.”

Shares in PTSB, which had al­ready been trad­ing higher yes­ter­day after The Ir­ish Times re­ported the RMBS an­nounce­ment was im­mi­nent, surged as much as 7.5 per cent im­me­di­ately after the con­fir­ma­tion.

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