Permanent TSB (PTSB) is planning to refinance €900 million of split mortgages in international bond markets to move the assets off its balance sheet while maintaining its existing day-to-day relationship with borrowers.
The bank had earlier planned to sell the split loans as part of a larger portfolio sale.
A so-called off-balance sheet residential mortgage-based securitisation (RMBS) transaction has emerged as the bank’s preferred option to deal with the mortgages, which are currently classified as non-performing loans, after PTSB said on Wednesday that it had decided to pull them from the larger sale.
Guidance from the European Central Bank (ECB) in the past month had made it difficult for PTSB to pursue its original main blueprint of reclassifying split mortgages, where repayments on part of a loan are put on ice until a future date, as performing loans.
PTSB said in a trading statement on Wednesday ahead of its annual general meeting in Dublin that it had withdrawn split mortgages, amounting to 4,300 accounts, from a massive portfolio sale which it is pursuing to lower its 26 per cent NPLs ratio to the 5 per cent European average – amid pressure from regulators.
Ebb and flow
The broader portfolio – known as Project Glas – has shrunk from €3.7 billion in February to €2.2 billion, following the withdrawal of split loans, as more buy-to-let borrowers in default have handed back their keys, and amid the “natural ebb and flow” on the portfolio, PTSB chief financial officer Eamonn Crowley told reporters after the agm.
The original inclusion of split mortgages had been the most politically contentious part of the PTSB’s planned portfolio sale.
The Irish Times has previously reported that PTSB had been weighing carrying out an RMBS deal on its split loans, where the banks would sell bonds backed by the assets. However, sources now say that this has become the main plan. The bank's chief executive, Jeremy Masding, confirmed on Wednesday that the bank was looking at "capital market options", but declined to elaborate.
Meanwhile, the bank said that it is “encouraged by the strong investor interest” in Project Glas. Mr Crowley said that the portfolio contained loans attached to 11,200 properties, with four years being the average length of arrears and with some up to seven years behind in repayments.
“Perhaps insufficient attention has been paid to understanding why this urgency to deal with NPLs now exists,” group chairman Robert Elliott told the agm. “The bottom line is that NPLs weaken a bank’s balance sheet and make the relevant bank more vulnerable to economic swings that occur from time to time. That’s a risk for everyone.”
PTSB said in its trading statement that its business and financial performance “continues to trend positively and in line with expectations”, with new lending volumes having grown by 60 per cent, or €300 million, in the first quarter on the same period last year. The lender had a 14 per cent share of the new mortgage lending market during the period, it said.
The bank’s NPLs reduced by €100 million, or 2 per cent, to €5.2 billion in the first quarter as it continued to benefit from the restructuring of problem loans.
However, gross loans fell by 1 per cent during the period to €20.4 billion as repayments and redemptions exceeded new lending.
“The trading statement shows further commercial progress being made by the bank but the decision to pull split mortgages from the Project Glas NPL disposal confirms the risks from political intervention that we have previously highlighted,” said Owen Callan, an analyst with Investec in Dublin.
