Overseas private equity firms and hedge funds began to smell blood in 2010 as the shutters were pulled down on Bank of Scotland (Ireland) and the State entered a Troika bailout - on condition it shrink the size of the banks.
That meant one thing: loan sales. And lots of them.
The process got under way when Bank of Scotland (Ireland)'s owners, Lloyds Banking Group, sold a €360 million bundle of mainly defaulted loans in 2012.
They were snapped up by Californian property company, Kennedy Wilson, where John F Kennedy's nephew Bobby Shriver was an adviser, for only 17 per cent of what the loans were originally worth.
Unwilling to invest
Back then, very few investors were willing to invest money in an Irish bank, or indeed, the Government, as no one really knew how severe the bad debts crisis would become.
Lloyds admitted to its own investors at the time that 85.5 per cent of its Irish commercial loans, mainly tied to property, would not be repaid in full.
Over time, more and more, mainly US, firms - including Lone Star, Cerberus, CarVal and Davidson Kempner - descended on Ireland's shores.
They’re often dubbed “vulture funds” for feeding off the types of soured assets that most other types of investors would run a mile from.
The Government was happy to see them. Its own exit from the Troika bailout would depend to a large extent on the banks and Nama - which itself had bought lenders’ risky commercial property loans at a 58 per cent discount - flogging loans as quickly as possible to ease the contingent liability around taxpayers’ necks.
Biggest car boot sale
2014 will go down as Ireland's biggest car boot sale, when over €30 billion of loans were sold to foreign investors. This was fuelled by the liquidation of Irish Bank Resolution Corporation, formerly Anglo Irish Bank.
That year, the Republic accounted for more than a third of all European loan sales, according to PricewaterhouseCoopers.
An added bonus for buyers was the tax breaks they could avail of by stuffing the loans into special purpose vehicles, known as Section 110 companies. These were structured in a way to generate minimal taxable income.
The Government was spurred by negative media coverage and pressure from the Opposition to narrow the scope of the tax “giveaway” in September.
It went further in the Finance Bill the following month to target other tax-efficient fund structures beloved by investors in property assets in recent years. Accountancy firms and lawyers in Dublin have been working overtime ever since to minimise the impact.
For the original borrowers whose loans have been sold, however, it’s a different story. Those meeting their original terms are safe. For those who default, the experience is mixed - often depending on whether the vulture fund ultimately wants the property, or for the borrower to refinance the loan at a premium to the price the fund paid for it.
Either way, few funds are willing to opt for an annual return of less than 20 per cent on their portfolios.
