Inside the world of business
Patience wearing thin over arrears
A NUMBER of views, though broadly all in line, were aired publicly this week about how far house prices have fallen.
Goodbody Stockbrokers said prices have declined 68 per cent from peak based on the Allsop Space auctions, though this is skewed towards apartments, where prices have fallen further, so a peak-to-trough decline of more than 60 per cent is likely.
National Asset Management Agency chief Brendan McDonagh told an Oireachtas committee that the residential market was down 57 to 58 per cent, but this had yet to hit the Central Statistics Office figures which was showing a 48 per cent decline in house prices.
Then stockbrokers Davy rowed in to say that prices would keep falling until the decline from the peak had reached the bottom at between 65 and 70 per cent.
Like the decline in property prices, mortgage arrears still appear to have a way to go, though the number of new arrears cases is abating a little, according to a Department of Finance briefing to Government Ministers.
This is not stopping lenders from being pressed by the Central Bank into devising plans to segregate the varying categories of arrears cases and preparing solutions for each category by the end of May ahead of a roll-out of new products on pilot basis in September.
The products are being developed by the banks under the Central Bank’s mortgage arrears resolution strategies, or Mars plan, to kick-start the banks into greater action to deal with arrears cases.
More than 2,000 staff across the banks are working on solutions beyond the forbearance measures being shown by lenders that has done little to resolve this mounting problem.
Some 75,000 mortgages have been restructured but the Central Bank feels more could be done and, as governor Patrick Honohan said, the issue of defaulting buy-to-let mortgages also requires more aggressive action by the lenders.
Life on Mars is certainly busy.
Siteserv deal a glimpse
of boom-time losses
When the wheels stopped turning in 2008 we were told non-performing property loans would need to be removed from the banks to get them back to health. Nama was the State’s €74 billion solution.
The focus is on loss-making residential mortgages – primarily trackers – and how they might be transferred to the rump of Ango Irish Bank and Irish Nationwide as part of a renegotiation of the promissory notes.
What has not attracted much attention yet is the potential scale of losses on boom-time corporate lending.
The acquisition of Siteserv by Denis O’Brien’s Millington vehicle sheds some light on the potential scale of the issue. O’Brien is paying €45.4 million for Siteserv which owed Anglo over €150 million. However the bank, now Irish Bank Resolution Corporation (IBRC), will receive just €40 million of the cash.
Shareholders will receive €4.96 million – a hefty 96 per cent premium over Thursday’s closing price.
IBRC has not commented on why it felt the need to offer shareholders such a large sweetener to secure the sale.
The haircut it has taken on its lending to Siteserv is more than 70 per cent and this is not an isolated case. In 2010 Anglo sold the debts of more than €100 million associated with IT services group Calyx to a British private equity firm for just over €10 million.
The association of Denis O’Brien – Ireland’s most high-profile entrepreneur – will of course ensure this deal attracts even more attention. Siteserv falls outside of his normal telecoms and media interests, but O’Brien has said he sees great potential for growth in the business.
The deal is good news for Siteserv’s 2,300 staff and subcontractors.
But can the banks sustain such major haircuts on corporate lending done during the boom?
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