The difficulties at troubled British mortgage lender Bradford Bingley (BB), which is expected to be nationalised today by the British government in another state rescue of a bank, will re-focus attention on Bank of Ireland's loans in the UK.
Buy-to-let investors, a segment of the mortgage market in which BB specialises, accounted for almost a third of Bank of Ireland's £27 billion sterling (€34.3 billion) UK mortgage book at the end of March.
BB, the largest UK lender to landlords and the ninth largest British mortgage provider, has been hit badly by the global credit crisis, the declining British property market and rising bad debts.
The lender's share price tumbled to a record low last Friday and the cost of insuring its debt from default spiralled, leading regulators to seek a potential white knight to rescue the bank. BB has loans of £50 billion, including £41 billion of home mortgages, which are likely to be nationalised on a long-term basis.
Bank of Ireland's share price has suffered on the back of escalating difficulties at BB over recent months. The Irish bank's share price dropped sharply in early June after investors shunned BB's cut-price sale of a 23 per cent stake in an effort to protect itself against rising loan losses.
Sebastian Orsi, analyst at stockbrokers Merrion Capital, said Bank of Ireland's UK loans were of a better quality than BB's mortgages, though the Irish bank's British loan book would face closer scrutiny because of "the space they are in". He said BB's difficulties arose from funding and liquidity concerns given the "state of its loan book".
Bank of Ireland said in a trading statement almost two weeks ago that arrears on its €10.5 billion UK buy-to-let mortgages stood at 0.72 per cent of the loans at the end of August. The bank said this compared "favourably" with arrears of 1.1 per cent across the UK buy-to-let sector in June, according to industry data from the Council of Mortgage Lenders.
Irish Life Permanent also lends to landlords in the UK. The groups €8.5 billion UK mortgage book, which accounted for a fifth of the groups €41.4 billion total loan book at the end of June, primarily comprises buy-to-let mortgages, though the group stopped lending in the UK earlier this year.
Arrears on its UK buy-to-let loans rose to 0.77 per cent of all loans at the end of June from 0.4 per cent at the end of last year.
BB had 2.16 per cent of its mortgage loans over three months in arrears at the end of April.
The financial regulator started to look for a white knight, sounding out buyers such as Santander of Spain - which owns Abbey in the UK - and HSBC earlier this month, after BB suffered a credit rating downgrade by Moodys. - (Additional reporting: Financial Timesservice)
