Bank of Ireland pay 103.6% of par value for KBC's performing mortgages

Bank of Ireland said it will acquire the performing mortgages for 103.6 per cent of par value, “representing the fair value of the assets and demonstrating the quality of the portfolio”.

Who says mortgage lending isn't profitable in Ireland?

Of course, these KBC customers who stay with BoI will pay a much higher mortgage rate than they would have with KBC.

Brendan

Brendan Burgess said:

Who says mortgage lending isn't profitable in Ireland?

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But isn't this to some extent a function of market interest rate changes?

Suppose I fixed a mortgage for five years in 2018 and am fully performing. Bank funding costs have fallen since 2018, so the value of my mortgage will be above par. This is because it costs the bank less to fund my mortgage than it did in 2018 so it's more profitable.

Suppose I fixed a mortgage for five years in 2018 and am fully performing. Bank funding costs have fallen since 2018, so the value of my mortgage will be above par. This is because it costs the bank less to fund my mortgage than it did in 2018 so it's more profitable.

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So in this scenario, where the cost to BOI to buy these mortgages is based on today's rates, mustn't the breakage fees for these mortgages also be based on this same cost of funding?

NoRegretsCoyote said:

But isn't this to some extent a function of market interest rate changes?

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I had not considered that aspect of it.

I don't think there would be enough long-term fixed rates for it to be material.

And the deal also includes the tracker book which is probably about 40% of the total.

Brendan

Brendan Burgess said:

I don't think there would be enough long-term fixed rates for it to be material.

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I agree with you on this.

I don't know enough about pricing for this kind of transaction.

What's interesting is that BoI will assume twice as many loans as deposits from KBC.

BoI probably has excess deposits earning nothing overnight of course so the extra profitability might be worth paying for.

Tickle said:

So in this scenario, where the cost to BOI to buy these mortgages is based on today's rates, mustn't the breakage fees for these mortgages also be based on this same cost of funding?

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Except that BOI has paid 103.6% for my mortgage. How would that factor into it

Is that not a sign that the book is dodgy? Or that it’s a great deal for BOI?

If I owe KBC €100,000 and the interest on the loan is, say, 3% a year, €103,600 represents hardly any premium at all.

Well they pay brokers 1% for getting them business at market rates.

They will be paying 103.6% for tracker mortgages yielding a lot less.

And they will be buying fixed rate mortgages which are fixed at rates much lower than BoI charges.

And I would guess that KBC customers are more mobile - more likely to move on when the fixed rate ends.

Brendan

Brendan Burgess said:

Well they pay brokers 1% for getting them business at market rates.

They will be paying 103.6% for tracker mortgages yielding a lot less.

And they will be buying fixed rate mortgages which are fixed at rates much lower than BoI charges.

And I would guess that KBC customers are more mobile - more likely to move on when the fixed rate ends.

Brendan

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But surely they put all that into the hopper and made the deal.

I think this deal isn't about margins or about losses in certain aspects of the loan book, this is a straightforward strategic play,where BOI will once again become the main bank of Ireland, pardon the pun.

Europe and the EU will integrate further over the coming decades and while CBs will be seen as " independent " the retail sector will have a minimum of one lender for smaller countries, and perhaps 3/4 for bigger countries.

When may this happen, probably in the next 20/30 years.

KBC an euopean Bank is being paid over 3% par from a fellow EU bank, while the banking sector EU wide are still full of issues and is bailed out daily by bond purchases by the ECB.

This is the start of trying to get all that money back.