Goldman Sachs to buy Danske's mortgage book

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JanusGold

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Anyone heard anything in relation to BOI or AIB buying the Danske loan book?
Or even aware of the timeline to complete the sale?

I have a Danske LTV tracker and I am planning on some home renovation after Christmas and while the personal loan route is my current option I'm hoping one of the standard commercial banks buys the loan book so I can get a secured loan at a lower rate.

Thanks.
 
Hi Janus

It might be worth putting in a call to Danske and asking them if they would give you a discount for refinancing it elsewhere.

I don't think you have anything to lose by doing it.

You can be straight up with them for your reasons for doing it.

Or maybe naively ask them for a top-up loan. But when they say no, keep talking and ask them if there is any other way that you might be able to finance it. This could prompt them to make an offer to you of a discount for refinancing it.

Brendan
 
Interesting! I imagine that, given that Danske expect to come to an agreement next month, approaching them for a discount for early repayment now is likely to result in a refusal.

I suppose the preferred suitor from our perspectives, as customers, depends on our own circumstances. For those that simply intend to continue paying their mortgage without change, it shouldn't matter who buys the book. For those who'd like to remain in their house and, potentially, borrow more for extensions or renovations, one of the Irish banks would probably be the preference. Finally, for those who'd like an opportunity to pay off their loan early with a discount, Pimco would probably offer the most likely chance.
 
Pimco and Goldman Sachs seem to be in the lead on the Danske loan book purchase. Interestingly the purchase seems to be as high as 95 cent in the euro. Which begs the question - how will they make money on this tracker book? Will they keep the mortgages for their full term? Getting mortgage holders to refinance at a discount won’t make sense at the rate they paid...and yet I didn’t think the likes of Pimco would be in this for the long haul...so what gives?

Can’t post link but see today’s Irish Independent Business Newsletter article
Goldman-Pimco bid is frontrunner for Danske mortgages
 
Here's the link. http://m.independent.ie/business/ir...rontrunner-for-danske-mortgages-36201085.html

How will they make money? Easy. It's a performing portfolio. They'll set up a structure as a non bank so they don't have to worry about expensive capital, and capital ratios. Securitise the entire and get a AAA rating, and they'll have a cost of funds very close to the ECB rate. They'll probably pay a coupon of ECB + 10bps or thereabouts, but in an environment where overnight rates are -40bps, there's big demand for that type of bond so it would trade above par on issue.
Outsource the entire management for about 20bps, and the rest is pure profit / return on the small amount of their own capital that's at risk. The 5% discount should be enough to cover bad debts.

Edit: the above is an over simplification of how money would be made on this. The thought that tracker mortgages are always loss making is a myth. It's bad debts, and not being able to have your cost of funds tracking ECB that makes them loss making. A proven performing portfolio, funded correctly, will make a tidy profit.
The bad news for up to date mortgage holders is it's unlikely you'll get a discount for early redemption.
 
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I'd imagine that default rates within this portfolio will be minimal; by definition, they're loans that have fully performed throughout the financial crisis. That's one hell of a road-test.
 
Will they just buy the book and leave it at that?

Would they have any interest in entering the mortgage market?

From what you say, they could nearly start issuing trackers again and make pots of money.

Brendan
 
So, they can underwrite / risk assess an entire portfolio worth 1.8bn in the space of a few weeks.

That's more than the entire Q1 drawdown for the entire country, where each bank has underwriting departments so you can just imagine the cost savings being able to do it all in 1 sitting.

How valuable are portfolios Vs originating new loans yourself? Just look at BoI who paid above par to purchase the IBRC Mortgages.

There's no banking licence required, and numerous other regulatory costs are avoided by not issuing new loans.

The seller undertakes the cost of packaging up everything nicely and handing over documents, etc.

The problem with issuing new mortgages is you need to make enough on the 'good' ones to pay for the losses on the 'bad' ones. These are proven loans; all issued pre 2009 so you've at least 8 years repayment history.

Take an average 80bps over ECB, plus your 5% haircut over the expected term remaining equates to about 1.3% over ECB. If you can fund at (or tracking) ECB that's a decent return, and one a lot of banks in Europe would be happy with. It's all down to their non performing loans.

By the way, I maintain if we're to see any real competition in the Irish market it will be from a non-bank. There's a low risk category around <60% LTV with 20 years remaining. We've already seen Pepper able to compete with the banks for it. The problem is the low risk category are also the most likely to redeem early, so unless you get the customer to pay for the underwriting there's a bit of risk chasing it.
 
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