The main banks should be interested in Ulster Bank's performing tracker book

Brendan Burgess

Brendan Burgess

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I would imagine that the bank which buys Ulster's non-tracker book, will pay around par for it. Maybe even a bit more if there is competition for it.

But what price should they pay for the performing tracker book?

How much is a mortgage of €100,000 at ECB +1% with 15 years to go worth to an acquirer?

The repayments on this mortgage would be €598 a month.

The repayments on €90,000 @2.5% over 15 years would also be €598 a month.

So the acquirer should be willing to pay 90% of the face value for the loan.

If they pay €90,000 for the loan today, and the borrower wants to trade up next year, the acquirer will get an immediate profit on the redemption of the loan.

So depending on the average tracker margin, the book must be worth about 90% of its face value.

Brendan
 
Ignoring the fact that mortgages are not priced purely on a discounted cash flow basis and are more complicated than that, you seem to have no problem with the main two players taking on ulster bank mortgages which will give them a market share of over 70% in the Irish market. How will that help already high mortgage rates? Never mind that it would probably fail even irelands rubbish competition rules.

KBC and PTSB are the only two options if the mortgages are going to be sold to a 'bank and it would be some change in strategy if KBC are looking to become a major player in the Irish mortgage market.
 
Sunny said:
Ignoring the fact that mortgages are not priced purely on a discounted cash flow basis
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Hi Sunny

A journalist said to me "No bank would be interested in the tracker mortgage book."

I said that they would not be interested in it at par. But I don't know what price they would be interested in it at.

I would have thought a 5% to 10% discount would be about right.

Have you any insight into that?

Brendan
 
We would all like that even the Government but not likely to happen. Avant are only offering very limited mortgage offering to very prime borrowers. I haven't heard them express any interest in getting involved in the wider market. Irish mortgage is just not attractive to foreign lenders. To be fair to the government, that is why they are pushing the third pillar despite the flaws and potential cost. But BOI and AIB getting bigger share is not in consumers interest.
 
Hi Brendan, been a long time since looked at that stuff. I would say there are better people on here than me who would know more. I would say even buying low earning trackers at 90% would not compensate for huge mount of expensive capital that a lender would have to set aside. Am sure they could structure a deal but I am also sure there are places like lone star and other funds that would outbid commercial banks.
 
Brendan Burgess said:
So do you expect that the funds would pay more than 90% for the trackers?
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Of course they would.
If UB want the maximum price, they'll sell to a fund.

The performing Danske tracker book was on a lower average margin than the UB one, and based on public information sold for just over 94 cent in the Euro. Margins were as low as 0.5%, with one fifth under 0.75%.
 
I would be surprised if the book didn’t sell for a premium over par. After all, it’s a profitable book of business.

If Ulster don’t offer individual borrowers a discount for redeeming early, why would they sell the book for a discount to par value?
 
I would be very surprised if low trackers are profitable for banks. They are a drag on net income margin and the spread barely covers the credit risk never mind the other costs of servicing the mortgage for high cost banks. They might not be loss making as such but banks like PTSB are really struggling to make money in this low interest rate market. A load of tracker mortgages is just going to be a further drag on them.

AIB and BOI could probably absorb them but apart from competition issues, can't see why they would be interested.

Someone like loanstar would probably be glad to get them but i don't see them paying over par so also wouldn't be surprised if Nat West just run the book down.
 
Sarenco said:
If Ulster don’t offer individual borrowers a discount for redeeming early, why would they sell the book for a discount to par value?
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Adverse selection. The customers who would take this offer are the ones who can afford to pay on existing terms.

Otherwise it's not my area of expertise, but suppose you are a buyer and can fund a purchase with deposits at 0%. UB's performing tracker book has an average margin of maybe 80bp before operating costs. Even a performing book will have some level of delinquency eventually.

To me this isn't something you'd pay above par for.
 
AIB must be reading Askaboutmoney

AIB looking at Ulster Bank's tracker book.

According to Joe Brennan in today's Irish Times, AIB is hinting that it might buy Ulster Bank's tracker mortgage book. https://www.irishtimes.com/business/financial-services/has-aib-dropped-clearest-hint-yet-of-its-designs-on-ulster-s-tracker-mortgages-1.4720571 Galvin added on the call: “The...
www.askaboutmoney.com
 
Brendan Burgess said:
AIB must be reading Askaboutmoney

AIB looking at Ulster Bank's tracker book.

According to Joe Brennan in today's Irish Times, AIB is hinting that it might buy Ulster Bank's tracker mortgage book. https://www.irishtimes.com/business/financial-services/has-aib-dropped-clearest-hint-yet-of-its-designs-on-ulster-s-tracker-mortgages-1.4720571 Galvin added on the call: “The...
www.askaboutmoney.com
Click to expand...
I doubt it Brendan. They would have paid compound interest if they did
 
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