Australian group buys GE's Irish sub-prime business

AUSTRALIAN GROUP Pepper Home Loans Ltd has agreed to buy GE’s Irish sub-prime mortgage business in a deal that has cost the US giant $188 million (€149 million).

Last April, GE said that it had agreed to sell its Irish mortgage business, GE Capital Woodchester Home Loans, in keeping with its strategy of disposing of “red” or loss-making assets in its portfolio.

GE did not name the buyer, but the group’s chief financial officer, Keith Sherrin, said that it wrote off $188 million in its first quarter to account for the loss it made on the mortgage business.

Yesterday, Australian-based Pepper Home Loans Ltd emerged as the buyer of the mortgage business, which has €600 million-worth of loans on 3,500 homes.

Pepper’s chief executive, Patrick Tuttle, indicated the Australian company would consider some level of debt forgiveness for homeowners who are having difficulty making their repayments.

Mr Tuttle said the company was aware of the difficulties faced by Irish borrowers and of various proposals to tackle the problem, including the Keane report.

“Our first priority is to keep people in their homes,” he said. He explained the company’s approach in situations where people were in difficulty was to look at cases individually and to try and put borrowers on a footing where they could make repayments.

That could include some element of debt forgiveness, but he stressed that borrowers should not take this as a “carte blanche”.

Between 2008 and 2010, GE Woodchester Capital Home Loans wrote off €84 million in bad debts, blaming the fall in property values and individual borrowers who were either not repaying or making partial repayments. Last year, it went to court to repossess 30 homes.

The company specialised in subprime lending – that is, lending to people the main banks would have regarded as too high-risk.

Many of its customers were self-employed or had bad credit histories. Pepper, whose total loan book amounts to $5 billion, has similar customers in Australia.

The sale will result in the loss of up to 40 of the 192 jobs in the business. Mr Tuttle said the redundancies were unlikely to be voluntary.

He suggested that some staff could be redeployed to other parts of the GE organisation in Ireland. As part of the deal, Pepper will manage other elements of the multinational’s business here, including its finance leasing and personal credit operations.

Mr Tuttle said the new owners would carry out the 30-day consultation with staff that Irish law requires and added that the owners would ensure that people losing their jobs would receive all their entitlements.

Neither Pepper nor GE revealed the purchase price yesterday but reports in April indicated it was likely to be in the region of €330 million.

Mr Tuttle agreed that Pepper is paying a discount to the loan book’s overall value.