Q&A Dominic Coyle
Can I offer to buy IBRC mortgage at a discount?
It appears likely that Vodafone shareholders will receive a mixture of Verizon shares and cash. Photograph: Krisztian Bocsi/Bloomberg
I am a residential mortgage account holder with IBRC and have recently received a letter inviting me to consider making an offer to buy out my mortgage with the bank, which I am proceeding to do.
I understand that the loan book will be offered to the marketplace in one lot and that IBRC will offload the book to the highest bidder.
My question for you is: does IBRC have to consider an individual’s offer over that of an offer from a financial company seeking to buy the full book if the individual’s offer is higher than the bulk buy offer – eg, I offer 60 per cent of loan value / financial firm offers 50 per cent. Does IBRC have to accept my offer because it’s higher than the financial firms’ offer?
Mr M.L., email
Now there’s an interesting thought. The truth is that it is unclear how such a situation will pan out, although my bet is that your offer would not succeed.
The bank has sought your opinion on the exercise and I see no reason why that opinion should not suggest that you are willing to purchase your mortgage from the bank at a discount.
As you say, it is inevitable that any eventual purchaser is going to receive a significant discount on the €1.8 billion residential loan book being offered by IBRC – and on the other three portfolios of loans.
However, I suspect the bank will have an out on two fronts. First, it has indicated that it is selling the loans in these four portfolios rather than individually. That means that any offer you make would have to be for all 13,2509 home loans in the Project Sand portfolio – and even at a substantial discount to the €1.8 billion face value, that’s going to be a bit of an ask.
Secondly, the bank has reserved to itself the right to determine who is a qualified bidder. I think it’s unlikely that you will find individual lienholders in there.
It does raise a depressing scenario for the borrower that your loan is going to be sold on at a significant discount but you will not benefit at all from that. Inevitably, whoever takes over the loans – most likely a financial institution – would only consider a writedown for you in a position where you were in default and unable to meet your liabilities and that would have major implications for your credit rating.
I also have no doubt – in fact, there have been reported cases – that major borrowers from Anglo and Irish nationwide, whose loans are now within the portfolios up for sale, have either taken legal action to block the sale or have secured a discounted buyout option.
However, unless you challenge the IBRC process legally, you are unlikely to get a satisfactory answer on why you are being shut out of the process. And if you do take it to the courts, it will be an expensive process – especially as you can rest assured that IBRC has taken significant legal advice on its approach to the loanbook disposal.
How will payout affect tax liability?
We have some Vodafone shares as a consequence of buying, and not subsequently selling, Eircom shares. Vodafone recently sold its shares in Verizon and apparently propose a payout to shareholders of £1.12 per share in 2014.
I am not sure if this is cash or shares or a mixture of both, can you clarify the position?
Will the payout be treated as capital gains for tax purposes and can past losses be set against this capital gain if: It is in cash? It is in shares? In a mixture of cash and shares?
Or will it be treated as income for income tax purposes?
Mr S.W., Wicklow
Vodafone has not yet sent out the circular outlining exactly what will happen in the exercise that will see about 70 per cent of the price it secured for its stake in Verizon Wireless.
However, it does appear likely that shareholders will receive a mixture of Verizon shares and cash.
Shareholders will have a say in the plan because it will go to an extraordinary general meeting vote in January.
If passed, as expected, the deal will likely close later in the first quarter of next year and only then will shareholders receive their bonus.
As I understand it, the bonus, including the shares, would come under the capital gains tax regime, not income tax.
Given that those Irish Vodafone shareholders who first bought into Eircom before receiving Vodafone stock as part of the Eircell sale have been out of pocket for most of the intervening period, I think it is unlikely that there will be capital gains tax liability for most – especially as many of the 11,000 odd Irish shareholders have very small shareholdings.
Anyway, for now, the advice is to do nothing. You will receive the circular in December explaining how the company intends top proceed. Only then will you need to make decision, if any.
This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to email@example.com