Wealthy Irish investors wiped out as Austrian bank buys mortgage company

Business received more than €3.65m in investment from number of high-net-worth individuals

One of Austria’s largest banks has taken over an Irish company eyeing an entry to the mortgage market, called MoCo, in a deal that has wiped out the sums invested by a number of its well-known backers.

Vienna-based Bawag took over the company behind MoCo in March for a nominal amount of €35, The Irish Times has established.

The business, which was set up three years ago and has yet to receive Central Bank of Ireland authorisation, received more than €3.65 million in investment from a host of high-net-worth individuals, including former AIB chairman Lochlann Quinn, former DAA and Aryzta chief Kevin Toland, Smurfit Kappa chief executive Tony Smurfit and former Green Reit chief executive Pat Gunne.

Backers

Dermot Divilly, a former chairman of An Post, former Davy deputy chairman Kyran McLaughlin, Stafford Bagot, who heads up executive search group Heidrick & Struggles’s Dublin office, and Dutch merchant bank NIBC were also among the backers.

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NIBC was also being lined up to provide funding to MoCo, which at one stage was valued at almost €26 million, to allow it to get into the home loans market by arranging mortgages through brokers.

However, NIBC expressed frustration last autumn at what it saw as a “persistence of irrational pricing” by mainstream Irish banks, as they lagged behind European peers in hiking mortgage rates as the European Central Bank increased official rates, MoCo said in an email to investors at the time.

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MoCo was at one stage in talks to enter a mortgage joint venture with An Post. The State-owned postal service has been looking for a partner to enter the mortgage market for the past five years.

Investors in MoCo were told in early March that the company had concluded “difficult negotiations” with Bawag, after NIBC signalled it was no longer interested in committing resources to the venture.

Creditors

While it was originally envisaged that investors would get €1.2 million for the business, Bawag subsequently cut its offer to €350,000 to cover what MoCo owed to various creditors, leaving investors with nothing.

“Bawag Group completed the acquisition of MoCo earlier this year and is excited to build on the platform that the Moco team has created,” the Austrian bank said on Friday. “We find the Irish market to be attractive with positive long term macro fundamentals in place. We are currently in talks with regulators and will provide further updates in due course.”

Efforts to secure comment from NIBC, and former and current top executives at MoCo were unsuccessful on Thursday.

Karl Deeter, chief executive of OnlineApplication.com, an online mortgage platform for brokers and banks, said that Bawag’s purchase of MoCo should bode well for borrowers. “Getting more competition into the market is really important,” he said.

NIBC had built up an almost 12 per cent stake in MoCo, the planned nonbank mortgage lender, and was preparing to provide funding to it to start offering home loans here, subject to regulatory approval.

However, NIBC’s decision to discontinue backing MoCo earlier this year led to MoCo searching for other partners.

This resulted in one of Austria’s largest banks, Bawag, stepping in to take over the company. Bawag is best known in Irish financial circles for buying the remnants of Dublin-based Depfa Bank two years ago.

Non-bank lenders that entered the Irish owner-occupier mortgage market in the past five years, including ICS Mortgages (owned by Dilosk) and Finance Ireland, were at the coalface as borrowing rates in financial markets and from wholesale funders jumped in 2022 as central banks started to hike rates aggressively to rein in inflation.

By contrast, traditional banks’ loan books here are funded mainly by cheap deposits, which has allowed them to avoid passing on most of the European Central Bank’s (ECB) rate increases since last summer. The ECB has raised its main lending rate from zero to 4 per cent since last July.

“The prospects for the MoCo business rely on mortgage interest rates ‘normalising’ to the extent that it will be possible for Bawag to originate mortgages at sufficient scale to cover costs and generate a profit,” exiting investors were told in an email from MoCo.

A former shareholder said that investors knew about the risks when they got involved. “They were good guys with a good plan, but were caught out by the timing of rate increases,” he said.

MoCo, whose founding chief executive Patrick Good left the company in March, had looked at the possibility of being able to purchase some Ulster Bank tracker mortgage loans that AIB had agreed to buy last June – anticipating that AIB would be forced by to sell on part of the portfolio to secure competition clearance. However, MoCo’s engagement with the Competition and Consumer Protection Commission (CCPC) on that matter came to nothing, as the AIB transaction was approved in January.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times