Inside the world of business


What is really behind the rise in distressed mortgages?

THE BANKS have traditionally tied estimates on mortgage arrears to the unemployment rate, with one tracking the other. But one rate has deviated sharply since 2010. Data shows that mortgage arrears are rising while unemployment has remained between 14.1 per cent and 14.6 per cent since the final quarter of 2010.

In that time, 90-day arrears have increased over the past five quarters for which data has been released – from 5.7 per cent to 6.3 per cent to 7.2 per cent to 8.1 per cent to 9.2 per cent in December. At the end of last year 107,708 mortgages, or 14 per cent of the 768,917 private residential mortgages in the State, were either in 90-day arrears or restructured.

Now the banks are lobbying the Department of Finance over plans to overhaul the personal insolvency regime saying that talk of potential mortgage debt write-offs has led to strategic defaults. The banks have pointed to this new phenomenon particularly among buy-to-let mortgage holders where borrowers may be changing their behaviour in the belief that they can avail of a debt reduction at a later date.

The change is said to have begun last summer when there was much talk around – in political circles and elsewhere (most notably from AIB) – about the possibility of forgiveness of unsustainable mortgage debt.

Curiously, the trend also coincided with loan collection staff telling bosses about getting more foreign ringtones when they tried calling some mortgage defaulters.

But the increase in arrears may also highlight further weaknesses within the banks about how up-to-date they keep their information on distressed borrowers. Bankers warning about the risk of linking mortgage debt write-offs to strategic defaults could also be a self-serving attempt to remove the debt write-offs from personal insolvency legislation.

Either way, there is a growing problem that requires further explanation before it is used to make one argument over another.

CRH and Kilsaran case continues

A HIGH Court ruling yesterday means that the prospect of a competition law action against building materials groups, CRH and Kilsaran, has edged a little closer.

Goode Concrete is attempting to sue both for price fixing in the Irish market for cement, a claim that the defendants deny and have said that they plan to fight vigorously.

Last summer, the parties fought a preliminary round in the High Court where the defendants sought €1.5 million security for costs from Goode.

The plaintiff opposed this on the grounds that its business is in liquidation – it blames its rivals’ alleged behaviour for this – and it could not afford to provide such security.

Mr Justice John Cooke appeared to strike a fair balance between the parties yesterday when he ruled that security for costs should be provided on a phased basis.

CRH and Kilsaran had a right to ask for this security, but at the same time, a blanket ruling that Goode provide security for €1.5 million could have effectively prevented the plaintiff from getting its case heard.

The next phase is up to completion of pleadings, where both sides basically file their respective cases with the courts.

Justice Cooke will rule next week on the actual amount of security that must be provided. Even if either side were to appeal the amount, that would not halt the progress of the case itself, as that could continue while the appeal was being dealt with.

The ruling means that Goode’s case is kept alive to the next stage of litigation, although the process is still a long way from any trial of the actual issues involved.

Central Bank governor’s promissory note quest to ECB 

PATRICK HONOHAN has gone to Frankfurt armed with a cunning plan that would allow the repayment of the first tranche of the Anglo Irish promissory note, but in a fashion that is cash neutral for the exchequer.

This should in theory buy everybody some time in order to thrash out a longer-term alternative to the promissory note and ease the passage of the referendum on the new fiscal compact. What is not to like?

Plenty, from the European Central Bank point of view one suspects, but then again there always is. Foremost among its concerns is that the plan does not deliver any immediate reduction in the amount of support being provided by the bank to Anglo Irish – now IBRC – both directly and indirectly via the Irish Central Bank.

It is debatable whether Ireland actually needs the “permission” of the ECB to proceed down the path being proposed by Mr Honohan. In theory, the promissory note is a contract between the Government and a bank and really no business of the ECB. If the Government chooses to pay it by way of a new bond or in peat briquettes, that is really no concern of Frankfurt’s.

The ECB is an interested party by virtue of the fact that IBRC has pledged the note to Frankfurt in return for cash – via the Central Bank – and must now return the cash or provide an alternative form of security.

IBRC will proffer the new government bond and, in theory, the ECB could demur. In practice, it would find it very hard not to accept an Irish Government bond as security, no matter how angry it might be at what it sees as the Government pulling a fast one.

Refusing to accept Irish government bonds would undermine confidence in the whole refinancing operation currently underpinning the European banking system.

It would, however, be monumentally stupid of the Government to call the ECB’s bluff in this fashion on the basis that what goes around comes around and the ECB is part of the troika. Hence the governor’s trip to Frankfurt to gain their support. Hopefully the fact that what Ireland is proposing is something it is entitled to do will prove persuasive. It also ticks a very important box in that it sees the promissory note tranche repaid on time and thus there is no question of default.


Independent News & media publishes its annual results for 2011. The Central Statistics Office also presents the national accounts for the fourth quarter and full year 2011


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