State bids to cut costs by moving trackers

 

THE VALUATION of tracker mortgages and the timing of their possible transfer from AIB and Permanent TSB to Irish Bank Resolution Corporation are being examined in more detail in talks to reduce the cost to the State of Anglo Irish Bank and Irish Nationwide.

The removal of €34 billion in loss-making trackers from AIB and Permanent TSB is the subject of the technical talks as part of the restructuring of the €31 billion promissory notes, or State IOUs, held by IBRC that are paying for Anglo and Irish Nationwide.

One option being examined by the troika and the State authorities for a draft paper on the issue is the creation of a Government bond to be used as collateral for a 30-year loan from the European bailout fund at a low interest rate.

The bond could then be used by IBRC in an exchange with AIB and Permanent TSB for their tracker mortgages, and the tracker loans in turn used by IBRC to borrow from the European Central Bank.

This could also allow the authorities to reduce IBRC’s emergency loans from the Irish Central Bank.

It is understood that even though the trackers are being moved between banks that are either fully or virtually nationalised, the valuation of the mortgages remains the subject of technical work in the discussions.

The potential timing of the transfer of the tracker mortgages is also being examined, as the Central Bank stress tests may be used as a means to value the mortgages.

Mortgage arrears have risen sharply since last year’s bank stress tests in March 2011 and the next round of stress tests must be completed no later than the end of November 2012 under the latest targets in the bailout programme.

This may push out a more up-to-date valuation and transfer of the tracker mortgages as part of the restructuring of the IBRC notes.

The European Commission said yesterday it was “exploring avenues to further strengthen the domestic banking sector” to provide credit to the economy and support the country’s recovery.

There were “separate technical negotiations” going on with the troika and the Government, the commission said, and the Anglo- INBS promissory notes were “an element in this work”.

The statement was made following comments by EU commissioner Olli Rehn that the State must honour the next €3.1 billion payment under the promissory notes at the end of the month.