Finance Ireland has sold its 40 per cent stake in sub-prime mortgage provider Nua Homeloans to its partner in the business, Investec Bank, because of the uncertainty in the credit markets.
Billy Kane, chief executive of Finance Ireland, said the company was selling its stake in the business, just five months after its launch, as "a direct result of the credit crunch".
"We are not a bank," said Mr Kane. "We are the operator in the joint venture. Our job was to set up the business and the management team.
"The model we had, which should have worked well, was based on the assumption that we could securitise the assets and, in the current market, that has proven impossible."
Nua provides mortgages to customers who have poor credit ratings, are regarded as high risk and cannot secure loans from the larger financial institutions.
Mr Kane said Finance Ireland, which is listed on AIM in London and IEX in Dublin, would not lose any money from its involvement in Nua, saying it was receiving roughly what it had invested. It is believed to have received €1 million from Investec for its stake. However, Mr Kane declined to comment.
He said the business was funded on the securitisation model - it sold its mortgages (asset-backed securities) in the international money markets to finance selling additional mortgages to customers.
The crisis in the US sub-prime market, in which large numbers of borrowers with poor credit histories defaulted on their homeloans, has sparked a global credit crunch drying up liquidity in the markets. This has driven up the cost of borrowing in the inter-bank market.
International financial institutions and investors have grown reluctant to buy asset-backed securities because of fears that the complex financial products sold in the wholesale market might carry exposure to the US sub-prime market. Businesses that rely heavily on securitisation have been left exposed.
"We could not determine the future capital required by the business. The best future for the business is within Investec," said Mr Kane.
He said Nua's 24 staff would continue to be employed under Investec's ownership. He said Investec would continue to run the business. "Investec will keep the assets and wait for better times."
Finance Ireland's main product is lifetime mortgages. Nua charges customers a rate on their mortgages that is on average 3 per cent above the European Central Bank's base rate.
At current rates, Nua customers are paying an average rate of 7 per cent, substantially higher than the standard variable rate of about 5.2-5.4 per cent currently available in the market.
