AIB faces overseas competition for Ulster Bank’s €6.5bn tracker mortgages

US powerhouse Pimco and M&G Investments from London lining up offers

AIB is  vying with two overseas investment giants for Ulster Bank’s low-profit loan book, sources say. Photograph: Brian Lawless/PA Wire

AIB is vying with two overseas investment giants for Ulster Bank’s low-profit loan book, sources say. Photograph: Brian Lawless/PA Wire


The sale of Ulster Bank’s €6.5 billion of tracker mortgages has turned into a competitive auction, with AIB vying with two overseas investment giants for the low-profit loan book, according to sources.

US investment powerhouse Pimco and London-based M&G Investments are understood to be lining up offers for the tracker loans, the last major Ulster Bank performing portfolio seeking a buyer as the bank continues its retreat from the Irish market, the sources said. While bids are currently scheduled to be submitted by mid-March, one of the sources said the deadline may drift.

Pimco and M&G would most likely seek to refinance the loans on international bond markets, in a process known as mortgage securitisation, in the event that either secured the portfolio, according to industry observers.

“A tender process is under way for Ulster Bank’s performing tracker mortgage portfolio. Ulster Bank cannot comment on this process,” said a spokeswoman for Ulster Bank, a unit of UK banking giant NatWest Group. She declined to comment further.

Spokeswomen for Pimco and M&G and a spokesman for AIB each declined to comment.

The Irish Times reported last July that AIB was in talks to buy Ulster Bank’s tracker loans, where borrowing rates are linked to the European Central Bank’s (ECB) main rate. At the time, sources close to the situation said that AIB was the sole party involved.

The development came a month after AIB agreed to buy €4.1 billion of corporate and business loans from Ulster Bank.

Meanwhile, Permanent TSB (PTSB) signed a binding agreement last month to acquire about €6.8 billion of mortgages and business loans from Ulster Bank.

Bidders for the tracker portfolio are expected to pitch offers at a discount to their par value to reflect the fact the ECB’s main rate has been at a record low of zero per cent since March 2016.

Home loans

Ulster Bank’s tracker loans are currently yielding a net interest margin – the difference between the average rates at which the bank funds itself and lends on to customers – of 0.75 per cent, compared with about 2 per cent for its non-tracker home loans, Davy analysts estimated in a report last year.

Still, bidders will be mindful of market speculation that the ECB may have to start increasing its main rates by the end of this year to rein in inflation, even as its president, Christine Lagarde, has characterised the current spike in euro zone consumer prices as transitory. Euro zone inflation was running at 5 per cent last month, compared with the ECB’s target of about 2 per cent.

Irish banks pulled tracker loan offers in 2008 as their own funding costs spiralled and moved out of kilter with official central bank interest rates. They have had to set aside a total of more than €1.5 billion to cover refunds, compensation, administrative costs and provisions for regulatory fines in recent years, after the industry was found to have wrongly denied thousands of customers their right to tracker loans – or put borrowers on the wrong margin above the ECB rate.

AIB had about €7.4 billion of tracker loans on its books as of the end of December, accounting for a quarter of its Irish residential mortgages portfolio.

A deal with Ulster Bank would mark the first time an Irish bank has targeted an expansion of its tracker book since the onset of the financial crisis. A purchase by AIB would also it find a use for some of its excess deposits.

Pimco and M&G have both been involved in various Irish mortgage securitisation transactions in recent years, resulting from overseas banks retreating from the market and existing lenders seeking to move problem loans off their balance sheets.

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