Permanent TSB (PTSB) said on Wednesday it agreed the sale of a loan portfolio of mainly non-performing mortgages with a gross value of €390 million to Wall Street banking giant Morgan Stanley, which plans to refinance the loan book on international bond markets next year.
Some 57 per cent of the portfolio comprises owner-occupier loans, with the remainder buy-to-let mortgages, said the bank. It involves 1,200 borrowing relationships.
About 98 per cent of the mortgages are categorised as non-performing loans (NPLs) under regulatory definitions, although it is understood that the majority have been restructured in the past and borrowers are meeting their eased terms. Keeping them on PTSB’s books would have meant the lender having to increase provisions against problem loans in the coming years under so-called calendar provisioning rules and guidelines being pushed by European regulators.
The remaining 2 per cent comprises loan products which originated before 2009 and are no longer available to new customers, such as interest-only or part capital and interest loans where the borrower and PTSB have failed to agree a plan on repayment of the outstanding balance at the end of the contracted loan period.
The loans within the portfolio will continue to be serviced by PTSB for a period of up to six months. At the end of this period, legal title and loan account servicing will transfer to Pepper Asset Servicing, a loan servicing firm.
PTSB said the sale will increase its common equity Tier 1 capital ratio, a key measure of financial reserves to withstand shock losses, by 0.6 percentage points. The ratio stood at 15.3 per cent at the end of June. It is estimated that the deal reduces the bank’s non-performing loans ratio from 7 per cent to about 5.5 per cent.
Elsewhere, AIB reached a deal last month to sell about €400 million of NPLs, including loans that are deep in arrears and restructured loans that continue to carry an impaired classification under regulatory guidelines, to a consortium that also involves Morgan Stanley. It is believed this portfolio is also destined for a bond market refinancing, known as a securitisation transaction.
The capital relief from the latest PTSB loan sale comes at a time when the bank is pulling together resources to acquire €7.6 billion of loans and 25 branches from Ulster Bank, which is exiting the market.
The proposed deal envisages NatWest taking up to a 20 per cent stake in PTSB as part payment for a deal that is expected to increase the size of the Irish State-controlled bank's loan book by more than 50 per cent to about €22.5 billion.