PTSB refinances €1.3bn mortgages but fails to keep link with borrowers

Lender had sought to maintain long-term relationship with mortgage holders

Permanent TSB (PTSB) has confirmed that €1.3 billion of its problem mortgages will be refinanced in bond markets to shift them off its books, but the bank has failed to deliver on its aim of maintaining a long-term relationship with the borrowers.

The Irish Times previously reported that PTSB was planning to shift these mortgages off its accounts through the sale of bonds to international investors, who stand to receive interest payments funded by income from the loans. This is known in financial markets as an off-balance sheet residential mortgage-backed securitisation (RMBS).

Most of the 6,272 mortgages were restructured in recent years but continued to be classified as non-performing loans (NPLs) due to the nature of the new arrangements. These include 4,046 so-called split mortgages, where repayments on a portion of the loans are frozen until a future date. The remainder of the loans are where borrowers are currently paying part principal and part interest.

PTSB, struggling with the highest level of NPLs among bailed-out Irish banks, said on Thursday that it would put the mortgages into a securitisation vehicle, called Glenbeigh Securities 2018-1 Dac, which will issue the bonds. The bank will retain 5 per cent of the notes.


However, it will continue to service the loans for only six months, with loan outsourcing company Pepper Asset Servicing set to hold the title on the mortgages and manage the portfolio on behalf of bondholders thereafter.

Key objective

Sources who had previously spoken about the plans had stressed that a key objective would be for PTSB to remain the day-to-day contact for borrowers, maintaining long-standing relationships.

It is understood that the bank’s aim of remaining the ongoing services provider on the loans had been hampered by accounting rules. The bank needed to make a cleaner break given PTSB’s primary objective of removing the loans from its balance sheet.

The 75 per cent State-owned lender said the RMBS deal, together with the sale of €2.1 billion of soured loans, announced in July, will reduce its NPLs to less than 10 per cent of its total loan book. That compares with 26 per cent at the start of January.

PTSB said it would receive €890 million for the €1.3 billion of par-value loans, reflecting the state of the mortgage book. This is slightly below the €910 million at which PTSB had valued the loans on its own books.

Still, the reduction in so-called risk-weighted assets on PTSB’s balance sheet as a result of the securitisation will boost the bank’s common equity tier 1 capital ratio, a key measure of a bank’s ability to withstand shock losses, by 0.3 percentage points, the bank said.

“This transaction enables Permanent TSB to reduce its non-performing loan ratio and to ensure it can grow and compete in the years ahead,” said chief executive Jeremy Masding. “Whilst this has been a necessary step, we have sought to ensure that the protections of customers will be maintained as part of this transaction.”

Shares in PTSB, which had already been trading higher on Thursday after The Irish Times reported that the RMBS deal announcement was imminent, surged as much as 7.5 per cent immediately after the confirmation.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times