US firm bidding for EBS may write down mortgages

MORTGAGE HOLDERS may face the prospect of their mortgages being written down in value if a US private equity firm which is part of a consortium bidding for the Educational Building Society (EBS) is successful with its offer.

Billionaire investor Wilbur Ross, whose company is part of a consortium led by Irish firm Cardinal which is bidding for the 75-year-old financial institution, said it would consider cutting the mortgage interest repayments that customers would be required to pay to service their mortgages.

Speaking on CNBC television, Mr Ross said banks may have to write down mortgages if a bank repossessed a home.

“Unlike many of the states here [in the US], if you get foreclosed out of a home, you don’t lose the debt, you’re still on the hook for the debt In many, many of the American states, you can just put the keys back to the bank and you’re off the hook,” he said.

Mr Ross said that, while there have not been many foreclosures in Ireland, there have been high levels of arrears.

“We can be very useful to the country, coming into it at a properly mark-to-market level; we’ll be able to give the people a lot of relief on the mortgages, and yet be able to make the bank function well because of the level at which we’ll be coming in,” he said.

Mr Ross said his firm could apply what it has learned about US mortgages in Ireland if it successfully takes over what he called on CNBC the “Educational Bank”.

“The big thing we’ve learned in this country: you’ve got to cut the principal amount. If a guy has got a mortgage 125 per cent of the value of the house, the chances of that guy really playing are very slim, ’cause they’re under water; no one wants to throw money into a rat hole,” he said.

Mr Ross, who made his fortune rescuing troubled financial institutions, said he expects the sale process for the EBS to be concluded by the end of next week and that he was “optimistic” that Cardinal’s bid would be successful.

It is expected that the outcome on the future of the lender may not be known until next month.

As The Irish Times first reported last week, Mr Ross’s New York-based private equity firm, WL Ross, is the third member of a consortium led by Dublin-based Cardinal, which is controlled by businessmen Nick Corcoran and Nigel McDermott and backed by US private equity giant Carlyle.

The three other bidders for the institution are Irish Life Permanent, UK-based Doughty Hanson, and US buyout firm JC Flowers, founded by former Goldman Sachs executive Chris Flowers.

Mr Ross said the company was also looking at other opportunities in the Irish market, and that he had visited Ireland recently.

“We do think there’s room for consolidation in the Irish market,” he said. “There is a need for another very large bank to compete” with the country’s two largest banks [Allied Irish Banks and Bank of Ireland], he said.

He said it was “important to have professional outside investors” entering the Irish lending market with capital.

EBS, which is in full State ownership, requires a further €437 million to meet the Financial Regulator’s €875 million capital target.

The Government has injected €350 million into EBS – €100 million in cash and €250 million by way of a promissory note last June – and will invest the remaining €437 million if the lender cannot source this from private investors.

The society also made a €88 million gain by buying back debt.