Key Post Are the lenders losing money on tracker mortgages?

I have looked at the three presentations now. And there is something very odd about the cost of funds

AIB's was 1.57% in Half 2 2014
BoI's was 1.03%
permanent tsb's was 1.44% but they describe their "core cost of funds" as 1.17%.

permanent tsb is paying higher deposit rates than Bank of Ireland and AIB so I could understand their cost of funds being higher.

What is the effect of the UK mortgage books? Are the costs of funds in the UK higher? Who has proportionally the biggest mortgage book?
 
I agree that the cost of funds figures across the presentations are inconsistent and difficult to compare.

While it's not absolutely clear from the presentation, I would be pretty confident that AIB's cost of funds of 1.57% either reflects their average cost of funds across 2014 as a whole (i.e. an annualised figure) or it possibly reflects a period average figure for H2 2014. In any event, I'm pretty sure it does not reflect AIB's actual costs of funds at year-end (which would obviously be considerably lower). I am not sure whether or not AIB are including any legacy funding costs in their cost of funds figure (although I suspect they are included in their figures).

BoI's average cost of funds across 2014 as a whole were 1.09% and I'm pretty sure 1.03% reflects a period average figure for H2 2014 (given that they specifically state that NIM grew to 2.22% in Q4).

I believe the reference to "core cost of funds" in PTSB's presentation excludes legacy funding costs, including convertible contingent capital notes issued by the State and deposit intangibles amortisation. In other words, I don't think they are drawing a distinction between different limbs of the bank. It is reasonably clear from the presentation that PTSB's core cost of funds for 2014 as a whole was 1.57%, the period average figure for H2 2014 was 1.44% and the actual (i.e. point-in-time) cost of funds at the end of 2014 was 1.17%.
 
Brendan Burgess said:
There is no point in approaching Bank of Ireland. They will not do a deal. They have such a low cost of funds, that tracker mortgages are not loss making for them any more - especially if they are not in arrears.
Brendan
Click to expand...

Brendan, David McWilliams in the Irish Independent today said "The nub of the problem is that the banks are losing money on tracker mortgages and they need to make this money back somewhere, so they are squeezing both savers and borrowers". But you say that they are not loss making any more.

Can you explain the contradiction - is it that they are technically not loss making, but are "losing money" because of the opportunity cost of charging higher? I'm confused. I have a tracker and if it's loss making I don't know why PTSB wouldn't offer me a deal to pay off some of it as they did a few years back.
Thanks
 
David is rehashing a well known line (as do so many commentators and so called experts), while Brendan and Sarenco have actually thrashed out the numbers.
Simple as
 
Last edited by a moderator:
I just watched the Prime Time piece and was astounded that amidst the talk of Trackers being to blame for high SVRs the topic of arrears was not broached!

It was extraordinarily poor journalism and shocking that an accountant could claim that PTSB was not losing money on trackers just because the cost of funds was equal to the tracker rates - i.e. ignoring administrative costs as well as the massive money being lost because of arrears and defaults.

At a time of wafer thin margins for the banks it doesn't take a genius to realise that a modest default rate will destroy any profitability.

Is this because Repossessions are verboten in Ireland
 
Hi futures

In a short TV discussion, one ends up responding to the points made and doesn't get a chance to cover all the issues. I was as frustrated as you were! I want to make a programme where I get around 15 minutes to set out all the points in a systematic manner. That would definitely include the fact that taxpayers and SVR holders are paying for the people who do not pay their mortgages. It's a point I have often made and I get savaged for "speaking on behalf of the banks" for making it.

Here is an example - an article I wrote for the Indo to highlight the issue.

"Want to solve arrears crisis? Make repossession faster and cheaper"

It was extraordinarily poor journalism and shocking that an accountant could claim that PTSB was not losing money on trackers just because the cost of funds was equal to the tracker rates - i.e. ignoring administrative costs as well as the massive money being lost because of arrears and defaults.

Actually, Eoin interrupted me before I finished my sentence... I was going to say that they are not making any contribution to the servicing costs. But, as this thread shows, it's a very complicated issue. This thread has certainly improved my understanding of the issues.

The cost of defaults is an interesting one. By now, ptsb and all the other banks have over-provided for the losses on their mortgage books. In the coming years, they will be releasing back the provisions and thus increasing the profits of the banks. So I don't believe that they are a source of "accounting" cost any more. But your point and mine is valid, if we allowed bank to enforce their security, responsible borrowers would pay less.
 
well Brendan,
that's a fair point about time limitations; however this thread is all "net Interest margin" this and that - I've just reread the various threads on this site and the issue of arrears is barely broached

I might have a theoretical income/expense figures of 98/100 giving net profit of 2. But a small rate of arrears will destroy that.
 
futures said:
I've just reread the various threads on this site and the issue of arrears is barely broached
Click to expand...

That does surprise me. Maybe it's so obvious, that I have not stressed it enough. I will try to remember to say that "Banks are not losing money on performing tracker mortgages" .
 
Brendan Burgess said:
That does surprise me. Maybe it's so obvious, that I have not stressed it enough. I will try to remember to say that "Banks are not losing money on performing tracker mortgages" .
Click to expand...
"performing" - now there's a word I haven't heard in a long time.

There's massive difference between "tracker book" and "performing trackers".

Even Anglo made money on its performing loans!

Blithely dismissing this distinction as an oversight or minor quibble is shocking.

The drumbeat recently is "Banks are not losing money on trackers, reduce my SVR now! (even though the SVR may well be lower than it was when I agreed my mortgage)"
 
Last edited:
Brendan Burgess said:
That does surprise me. Maybe it's so obvious, that I have not stressed it enough. I will try to remember to say that "Banks are not losing money on performing tracker mortgages" .
Click to expand...


Just listened to the Indo's Sinead Ryan on Sean O'Rourke this morning.

Again the line was trotted out that PRSB's SVRs are high to subsidise their cheap trackers. No mention whatsoever of the fact that over 27% of PTSB's total loan book (trackers, SVRs and unsecured loans) is non-performing.

Bizarre.
 
Last edited:
She also said that the house price rises in the past 2 years (of around 40-50% in some areas of Dublin) should not be referred to as a bubble period of growth as at least half of the purchases were made using cash!!! She should stick to pricing TV packages etc
 
[broken link removed]

BOI's net interest margin on its tracker book rose to 23bps, as its cost of funds fell to 89bps, in H1 2015 (see page 35 of the linked presentation).
 
BOI has recently had their rating upgraded by the rating agencies. Going forward, this means that they will be able to borrow monies on the international money markets at lower rates. This in turn will lower their the bank's cost of funds.
 
Last edited by a moderator:
Descart said:
BOI has recently had their rating upgraded by the rating agencies. Going forward, this means that they will be able to borrow monies on the international money markets at lower rates. This in turn will lower their the bank's cost of funds.
Click to expand...

In excess of 90% of customer loans are funded from deposits - funding from wholesale markets has a modest impact on BOI's cost of funds.
 
But the modest effect will be in the right direction, i.e. downwards.
 
Last edited by a moderator:
Sarenco said:
[broken link removed]

BOI's net interest margin on its tracker book rose to 23bps, as its cost of funds fell to 89bps, in H1 2015 (see page 35 of the linked presentation).
Click to expand...

[broken link removed]

BOI's net interest margin on its tracker book rose to 32bps, as its cost of funds fell to 80bps, in H2 2015 (see page 41 of the linked presentation).
 
Sarenco,

Can you give a view on what our Bank, AIB,s cost of funds are today.Please.
(I see a post that they are giving HP customers as low as 2% APR)
 
Gerry Canning said:
Sarenco,

Can you give a view on what our Bank, AIB,s cost of funds are today.Please.
(I see a post that they are giving HP customers as low as 2% APR)
Click to expand...

AIB's cost of funds would be somewhat higher but only slightly above 1% at this stage.
 
How there is a debate on banks losing money on trackers is interesting.
For once there is a positive Net Interest Margin then it means the interest paid is smaller than the interest received.
How you allocate the liability side to the asset side is totally arbitrary.
 
You must log in or register to reply here.
Menu
Log in
Register