Details of ptsb sale of mortgages

Did Aib not get there splits classed as performing because there is no review and they are expecting to get the warehoused portion paid back as it is still secured against the asset. I would consider the issue to be sorted for now with ptsb but i do think this will raise its head again through other lenders in the near future.Thanks. If the review clauses were taken out/modified in the splits to get them classed as performing as aib have done the knock on effects of this could be quite positive.
 
Ah, yes I understand now what you're asking.

So with AIB a split is 2 separate contracts. There's a 'good' portion and a warehoused portion. Legally there are 2 separate loans, and AIB generally can't move amounts between the 2.
It doesn't actually matter if AIB ever expect to receive any of the warehoused amount back, as it's now a completely separate contract that just happens to be secured against the same asset. Typically there are 100% provisions against the warehoused balance as the good portion is written down to the asset value. But they have a good loan that's performing once it goes through 'curing' phase.
The customer is still legally obliged to repay the full amount.

In the case of PTSB, legally there is a single contract with a senior / junior debt part. The review clause allows PTSB to move amounts between the 2. Because it's a single contract, the entire is non-performing.

In substance, both are trying to achieve the same thing, but because of the legal contracts they are treated differently.

What PTSB have proposed is better for customers - they want to write off completely the warehoused portion. But because of the above, the remaining part would be classed as non-performing, so there's no benefit to bank.

AIB could in certain circumstances write off without impacting classification.
 
Deadly, thanks. Personally I think all the split mortgages should be put on a definitive footing like aib. Although I'm pretty sure the other banks are working behind the scenes to achieve this. I had a very bizzare experience almost 3 weeks ago that would kind of back this up.
 
RedOnion said:
Ah, yes I understand now what you're asking.

So with AIB a split is 2 separate contracts. There's a 'good' portion and a warehoused portion. Legally there are 2 separate loans, and AIB generally can't move amounts between the 2.
It doesn't actually matter if AIB ever expect to receive any of the warehoused amount back, as it's now a completely separate contract that just happens to be secured against the same asset. Typically there are 100% provisions against the warehoused balance as the good portion is written down to the asset value. But they have a good loan that's performing once it goes through 'curing' phase.
The customer is still legally obliged to repay the full amount.

In the case of PTSB, legally there is a single contract with a senior / junior debt part. The review clause allows PTSB to move amounts between the 2. Because it's a single contract, the entire is non-performing.

In substance, both are trying to achieve the same thing, but because of the legal contracts they are treated differently.

What PTSB have proposed is better for customers - they want to write off completely the warehoused portion. But because of the above, the remaining part would be classed as non-performing, so there's no benefit to bank.

AIB could in certain circumstances write off without impacting classification.
Click to expand...

PTSB want to write off the warehoused portion? That would eat up a a massive chunk of their capital.

AIB's problem is they'll eventually sell all the junk that's not capable of being restructured until they're left with the split mortgages. They'll then be under pressure to sell the warehoused portions.
Who's going to buy zero coupon 2nd lien debt from them?
 
Andy836 said:
PTSB want to write off the warehoused portion? That would eat up a a massive chunk of their capital.
Click to expand...
That's my understanding - if the rest of it is performing! They've asked the ECB to change rules so that if they write off warehoused portion, where the remainder is performing, that they can treat is as a performing loan.
It would counter-intuitively release capital; They've already taken a hit through P&L for the warehoused part where it's written to zero, but because the remaining is treated as non-performing they have to hold excess capital for future losses on them.
The other option is to sell them, which is the same write-off, or possibly more.
 
RedOnion said:
That's my understanding - if the rest of it is performing! They've asked the ECB to change rules so that if they write off warehoused portion, where the remainder is performing, that they can treat is as a performing loan.
It would counter-intuitively release capital; They've already taken a hit through P&L for the warehoused part where it's written to zero, but because the remaining is treated as non-performing they have to hold excess capital for future losses on them.
The other option is to sell them, which is the same write-off, or possibly more.
Click to expand...

But that's the question, has the "warehoused part....been written to zero"?

They don't need ECB approval. All they'd have to do is change the Borrower contracts. Refinance the current loans with two new loans under separate loan contracts. I don't see why ECB would need to be involved.
 
@Andy836

Apologies, I'm completely wrong!

The write-off that PTSB proposed was an accounting write-off. The customer would still remain liable for full amount.

So customers might have been in a better position to get a write-off if they had been sold.
 
Not sure about this but I would imagine at a heavy discount there would be a que to buy this debt. If there is positive equity in the property and you can only afford the mortgage I'd imagine the new creditor could simply bankrupt you and get a good return for their buck in an extreme case scenario. Again not sure but I'd certainly be looking more at the unintended consequences of trying to do something good as oppose to looking at a writedown scenario with the blinkers on. Remember if it looks too good to be true then it generally is.
 
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