Ulster Bank moved mortgages to boost cash reserves

Ulster Bank moved billions of euro worth of mortgages destined for sale to other lenders to separate companies to boost cash reserves, it has emerged.

The bank plans to sell home loans to rivals AIB and Permanent TSB as it winds down its business and leaves the market.

It has emerged that Ulster Bank sold €3.4 billion worth of residential mortgages to two new companies, Ardmore Securities and Dunmore Securities, in early 2018.

Ardmore and Dunmore both issued bonds, that is tradeable loans, allowing the bank to raise cash from the transactions.

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Dunmore issued €2.2 billion in bonds while Ardmore issued about €1.2 billion. The move, known as securitisation, was designed to boost the bank’s own cash and fundraising options.

Ulster confirmed that it did not tell the borrowers involved, but said that their contracts allowed it to transfer the loans without informing them.

While the new companies legally owned the mortgages, Ulster continued to administer them in the normal way, while it said that customers had the same protections as those whose loans were not securitised.

In Ardmore’s case, Ulster and third-party investors bought the bonds. The bank bought all the notes that Dunmore issued.

According to Ulster, that is known as a “retained securitisation”, which allows the bank to hold the notes as collateral to borrow money from other banks. Ulster confirmed at the weekend that it repurchased, or paid back, Ardmore’s bonds in November, ahead of the mortgages’ likely sale to Permanent TSB.

The Competition and Consumer Protection Commission is investigating this transaction. The bank hopes the regulator will approve the deal later this year.

It will repurchase and extinguish Dunmore’s bonds ahead of the sale of those mortgages to Permanent TSB and AIB.

According to Ulster, the Central Bank, the State’s financial regulator, permitted the transactions and was aware of them. The lender added that it set up both companies to meet Ulster’s “ongoing liquidity and funding requirements” in 2018.

“Securitisation of mortgages is a well-established, standard and common form of funding for banks,” said an Ulster statement.

David Hall, of the Irish Mortgage Holders Association, agreed that securitisation was a legitimate way for banks to raise cash.

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However, he warned that the special purpose companies used for this purpose, by both banks and vulture funds, end up determining the interest rates that homeowners pay on their mortgages.

Mr Hall added that this gave these companies an influential role in a scenario where interest rates are likely to rise in the coming months. “We have a general discomfort about all such vehicles,” he said.

The consumer advocate also argued that the Central Bank had conflicting roles in safeguarding homeowners’ rights in this situation, as it permitted and regulated securitisation.

“Somebody in the Central Bank is regulating these entities, then somebody else on a different floor has responsibility for consumers, it just doesn’t wash,” said Mr Hall. He maintained that a separate entity should be looking out for mortgage borrowers’ rights.