Very few strategic defaults - official

THE NUMBER of mortgage borrowers strategically defaulting represent a “very small proportion” and will not undermine the stability of the banks, a senior Department of Finance official has said.

One in every 10 borrowers were not repaying their mortgages in full, Michael Torpey, head of the shareholding management unit in the department’s banking division said, but in most cases this was caused by falls in income levels.

Strategic defaults by borrowers had “to be tackled”, he said.

Mortgage losses at the banks are falling between the base and adverse-case scenarios set out in last year’s stress tests and “that is not a nice place to be”, he told a conference hosted by Bloomberg.

However, he “would take a lot of comfort” from the capital already injected into the banks.

The Government was on “a fairly long trajectory” on negotiations to restructure the banks to remove loss-making tracker mortgages from State-controlled AIB and Permanent TSB, he said. Technical discussions on the latest restructuring were “likely to go on for quite some time”, he said.

Mr Torpey said it was very likely the Government would retain a stake in AIB to benefit from the upside in the bank’s recovery after selling down the State’s shareholding to investors. He said he envisaged “a significant amount of external ownership” in AIB, which is 99.8 per cent State owned.

Alan Dukes, chief executive of Irish Bank Resolution Corporation (formerly Anglo), said there was still “more pain coming” on the level of mortgage losses.

Mr Dukes said there needed to be a “retro-fit” of bank debt across the euro zone as, in Ireland’s case, too much bank debt had been placed as a burden on the Irish economy. A more concerted approach that was not focused on country-by-country solutions was required across Europe, he said.

Developer Simon Kelly said Nama’s plan to hold property assets for eight to 10 years was a “fallacy” and it should put properties in investment trusts and “sit on them” for longer. Nama didn’t want to sell properties unless they were “peripheral”, he said.