Corporates not citizens to get deal in IBRC liquidation

The wind down of Irish Bank Resolution Corporation is currently in full swing with the process of offering corporate loans for sale now under way. Most are being sold via portfolios but about 30 or 40 loans will be transacted on their own. Retailer Arnotts, broadcaster TV3 and fuel group Topaz are among those likely to be treated in this fashion.

The alternative is to have the loans transferred to the National Asset Management Agency (Nama) and no business wants that.

In effect, some of IBRC’s largest corporate borrowers will be able to buy back their debt, or refinance their borrowings to be more precise, at a discount.

And the discounts will be substantial to reflect the effects of the economic crash in 2008 on the various businesses.

Similar logic has been applied by other banks in the State in the past couple of years, notably Bank of Scotland (Ireland), Ulster Bank and Danske Bank, all foreign-owned and all wanting to put their nightmare Irish loan books behind them.

Mortgage holders
What about the IBRC's mortgage holders?

These are a legacy of Irish Nationwide. Minister for Finance Michael Noonan recently told the Dáil that there were 11,057 IBRC borrowers with home-loan mortgages and 2,189 with buy-to-lets.

If a mortgage holder is able to repay or refinance their home loan in full then IBRC will facilitate such a transaction. Otherwise, it’s a case of as you were.

The special liquidators have initiated a process to sell the mortgage book, opening a data room to interested parties, of which there are believed to be a few.

However, the strong expectation is that the loans will be transferred to Nama.

As Nama has no expertise in managing mortgages, it has decided to outsource this to a third party, which will deal directly with the loan holder under the terms of the mortgage arrears processes being
operated by the Central Bank.

Why weren’t mortgage holders allowed to buy out their debt at current values in the same way that corporates are?

It might be argued that the liquidators didn’t have enough time to offer a similar deal to mortgage holders given that IBRC was only liquidated in February and that the process must be wrapped up by the end of this year.

Then there's the question of moral hazard. Offering IBRC mortgage holders a break on their debts would no doubt result in an outcry from mortgage holders with the likes of State-owned AIB and Permanent TSB who would want similar deals.

That’s to say nothing of the reaction from taxpayers who funded IBRC’s bailout and are free of mortgages.

It’s also not clear how the 13,246 IBRC mortgage holders would re-finance their loans given the lack of credit in the market.

Nonetheless, it’s difficult to come to any other conclusion than there is one rule for the large corporates and another for the ordinary citizen struggling to meet the terms of their mortgage when it comes to IBRC’s liquidation.

The Government might not have intended it to be that way when it pressed the button on IBRC’s liquidation. But that’s the way it has turned out.