Sub-prime mortgage lender exits Ireland with sale of loan-book for about 40c in the euro

“We entered into an LOI [Letter Of Intent] to sell our Irish consumer mortgage assets and the operating platform in Ireland and as a result of that LOI, we recognized a charge this quarter. This is consistent with our strategy of reducing the red assets in the portfolio and although the final terms have not been negotiated and certainly not announced, we did recognize a loss in discontinued operations of $188 million after tax and this allows us to exit the most challenged mortgage book that we have, and that is going to be positive as we go forward.” GE results announcement for Q1,2012

Last Friday 20th  April, 2012 US global conglomerate GE released its financial results for the first quarter of 2012. Of relevance to us here in Ireland was the announcement that the company is selling its entire Irish mortgage loan-book at a price which industry sources say reflects a write-down of about 60% on par values of loans; GE itself is saying it will make a loss of USD 188m (€142m) on the sale which seemingly represents a 30% write-down on the book values after provisions shown for GE Money Ireland at the end of 2011. The buyer of the loan-book hasn’t yet been disclosed but the indicated sale price is just over USD 400m (~€330m).

GE which traded in Ireland as GE Money Ireland and was officially known as GE Capital Woodchester Home Loans Limited; it was one of a number of so-called “sub-prime lenders” that did brisk business in Ireland during the 2000s. Sub-prime lenders attracted customers who mightn’t have been able to obtain mortgages elsewhere and charged a handsome premium for doing business with these borrowers. These borrowers were hardest hit in the subsequent collapse of the property sector and faced with spiraling unemployment, declining wages and rent levels and negative equity, these borrowers have particularly been placed in difficult positions – take a look at court records for 2010 and you’ll see about 80 applications where GE is seemingly chasing repayment. According to GE, the Irish mortgage loan-book is “the most challenged mortgage book” the company has, and remember GE lends into such markets as Nevada and Florida in the US and Spain, Italy, Greece in the EU.

So not only has Ireland“the most challenged mortgage book” in GE but the company is apparently accepting 40c in the euro for the loans. Residential property in Ireland has dropped by an average of 49% from peak according to the Central Statistics Office, unemployment is bad at just over 14% but we still have draconian bankruptcy rules which practically rule out bankruptcy for most people – though it should be said these rules are set to change, and Minister for Justice, Equality and Defence Alan Shatter is supposed to be publishing new legislation by the end of this month. Permanent TSB is probably the Irish bank most exposed to the mortgage crisis and for 2011 it showed it has outstanding lending of €35.7bn and a cumulative provision for losses of €2.3bn or 6%, one tenth of the loss now apparently being booked by GE. In that context the GE valuation is sobering.

Bloomberg reports the GE CFO, Keith Sherin, talking about the sale ““A lot of things are getting better around the world, but the Irish mortgage portfolio was one place we didn’t see the outlook improving,” Keith Sherin, GE’s chief financial officer, said in a telephone interview. “We made a determination that the buyer’s bid would be a better deal than to continue to work on that portfolio and try to increase the value over time.” The sale of the unit, which has $600 million in assets, may be concluded by the end of this year, Sherin said.”