PRODUCT PROFILE

Latest Dublin Prices

Troika reject Irish tracker loan plan

Monday, January 28 16:12:59

Ireland's creditors at the EU, the ECB and the IMF have rejected a plan to rid the Irish banks of loss-making mortgages that track the ECB borrowing rate, three sources close to the talks have told Reuters.

This come just after Reuters reported that the ECB scuppered Irish hopes of a deal on Anglo Promissory notes.

A deal on these tracker loans, which was meant to be part of the overall deal on Anglo Irish, would have given a huge boost to the local banking sector.

Tracker mortgages typically charge an interest rate of about 1.8 percent - below the 3-4 percent banks pay to fund themselves in the market.

The proposal to remove about 36 billion euros of such tracker loans fromAllied Irish Banks (AIB) and permanent tsb and put them in to a separate vehicle has been abandoned, amid disagreement over how to value the mortgages and fund their removal.

"The technical paper is dead, and it's not coming back," said one source.

Neither AIB nor permanent tsb would say how much their tracker books were costing them. Goodbody's Stockbrokers in Dublin has estimated that AIB was losing about 400 million euros annually on its 17.7 billion euros portfolio of trackers. Permanent tsb has a 22.5 billion euros book of trackers, suggesting a higher annual cost.

Irish officials are scrambling to come up with a fresh proposal on the Anglo bill that will be palatable to the ECB.

But a deal on the tracker mortgages looks more remote, with officials aiming to resolve them as part of efforts to have Europe's permanent bailout fund, the ESM, take over its equity stakes in bailed-out banks.

The possibility of the ESM taking over Irish bank stakes looks slim, however, as European states start to back away from a June 2012 pledge to deal with bank legacy costs.

For permanent tsb, a return to profitability will only be possible once its tracker mortgages, which account for 68 percent of its overall lending book, are removed.

"Certainly until that happens we're looking at significant losses as a result of legacy lending issues for some years to come," said Masding, who took over as CEO last year after more than two decades with Britain's Barclays. (C ) Reuters