http://www.bloomberg.com/news/2011-07-25/ireland-weighs-debt-forgiveness-in-europe-s-worst-housing-market.html
Allied Irish Banks Plc (ALBK), the nation’s biggest mortgage lender, may use money from its taxpayer bailout to rescue homeowners unable to pay their mortgages, opening the door to debt forgiveness in Europe’s worst real-estate market.
Irish home prices have fallen by 40 percent from their peak in 2007, according to figures from the country’s statistics office. More than one in 10 home loans are in arrears or have been restructured, typically by shifting borrowers to paying interest only on loans for a period, central bank data show.
“People who are unemployed can’t pay back their debts and that puts them into arrears and potentially default,” said Conall Mac Coille, an economist at Dublin-based securities firm Davy. “In Las Vegas, you can just throw the keys back in the door and you’re done, whereas here you go bankrupt.”
Allied Irish said yesterday it’s exploring all options on mortgage debt, and told analysts yesterday it is in “active”talks with the country’s central bank on industry-wide plans. The government will this week pump a further 14.8 billion euros ($21 billion) into the Dublin-based lender, part of its third bailout, taking the total injected to about 20 billion euros.
“We would be using the capital that has been provided by the government in this process,” Chairman David Hodgkinson told reporters in Dublin yesterday. “Clearly, it needs to be an industry-wide, government-supported approach.”
Bank of Ireland Plc, the country’s largest lender, said yesterday “any agreed forbearance solution depends on the individual circumstances of the customer and what is in their best interests.”
Ireland’s economy has shrunk about 15 percent while the unemployment rate has tripled to 14 percent since 2007, when a decade-long real estate bubble collapsed. Allied Irish executives told reporters yesterday they expect house prices to drop by 55 percent from the 2007 peak. About 11 percent of Allied Irish domestic mortgage loans are in arrears, with buy-to-let mortgages faring worst.
“There are some people who will not be able to repay --cannot repay -- the full amount of debt they owe,” Hodgkinson said. “I’d prefer to call it debt restructuring. Forgiveness implies a degree of moral hazard. I think it’s important we don’t get into that space.”
The state already controls Anglo Irish Bank Corp., Irish Nationwide Building Society and EBS Ltd., with Irish Life & Permanent Plc also close to falling under the state’s aegis. The government will control 99 percent of Allied Irish following this week’s cash infusion.
The extra capital gives banks the “scope” to restructure loans, Matthew Elderfield, the country’s financial regulator, said in a speech yesterday.
“There are a couple of caveats,” he said in a speech in Donegal, northwest Ireland. “At some point, when banking conditions have settled down sufficiently, the taxpayer will wish to recover some of that capital. Also, any approach to restructuring needs to take account of the risk that it creates incentives for borrowers to cease meeting their obligations.”
Allied Irish Banks Plc (ALBK), the nation’s biggest mortgage lender, may use money from its taxpayer bailout to rescue homeowners unable to pay their mortgages, opening the door to debt forgiveness in Europe’s worst real-estate market.
Irish home prices have fallen by 40 percent from their peak in 2007, according to figures from the country’s statistics office. More than one in 10 home loans are in arrears or have been restructured, typically by shifting borrowers to paying interest only on loans for a period, central bank data show.
“People who are unemployed can’t pay back their debts and that puts them into arrears and potentially default,” said Conall Mac Coille, an economist at Dublin-based securities firm Davy. “In Las Vegas, you can just throw the keys back in the door and you’re done, whereas here you go bankrupt.”
Allied Irish said yesterday it’s exploring all options on mortgage debt, and told analysts yesterday it is in “active”talks with the country’s central bank on industry-wide plans. The government will this week pump a further 14.8 billion euros ($21 billion) into the Dublin-based lender, part of its third bailout, taking the total injected to about 20 billion euros.
“We would be using the capital that has been provided by the government in this process,” Chairman David Hodgkinson told reporters in Dublin yesterday. “Clearly, it needs to be an industry-wide, government-supported approach.”
Bank of Ireland Plc, the country’s largest lender, said yesterday “any agreed forbearance solution depends on the individual circumstances of the customer and what is in their best interests.”
Arrears
Allied Irish has 26.8 billion euros in Irish home loans. The numbers of loans more than 90 days in arrears rose to 7.8 percent at end of June from 4.8 percent at the end of September.Ireland’s economy has shrunk about 15 percent while the unemployment rate has tripled to 14 percent since 2007, when a decade-long real estate bubble collapsed. Allied Irish executives told reporters yesterday they expect house prices to drop by 55 percent from the 2007 peak. About 11 percent of Allied Irish domestic mortgage loans are in arrears, with buy-to-let mortgages faring worst.
“There are some people who will not be able to repay --cannot repay -- the full amount of debt they owe,” Hodgkinson said. “I’d prefer to call it debt restructuring. Forgiveness implies a degree of moral hazard. I think it’s important we don’t get into that space.”
Bailout
Ireland sought an international bailout last year after the costs of meeting a pledge to back all lenders liabilities overwhelmed the government. In all, Ireland has injected or pledged about 64 billion euros to shore up the financial system.The state already controls Anglo Irish Bank Corp., Irish Nationwide Building Society and EBS Ltd., with Irish Life & Permanent Plc also close to falling under the state’s aegis. The government will control 99 percent of Allied Irish following this week’s cash infusion.
The extra capital gives banks the “scope” to restructure loans, Matthew Elderfield, the country’s financial regulator, said in a speech yesterday.
“There are a couple of caveats,” he said in a speech in Donegal, northwest Ireland. “At some point, when banking conditions have settled down sufficiently, the taxpayer will wish to recover some of that capital. Also, any approach to restructuring needs to take account of the risk that it creates incentives for borrowers to cease meeting their obligations.”
No comments:
Post a Comment