Dáil Éireann Debate, Thursday - 16 January 2014
1. Deputy Michael McGrath asked the Minister for Finance the current state of the liquidation process for the Irish Bank Resolution Corporation; the level of discount he expects will apply to IBRC’s loan book; if he expects to make a payment to the National Asset Management Agency in respect of the loans it will take on; and if he will make a statement on the matter. [1767/14]
View answerThe purpose of this question is to get a sense of the status of the liquidation of IBRC. It is almost 12 months since this House passed emergency legislation to appoint special liquidators. The truth is that we are very firmly in the dark as to how that liquidation process is going in terms of valuations and the book value of the assets. Yesterday the Minister for Finance gave some indication of how much of those assets are likely to be sold with the balance being transferred to NAMA, but I hope he will take the opportunity today to update the House on what is an extremely important liquidation of a very large State-owned institution.
I am very pleased with the progress made to date in the liquidation of IBRC. The special liquidators continue to implement the orderly and efficient wind-down of IBRC in accordance with the provisions of the IBRC Act 2013 and instructions that have been provided to the special liquidators by me under the IBRC Act 2013.
In relation to the timelines set out in my instructions, I can confirm that the special liquidators completed the valuation of IBRC’s loan assets by 30 November 2013 and substantial progress has been made on the sale of IBRC assets. Sales processes for these assets had commenced by 31 December 2013, as required, and it is anticipated that the majority of sales will be completed in early 2014.
The first portfolio sale brought to the market by the special liquidators was concluded successfully in early December where the Evergreen portfolio, a portfolio with a par value of €2.5 billion, achieved sales to third parties of 84% of the total portfolio at values above the independent valuations. This represented a very successful outcome for the special liquidators and is further evidence of the significant interest of international investors in the Irish economy and its future prospects.
There is an obligation on the special liquidators to ensure the assets of IBRC are sold at a price that is equal to or in excess of the independent valuations that have been obtained. Should a bid not be received that is in excess of the independent valuation obtained, the loan asset will be acquired by NAMA at the independent valuation price. Sales to third parties will help to reduce the total amount of assets which are likely to transfer to NAMA as part of this process.
The sales process plan and timeline has been developed following professional advice and in light of requirements of a robust and credible sales process. The special liquidators have also corresponded with all IBRC borrowers providing them with an opportunity to make written representations on the method of disposal of their loans and the criteria for determining who may bid for loan assets. Consideration was given to borrower representations, and the special liquidators are in the process of responding to these borrower representations.
Additional information not given on the floor of the House
The IBRC loan books have been divided into portfolios and subsequently subdivided into tranches, depending on the professional advice obtained, for ensuring the maximum value is obtained for the sale of the loan assets and also to reflect feedback received from borrowers from the representation process.
In relation to the repayment of the debt owing to NAMA as a result of the promissory note transaction, I am pleased to note that a total of €1.225 billion has been repaid to NAMA by year end. The moneys repaid reflect both the proceeds of sales processes completed to date and also the scheduled and, in some cases, accelerated repayment of borrower obligations during the year.
As the Deputy is aware, the terms of the promissory note transaction created a potential liability for the State should the value of the IBRC assets be insufficient to cover amounts due to NAMA. However, while the exact outcome of the liquidation will not be known with certainty until the asset sale process has completed, I am pleased to note that, at present, the special liquidators do not expect a further call on the Exchequer to arise.
The fundamental question is when will we have a comprehensive picture of what is going on in respect of the liquidation of IBRC. That, in essence, is what I seek to find out. Is it not the case that the prohibition that exists in the case of NAMA, which we discussed at a meeting of the Oireachtas Select Sub-committee on Finance yesterday, preventing that organisation from selling loans back to the original NAMA debtors does not exist in the case of IBRC? My understanding is that there are IBRC debtors who are in a position to buy back their loans at a very significant discount and, as a consequence are essentially receiving a write-off of an enormous amount of debt, running into millions of euro, perhaps even hundreds of millions of euro. It is important that the Minister clarifies that point.
The Minister mentioned yesterday that approximately €6 billion of the €12 billion may well end up in NAMA. It would be important for him to clarify that this morning. Can he give us any assurance that the mortgage holders of IBRC will not in any way be disadvantaged and will not lose any of the protections they have under the code of conduct on mortgage arrears and the consumer protection code, irrespective of where their loans end up?
The special liquidators are appointed under legislation passed by the Houses of the Oireachtas and are working in accordance with that. That empowered the Minister for Finance to issue instructions. I issued instructions. They have valued everything up to 30 November and are proceeding to sell.
The special liquidators have divided the portfolio initially into tranches and have sold 84% of the first tranche and are involved now in bilateral negotiations with bidders who are marginally below the valued price so it will go above 84%. The level of interest being expressed on the first round on the other portfolios is very high too. While the figure I gave yesterday was a very rough estimate, it looks as if it might fall that way, that approximately half or so will be sold and the other half will go to NAMA. We do not have the actual figure yet.
The Deputy asked a question yesterday which I did not get a chance to answer on the old story of whether, when the liquidation is completed, there will be a black hole and the State have to put in money. That will not happen. The advice from the liquidators now is that they will at least come out of it on an even basis. It is too early to say yet until more sales go through, but the liquidators are confident enough that it will go through.
The Deputy is right to say that when the special liquidator legislation went through, because it was a liquidation, there was a possibility that debtors could buy their own loan books back. They have done that in the first round but because very valuable loan books were put up first, many have bought their own debt back at par and not at the enormous discounts the Deputy describes. There is some discount.
I thank the Minister for his reply. When will we see all of that information, even in aggregate form? The instruction the Minister gave was that the assets would be sold by 31 December or as soon as practicable thereafter. I think those were the words he used in the instruction to the special liquidators.
When will the drawbridge come down on this? Is it at the end of the first quarter this year that the liquidator will either have sold on the assets or the transfer to NAMA will take place, and the overall financial performance of the liquidator can then be assessed? When will we see the information and what will we see? Can the Minister give any reassurance to IBRC mortgage holders who are not getting any write-off whatsoever from the special liquidator, unlike some of the larger IBRC debtors, which the Minister has confirmed? In contrast, mortgage holders face the possibility of losing key statutory protections if the loan book ends up with an entity that is not regulated in Ireland, given the consumer protection code and the code of conduct on mortgage arrears would no longer be available to protect them. That is an outcome we need to avoid at all costs.
The liquidators are conscious of those issues. It would be impractical to sell mortgage by mortgage, so what is on sale is the mortgage book, and it will then be bought by some financial institution. I am assured that because one's mortgage arrangement is a matter of contract law, all the rights one had initially when arranging the mortgage will be preserved on the transfer, and the purchaser will have the same obligations as the original holder of the mortgage book.
Some protections are outside the contract because they are statutory protections. That is the point.
Yes, but the liquidators are aware of this.
On the Deputy's other question, there are code names on the different tranches. Evergreen, the first one I was describing, has a face value of €2.5 billion. Some 84% of this is gone already and more of it will go. The second one has the code name Sand, which has €1.8 billion of residential mortgages. The special liquidators have given significant consideration to, and have sought independent advice from PwC in regard to how the residential mortgage portfolio and other loans are to be dealt with. Following that independent advice, the special liquidators have decided that the residential mortgage book will be split into four segments consisting of performing, non-performing, owner-occupier and buy-to-let mortgages. This was believed to be the best portfolio mix to maximise interest in the sales. The portfolio valuation was completed on 11 September and the sales process commenced on 14 October.
There is another tranche, which is called Rock and Salt, for some reason, and it has a total par value of €7.3 billion, which is huge. That is effectively the UK loan book, to the value of €7.3 billion. The valuations were completed on 11 September and the sales process commenced on 28 October. The last tranche has the code name Stone and Pebble, which is, again, a huge portfolio of €9.3 billion of commercial real estate. The Pebble portfolio consists of commercial loans of €800 million. The valuation was completed on 11 October and the sales process commenced in mid-November. Therefore, they are more or less on target, although they asked for a little extra time with one of the portfolios because they thought they would get a better price, and so, rather than selling before Christmas, they left it until the new year. However, the extensions in time I have given them are marginal and, to date, as far as I am concerned, they are doing a pretty good job of disposing of the assets at prices higher than the valuation process.
