Mortgage market update: lenders have large margins

Dan White authored a piece published in the Irish Independent on June 18 titled: Are greedy mortgage lenders about to see enormous margins squeezed? The article analyses the current mortgage market and concludes that limited competition between lenders is a source of high interest rates in the market and the consequently high margins and profits achieved by lenders. White takes note of current changes in bank’s interest rates and of a paper published by the Competition and Consumer Protection Commission to predict the future of interest rates and margins in the mortgage market.

 

The author cites a paper published by The Competition and Consumer Protection Commission stating that the Irish mortgage market is “characterised by a high concentration of a small number of lenders, limited competition between these lenders and low levels of entry by new players”. This is in part due to the fact that many foreign lenders left the Irish market after the crash. Because of the limited competition, Irish banks had free range to dramatically increase their net …

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Moody’s bumps up ratings on Irish banks

Credit rating agency Moody’s has upgraded the long term debt and deposit ratings of Irish Banks: Bank of Ireland (BOI) and Allied Irish Banks (AIB). It also upgraded each bank’s baseline credit assessment by one level. Irakli Pipia, Vice President-Senior Credit Officer at AIB said “the rating upgrades reflect a range of positive factors, including further reduction in non-preforming loans, improved capital ratios and achievement of stable core profitability”.

 

From the end of 2015 to the end of 2016, BOI’s problem loan ratio fell from 11% to 7.9% and the  loan to deposit ratio fell from 112% to 108%, signalling improvements in asset quality and a better funding ratio. The bank’s BAC was upgraded from ba1 to baa3, the 10th tier of Moody’s rating scale.

 

Moody’s also bumped its baselines credit assessment of AIB by one tier from ba1 to ba2. It cites a reduction in the percentage of the bank’s problem loans from 18.6% last year to 14% at the end of 2016 and the bank’s more liquid position.

 

Various other ratings were also affected in …

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AIB returns to stock market

Finance minister Michael Noonan officially announced Tuesday night government plans to sell a 25% stake in AIB, returning part of the bank into private hands. This marks AIB’s dramatic return to the London Stock exchange since it was nationalized almost 7 years ago during the last financial crisis.

Currently 99.9% government owned, the sale of AIB shares will likely be the largest stock market listing of 2017. Analysts estimate that the sale of shares will raise more than €3 billion for the government, contributing to AIB’s slow and steady return of the €20.8 billion of bailout loans it received from 2009 to 2011.

AIB is Ireland’s biggest lender, and since it’s nationalization, has worked hard to renew its image, slashing the amount of bad loans from 29 billion to 8.6 billion. With that and already €6.8 billion of taxpayers’ money returned, AIB CEO Mr. Bernard Byrne hopes the upcoming sale of shares will continue the bank’s process of recovery and reaffirms investor confidence.

Although …

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Four channels, one show, different prices – lending looking up in 2013?

AIB currently have four lending channels, there is AIB direct (their branches), AIB Broker (via the Ballsbridge HQ), EBS (done through branches and administered via the AIB direct system) and finally Haven Mortgages (another broker channel currently still located in the old EBS offices on Burlington Road).

There are four channels all operating off of the same credit pricing and all with different rates! Meaning where you choose to apply will make a big difference, even though under the hood you are getting an identical product. This is a classic example of having a brand name product sold at one price then the ‘own brand’ which is made by the same people as the first one, put into a different package and sold at a different price.

At the moment Haven only lend up to 80% meaning you need a 20% deposit, EBS have gone up to 92% which matches them with AIB (direct and brokerage), so the next rational step is for Haven to go to 92% which we are tipped off will be happening in Q1 of 2013, …

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AIB tightening criteria? Are banks really lending?

In recent days the IBF came out with a very positive story about how mortgage lending has increased year on year for the first time since 2006, at the same time the Central Bank are saying that criteria is tightening and other research suggests that almost HALF of our residential market is transacted in cash!

This is a classic example of two stories that contradict each other, or at least that seem to do so. Can you have tightening criteria with more lending? Of course you can! Demand for mortgages is up year on year (in our brokerage taking gross leads as the figure) about 30% or more.

Banks are saying that they accept the vast majority of mortgage applications (c.62% is their estimate), and the likes of AIB are actually ahead of …

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Zombie Banks acting like Zombies

I wrote a piece in today’s Irish Sun about our banks and that the state owned operations are showing a decided lack of inventiveness when it comes to helping existing borrowers.

This may be down to disincentives, issues with management or the Department of Finance, but suffice to say, it doesn’t make sense that non-state owned banks and foreign banks are innovating in potentially beneficial ways for their customers and the banks we paid to save are not.

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Contagion

When you squeeze a balloon it just bulges out at a different place, that seems to be happening to the PIIGS (although now it is just PIS because I & G have been ‘sorted out’). Look at the prices on Irish banks coming down in some cases by an impressive near 1%, that’s a giant step for a single day. All of our major institutions are dropping – and that means the fear of something happening to our banks is subsiding from the perspective of those holding bond risk. Which makes Dolmens ‘sell all’ call on AIB LT2’s a little odd.

Then look at sovereigns

And you see that our problem has now become a Portuguese problem, the bond market will start to lean on them next. I have said for some time that we will watch the domino effect until at some point we get to Spain and at that point it isn’t a game any more.

Many thanks to CMA for the charts

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