Loan Sales creating uncertainty for Irish business owners

It has been a sad number of weeks for Businesses right across Ireland.

The indigenous Banks have now taken to selling their loan books to American Vulture Funds. The latest that has been widely reported but in a very banal and mundane fashion particularly by some of the local media has just reported that the Vulture funds are buying these loans particularly from Ulster Bank, The RBS Group and their reconstruction division R.C.R. This is a sure sign if we needed to be told of how distressed Ulster Bank are and their draconian model for dealing with impaired borrowers and how they would exit the Irish Market.

Their new business model would appear to be to support people who would require  new lending not necessarily for new businesses but who have cash in the Bank. We could all do that as there is very little risk involved. However what about lending to those people previously who now find themselves as part of the vulture fund loan sales.

The question has to be asked from not only a business but from a moral perspective, if Ulster Bank made funds available to these borrowers and are now selling the loans what lies ahead for the borrowers? What thought have Ulster Bank given the fate of their clients and customers who they lent money to and who are now with the Vulture funds from the United States? As has been widely reported by us and in other media outlets there is no debt forgiveness with the Vulture Funds.

They are not a Bank - they are a Business. They are there to make as much money as possible. I am not saying that they are making as much money as possible at whatever cost to the borrowers and it would be unfair of me to criticise their business model as they are seeing and taking up an opportunity presented to them on a plate by the financial institutions who are now selling their loans.

Surely our overriding concern should be for the treatment of the borrowers? The Banks and in particular Ulster Bank  lent and advanced money  to them recklessly and now like Pontius Pilate they are washing their hands of the problem. Will the borrowers now be crucified by their new Masters?

We would like to ask Ulster Bank one more time because there is a deathly silence from them in this regard if have they no regard for their incumbent clients and customers whose loans they are selling wholesale to the American Vulture Funds?

The knock on affect as previously raised by GDP on the borrowers and business in Northern Ireland will be extremely dramatic and felt right across the Province and indeed throughout Ireland.

It is noticeable that PriceWaterhouseCoopers  have come out and said that the Northern Ireland budget is not balanced for 2015/2016 and that this is the sign of grave AUSTERITY  to come for the residents of Northern Ireland. The Loan sales will only add to this. The sale of the loans by the Ulster Bank rather than work through the problems with the borrowers will only heap further misery on distressed borrowers who have been going through professionally and personally a most distressing at this time since the crash.

We further call upon the media to investigate these sales and hold these Bankers to account.

JAMES GIBBONS LLP

BANKS BACK LENDING - BUT TO WHO?

We have been reading with interest over the last number of months that the various Irish Banks including Bank of Ireland, AIB, Permanent TSB and the U.K. Bank are keen to start lending again. Our Market soundings would suggest that this is proving more difficult than would first appear. We understand that most of the Banks are off loading their impaired property assets to repair their balance sheets so that they can improve their Capital position thereby offering new borrowers new facilities.

If and when this happens it will obviously be excellent news for not only the Irish but also the U.K. Economy. However one matter seems to have been overlooked. As the Banks off load their property book to the American Vulture Funds the problem really hasn't gone away. The overused term moving the deck chairs on the Titanic means that the borrowers remain in situ except they have a  new lending master. This new master does not have the patience, willingness nor desire to work with borrowers for the medium to long term. They are here for short term solutions and a big quick returns, it is a ‘smash and grab’ business model. So if the remaining borrowers are still caught up in the property debacle even though their loans may have been bought by American Vulture funds will the Banks lend to these people. The short answer is no. So who is left to borrow money from the Banks, yes SME's in a small way, Entrepreneurs if there are any left and people who have potentially re-invented themselves. Do we not hear the PR machine from the Banks crying out that there is no demand from SME’s for their loans?

How large is this market? This will not get the economy moving again and will not allow the Banks to release further capital nor will it improve the liquidity for businesses throughout the Island of Ireland. So what is the solution, surely the current Banks that are off loading their property book must take a more pragmatic approach to lending and relax their overall lending criteria to borrowers who have decent proposals but due to high levels of due diligence now required by the Banks who are still risk averse cannot borrow the funds. As I look around Belfast this morning on a bright and beautiful November morning I can see two cranes currently in operation at the new university planned for York Street.

Nothing else in the construction property market is happening in Northern Ireland. Will we catch up with Dublin not in the immediate short term as there is a huge lack of finance available for the industry to move forward.

Perhaps the only good thing to come out of these loan sales is the 7 years of stagnation we have had is now coming to an end but the question is how we will encumbered borrowers deal with their new masters and the huge overhang of debt that still has to be addressed.

We will keep a watching brief on the treatment of borrowers by the Vulture funds and by the Banks as the next 3 months will prove critical for borrowers and the economy alike.

 

JAMES GIBBONS LLB

WHAT DOES THE FUTURE REALLY HOLD FOR NI?

Last month I ran the Dublin marathon in just under four hours.  It was a great day with the people of Dublin coming out in force to support over 15,000 runners through the 26.2 miles.  The feel good factor after doing something like a marathon is always great.  However on this occasion the euphoria was short lived as I drove back to Belfast listening to the radio local politicians were sniping at each other over the austerity program and the incoming cuts to our budget with the added occasional descent into a rant with name-calling.

For me it’s all theatre as despite all of the bickering and fighting Stormont approved a budget for next year, all be it, not one we should celebrate too quickly. 

In the last few months I have listened to some elements of the media, politicians and economists tell how the economy is improving.  Apparently more people are working; the private sector is picking up and the property market is moving again! It is going that well that Stormont is preparing asset sales of their crown jewels to pay for the £100m so called Wonga loan note that Westminster has lent to us.

In short and from a statistical point of view, yes the economy in Northern Ireland has certainly picked up.  However I would suggest that the man on the street is not feeling this and furthermore won’t be feeling the benefits of an upturn anytime soon. 

Recently I have seen evidence of the huge household debt overhang facing many people and with the insolvency cases hitting record numbers this year it is forecast that this trend will continue.  It is accepted that Northern Ireland has a greater problem dealing with debt than the rest of the UK, with 27% of the population over indebted, compared to the UK average of 18%, that’s according to the Money Advice Service.

However there is another problem facing the economy that has gone largely unnoticed which is causing me concern and it has the potential to put the Northern Ireland economy back into a nosedive. 

By 2014’s year end, billions of pounds worth of property loans will have been sold by NAMA and Ulster Bank which relate to our small to medium sized business community.  These loans have been and will be bought by American Vulture Funds for the most part.  These Funds will now own the loans and will be responsible for the out-workings of these loans. 

The challenge for the SMEs through no fault of their own is how they remain in control of their assets and their business.  If we look at what happened in Cork of late whereby an American Vulture fund tried to take control of a very lucrative family business by calling in a personal guarantee at very short notice – this is alarming!

In the last few weeks our practice has been contacted by dozens of companies from all over Northern Ireland. Their bank has advised, Ulster bank in most cases, that their loans are being sold.  The businesses have no say in the matter and the bottom line is they will soon have to deal with a new bank or to be more accurate private equity companies that want their money back.

Having worked in this space for the past eighteen months I advise that for the SMEs in this position it will prove extremely tricky to keep everything on track.  The private equity companies which are buying these loans aim to get 15/20 % internal rate of return on their monies per annum, and this type of business model is not conducive to supporting a local business which maybe working to a longer term business plan.

It would appear that one exit strategy for the SME is to find a finance partner or a bank that will support them.  The challenge in Northern Ireland is that our banks are not open for business for the most part and those that are, their terms are such that they cannot or will not assist.

SMEs that find themselves in one of these loan trades need to be proactive in terms of putting together their own proposals and ultimately trying to stay in control of their businesses. It’s certainly not for the faint hearted however a solution is possible.

For me the austerity program is now starting to unravel and with its lifespan due to run to 2020 it is very hard to be optimistic. Maybe I need to run more marathons to have any chance of experiencing euphoria in the near future as any sense of optimism or business optimism in Northern Ireland is someway off giving the current sorry state of affairs.

Conor Devine MRICS

VULTURE FUNDS ARE CIRCLING

Last week it was announced that Goldman Sachs has purchased yet another portfolio of loans included in Project Nadal loan sale by Ulster Bank.

This portfolio purchased by Goldman Sachs includes the Radisson Blu Hotel, near St Patricks Cathedral in Dublin, The Radisson Blue Hotel at Dublin Airport; The Hilton Hotel in Kilmainham, close to Heuston Station; The Arlington Hotel at Lord Edward Street, Dublin, and the five-star Merchant Hotel in centre of Belfast.

As reported in the Sunday Business Post, Goldman Sach’s strategy is to sweat these assets for a period of time and then sell these assets or float them on the stock market which will no doubt net them a huge profit. This is great business for Goldman Sach’s and they have an excellent track record in delivering these opportunities . Why wouldn’t they as it will make them millions ? 

It is not however great business for the current owners who have built up these businesses over years of seriously hard work. This strategy by Goldman Sachs demonstrates how vulture funds got their name.

Having dealt with these vulture funds on numerous occasions on behalf of borrowers we have a clear insight to how they work. Their modus operandi  is quite simple. They want as much financial return from the borrower/asset as possible. Negotiating with the vulture funds will be a difficult process as they hold most of the cards and can demand repayment of the loan at anytime as most of the original loan agreements are in default due to the property crash. The borrower has to demonstrate to the vulture fund very quickly how they can bring value to the them or within 3-4 months the funds will have moved the borrower out of the equation.  That's how they work!!!

The only way out for the majority of borrowers is to try and refinance their loans with another lender or capital partner. As most of the Banks in Europe are broken they have little or no interest in lending to commercial property or hotels due to the new Basel banking rules. Alternative finance is therefore hard to source at this time, however it is possible. 

GDP Partnership have sourced funding of £30MM in the last three months to assist borrowers retain control of their assets and life’s work. This has been hard work but we have helped several international funds understand that Ireland both North and South is a great place to invest for the long term. This is different to the vulture funds that have taken a short term view and want to get out of Ireland in the next 2-5 years.

Ulster bank only last week have increased their most recent loan sale form £2bn to just over £6bn of assets.  This trade will likely go through before the end of the year.  This is a clear indication of the strategy RBS now has for Ulster Bank here and although painful for the bank and its balance sheet you can understand why they might want to go down this route.  However Northern Ireland is currently dancing on the head of an economic period of disaster with £850m of cuts due to be announced this week.  The next six years will see the austerity program continue to be rolled out.  Bearing all of this in mind, Ulster Banks most recent announcement will only add to the economic woe of the country.  Already we have been inundated with SME's who are now part of this loan sale who are really concerned about their businesses, and so they should be. 

Alternative finance is vital to truly restarting the economy across the whole island of Ireland and not just the major cities. By being proactive, entrepreneurs and established businesses can source new funding for their business.

Don’t wait for the Vultures to pick over the carcass……Act now.

LOUIS WATTERS ACA

ARE THE LIGHTS GOING OUT AT STORMONT?

Commentators and journalists have been poring over the utterances and musings of our local politicians. As they try to get a handle on what the next steps are for the House on the Hill following the referendum vote in Scotland and the ongoing welfare reform, many of us are wondering what it will take for our politicians to get their act together, make the hard calls required and ultimately keep NI PLC on the rails.

Unfortunately it appears that matters are spiraling out of control, with health care cuts, welfare reform, departmental malfunctions, ministerial changes and misleading letters, not to mention the very real and pressing issue of the short supply of monies for every department in the Executive.

Running a country is very much like running a business and on this comparison I think it’s fair to say that Stormont is currently in administration. Its Managing Director has stated in the past two weeks that the company is not fit for purpose, so if that’s the case then the p45’s are likely in the post and lights are about to go out.  Certainly the odds at this point appear to be stacked against it surviving in its current form.

I feel the business is savable, at the very least all efforts should be made to do so, however for that to happen there does need to be an agreement on the business plan and also a will to want to save it by all of those involved.  I am not sure that the board members of NI PLC even want to do this at this point, given the lack of progress over recent months.  This is a very depressing thought for all of us and the majority of us who do want to build on the peace established and put the building blocks in place for the country to prosper.

For any SME or larger businesses out there, most would agree that the business environment in NI is extremely challenging.  As our banks continue to try and get their own businesses in order after the property crash, the business terrain is extremely rocky.  The unsettled nature of Stormont and the fact that we have another six years of austerity ahead is a sobering thought for even the most optimistic of entrepreneurs.

Over the last few years our own company GDP Partnership has been able to help hundreds of businesses and individuals get back on track by dealing with many of the challenges, mostly financial that they have had to face in recent times.  Ultimately there are three ingredients to getting a business back on the rails;

1.      Diagnosis of the problem (s)

2.      Strategy to deal with same

3.      Execution of achievable business plan

If our MD Mr Robinson who is regarded by many as one of the countrys most astute strategists and business heads took on board the above and more importantly got his board to buy into it with him, then NI PLC would have a real opportunity to get back on track.  However, unfortunately the signs are not good. 

For everyone living and working here, we can only live in hope that the current challenges can be overcome.  I think its fair to say we have overcome a lot more difficult challenges in the last twenty years so lets hope those in control dig deep, get it sorted out and allow all of us to continue to make progress.

GOOD OLD RBS. . . . .

As we are all now unfortunately aware Ulster Bank are for all intents and purposes closing their GRG Resolutions group. This means that borrowers have been told to either re-bank or re-finance their loans or face the pleasures of recovery.

What happens if you can't escape from GRG?

You will be glad to know that RBS have come up with an innovative solution. Not only have they agreed to sell your loan to the American Vulture funds but as of this week RBS are now funding by way of Debt the purchase of the very loans that they are selling. Yes, what you read is correct.

On news wires this week it became apparent that RBS have funded Senior debt for a Company called Kennedy Wilson. Kennedy Wilson ARE the company who have bought loans and properties from Bank of Ireland from their distressed loan book.  They are what's known as an American Vulture fund.

 

Can you believe that RBS the parent of Ulster Bank WHO ARE CLOSING PROPERTY LENDING are now funding Vulture Funds with senior debt to acquire these loan books and/or to refinance.

You couldn't make this up......

How disappointing it is that the tax payer yet again is being caught with the losses that have been sustained by RBS and Ulster Bank as a whole on property loans while at the same time RBS are funding the very Vulture funds that are acquiring these loans.

If you were not aware of this you are now  - so let your representatives know across the board that this is the kind of activity that a state owned Banks are doing.

Watch this space and as ever we will keep an eye on the innovative ways that these Bankers are generating fees and returning their businesses to profit.

 

James Gibbons LLB

Lloyds Banking Group Unfairly Double Billing Borrowers In Arrears

***URGENT NEWS FOR BORROWERS WITH LLOYDS BANKING GROUP***

 

GDP Partnership brought this matter to the attention of Borrowers at the beginning of July 2014 and to date we have been able to assist many of our existing and new clients.

It has been publicly announced that Lloyds Banking Group has been unfairly double billing customers who fell behind on their mortgages, and in a scathing verdict, Master Ellison said the bank's behaviour had been "unconscionable".

The findings will have implications for thousands of Lloyds Banking Group mortgage holders across NI and the UK. If the bank's practice had gone unchallenged, many borrowers would have lost their homes.

The Lloyd's Banking Group include Bank of Scotland, Birmingham Midshires, Cheltenham & Gloucester, Halifax and TMB.

Basically the Group capitalised arrears but the banks continued to treat such mortgages as in arrears and used that as the basis for bringing legal cases.

This perception of borrower affordability was distorted. This resulted in already struggling borrowers being threatened with repossession on account of an "erroneous and fictional arrears balance".

As a result "many" court decisions concerning suspended repossession orders had been made on "erroneous assumptions". Due to the smoke and mirrors presented by the bank through their legal advisors, many injustices have already passed through the courts and this is very concerning.

Master Ellison said that as a result of this he was imposing a series of strict conditions on the bank if it tried to enforce any existing suspended repossession orders. He said that if the bank failed to meet these conditions, it "may face an uphill struggle".

GDP Partnership has welcomed the decision and the stance being taken by Master Ellison. Publication of the findings may be too late for some, but welcome news for many.

Repossession should always be a last resort and it is more beneficial for all parties to come to an amicable agreement in respect of mortgage debt.

The GDP Partnership USP promotes education around these financial issues in order to empower borrowers to make their own decisions. It is important they are aware of ALL the options available when it comes to dealing with debt.

Since its inception we have helped 1000's of people deal with their debts and move on with their lives.

For more info or to see if we can help you...get in touch with our Equity Experts at info@gdpni.com.

DARWIN ALLEN AABRP
SENIOR RELATIONSHIP MANAGER