30 Nov 2018

Glenbriegh deal sees €1.3bn NPL disposal

Permanent TSB (PTSB) yesterday announced the completion of its Project Glenbreigh NPL disposal, which will see €1.3bn of par value (€0.91bn book value) non-performing loans transferred into the Glenbreigh SPV, which will issue RMBS notes to as yet unnamed investors.

Analyst: Owen Callan 

PTSB will hold 5% of the notes of the new SPV, and will relinquish all legal title to the loans to Pepper Finance who will serve as the master servicer to the loan portfolio.
 

Analysis: The Glenbreigh portfolio is made up entirely of residential mortgages relating to 6,272 borrowing relationships, the vast majority of which (98%) are backed by owner occupier home loans. However, approximately 66% of the loans in the portfolio are what have been termed as “split mortgages”, which have already been restructured and typically involve a principal amount that has been warehoused for the long term. This is likely to create some political controversy given the perceived unfairness of transferring already restructured loans to a non-bank investor.


The transferred NPL portfolio has a gross balance sheet value of c.€1.3bn and a net book value of c.€0.91bn (and RWA of €0.91bn).  At completion, PTSB will receive a consideration of c €0.89bn, implying a €20mn loss on disposal vs provisioned book value. The transaction is expected to complete in H119 and, in conjunction with the expected completion of the €2.1bn Project Glas disposal in Q418, will bring the NPL ratio to around 9.5% in our model. The Glenbreigh transaction is expected to add c.30bps to CET1, subject to regulatory approval, with this fairly modest capital accretion due to the high RWA intensity which will apply to 5% of the RMBS which PTSB will maintain.


Action: We see the disposal as a further positive step by the bank in dealing with legacy NPLs and reducing regulatory pressures on the bank to clean up its balance sheet. The transaction is mildly capital accretive (CET1 +30bps), and should also be slightly ROE and NIM accretive, but will generate a c.€20m loss on disposal vs provisioning. We would note there is some not immaterial execution risks on the transaction due to the political backlash it is likely to generate.


It takes two to tango


As the great and the good of the international political elite gather in the Argentine capital, the spotlight will surely be focussed on the US President, Donald trump and his Chinese counterpart, President Xi Jingping. With a lot of fuzzy rhetoric emanating from both camps in recent days, it’s still all in the air as to whether or not the two parties can settle trade tensions. Some positive musings from the US came from President Trump’s economic advisor, Larry Kudlow, yesterday when he suggested that some type of deal could be made but shortly after that, President Trump was quoted as saying that he is  “close to doing something with China, but he doesn’t know if he wants to do it”. The US/China side meeting is due to take place on Saturday evening. It has also been confirmed that his (Trump) planned one on one meeting with Russian premier, Vladimir Putin, has been cancelled due to the ongoing Ukranian tensions. 


Brexit uncertainty hits consumer confidence


UK consumer confidence falls to -13 November versus -10 October, the weakest since December 2017. Consumer confidence tumbled in November as shoppers dropped plans for spending amid intensifying Brexit uncertainty, figures show. Confidence in the general economy for the coming 12 months fell four points to negative 32 – four points lower than this time last year – as did the perception of personal finances over the past year to negative three.


While spending from consumers fuelled robust economic growth in mid-2018, helped by a hot summer and the World Cup, GfK's report adds to signs the economy is slowing ahead of Britain's exit from the European Union in March next year. Although PM May has agreed the principles of a divorce bill with the EU, she faces large scale opposition from her own party and outside, which has shaken investor confidence in Britain.


With the 11th of December fast approaching, UK PM, Theresa May, is definitely on the front foot. In an effort to garner public support for her Brexit withdrawal deal, she has confirmed that there will be a live TV Brexit debate with Labour leader, Jeremy Corbyn, probably on Sunday the 9th of December. Mrs. May stressed again yesterday that she will not resign if her deal is rejected on the 11th of December and she has all but dismissed a UK customs union with the EU and has also ruled out adopting a Norwegian style deal. 


Economic Forecast


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14.00 US FOMC member Williams Speaks
14.45 US Chicago PMI