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spyguy

Bradford & Bingley " ASSETS " [LOL] sold off

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Fergus has a new master!

http://www.bbc.co.uk/news/business-39452635

' UK Asset Resolution (UKAR), which has been handling the sale, says that terms and conditions for the 104,000 loans will not change. '

They dont need to. BTL are sold on commercial terms which, if any one bothered to read, they would not borrow!

I guess the IRs will be going up though ...

 

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I posted on this too!

Id use the word 'flushed' rather than 'sold' for the remaining stinking shit high quality assets.

 

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.

Quote

 

http://uk.reuters.com/article/uk-britain-bradford-bingley-mortgages-idUKKBN1720MK

Britain has sold a portfolio of mortgages issued by failed lender Bradford & Bingley for 11.8 billion pounds to insurer Prudential (PRU.L) and buyout firm Blackstone (BX.N) in one of the biggest deals of its kind.

The British government forecast this month that it will make a 23.5 billion pound loss on the cost of bailing out the country's failed banks at the height of the financial crisis.

 

The mainstream media likes to talk about the bit of taxpayer money retrieved but rarely if ever about the massive losses.  

So is the bit of money retrieved going to go towards their own VI pet projects (like pumping up house prices) or towards investing in rebalancing the UK economy.

Edited by billybong

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I'd feel better if this sale wasn't to another company that may well need a bail out if there's another crash any time soon. All the same, good to get it off the books for a while. I wonder if this has any impact on our favourite BTL landlord?

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1 hour ago, TheBlueCat said:

I'd feel better if this sale wasn't to another company that may well need a bail out if there's another crash any time soon. All the same, good to get it off the books for a while. I wonder if this has any impact on our favourite BTL landlord?

Its been sold to Blackstone.

The T+Cs are on a commercial basis.

 

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12 hours ago, spyguy said:

Fergus has a new master!

http://www.bbc.co.uk/news/business-39452635

' UK Asset Resolution (UKAR), which has been handling the sale, says that terms and conditions for the 104,000 loans will not change. '

They dont need to. BTL are sold on commercial terms which, if any one bothered to read, they would not borrow!

I guess the IRs will be going up though ...

 

Excellent!

 

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5 hours ago, spyguy said:

Its been sold to Blackstone.

The T+Cs are on a commercial basis.

 

Blackstone (no bailout) + Prudential (likely bailout if it came to it - think AIG).

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19 hours ago, billybong said:

.

The mainstream media likes to talk about the bit of taxpayer money retrieved but rarely if ever about the massive losses.  

So is the bit of money retrieved going to go towards their own VI pet projects (like pumping up house prices) or towards investing in rebalancing the UK economy.

I make that £23.5 billion loss, a £367 loss for every one of the 64 million population in the Uk.

£1 a day  for a year .

Bradford & Bingley    Blackstone & Bung Free ( a £367 bung from 64 Million of us,without our consultation or consent )

According to this article today (Google reveals latest UK tax bill www.bbc.co.uk/news/business-39456662 )

Quote

"Our most recent figures show that HMRC brought in a record £26bn in extra tax for our public services, with £7.3 billion of that total coming from the 2,100 largest and most complex businesses in the UK." 

SO that's nearly a record extra tax haul , I assume for  a year,  wiped out 

 

Edited by Saving For a Space Ship

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2 hours ago, Saving For a Space Ship said:

I make that £23.5 billion loss, a £367 loss for every one of the 64 million population in the Uk.

£1 a day  for a year .

Bradford & Bingley    Blackstone & Bung Free ( a £367 bung from 64 Million of us,without our consultation or consent )

According to this article today (Google reveals latest UK tax bill www.bbc.co.uk/news/business-39456662 )

SO that's nearly a record extra tax haul , I assume for  a year,  wiped out 

 

+1

and it's a government forecast.  How accurate will that turn out to be considering all their other forecasts typically overestimate the upsides and underestimate the downsides.

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17 hours ago, mrtickle said:

Excellent!

This will not be the case for many Mortgage Express borrowers. The bank wrote a shit ton of mortgages which reverted to being trackers at base rate +1.75% (so currently 2%). We have the Property118 result against the West Brom as clear evidence that these Mortgage Express mortgage contracts, which have been honoured thus far, will be honoured going forward - particularly if the government has made a guarantee that existing terms and conditions are honoured part of the terms of the sale and has sold at a value which reflects the fact that a lot of these loans pay a very low interest rate.

However, if you want something to be cheerful about you can reflect on another way in which Blackstone can act consistent with the terms and conditions. The Mortgage Express mortgages have the LTV clauses which walk and talk like margin calls (h/t as always to Paddles, link).

Hence Blackstone may be in a position where they hold a loan with a nominal value of £100 which pays 2% before the costs associated with managing it. However they bought it below the book value and indeed below the fair value.

Now at 31 March 2016 the book value (which will be the nominal value less impairments) of the B&B Mortgage Express BTL loans in UKAR was about £17bn (source).

A simplified way to look at what happens next is to imagine how these loans look to a bank. If the bank can borrow money at, say, 1.5% and expects the costs of running the mortgage book to amount to, say, 0.25% of its value per annum, so about £40m a year for the £17bn BTL loans, then what you are looking at is locking up some of your regulatory capital to get something which pays 0.25% net. You could get more than that by buying long-dated gilts. Hence if you want to sell a mortgage like this which has a nominal value of £100 you need to sell it for less than £100.

Let's say that after the fair value adjustment Blackstone end up paying £75 for the £100 loan.

They can now win big if they can force redemption, because the borrower pays back the nominal value of the debt (£100) and not what Blackstone paid for the debt (£75).

The PovertyLater muppets are always talking about "corporate big boys" and how these politically connected companies are going to be the ultimate beneficiaries if the leveraged portfolio muppets get rinsed. Time will tell if they are right or not, but what the PovertyLater clowns may not have considered is that there's now a "corporate big boy" who can make an absolute killing if house prices fall and they can call in all these mortgages. You don't even need massive falls to start triggering these clauses.

Here's the most recently publicly available state of play on the UKAR B&B mortgage book (same source as before, UKAR B&B accounts):

58dfba62c7a8c_BandBbookLTV31March2016.png.76c490ae6bde930614f59cb67626d2a4.png

These margin call clauses have been the dog that didn't bark for a long time now. It will be interesting to see if we're finally entering the phase where a suitably motivated vulture has the opportunity to use them to pick some flesh off the corpse of UK BTL. Blackstone may not be the pantomime villains that some of their critics made them out to be in light of their involvement in Southern Cross, but if I was a portfolio landlord paying 2% on a mortgage I'd not bet my life that they'll have my best interests at heart.

Edited by Bland Unsight

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6 hours ago, The Knimbies who say No said:

Osborne's new employer Blackstone?

Osborne is at BlackRock. Blackstone is real estate focussed private equity. Blackstone sold a modest mortgage securities business, BlackRock in 1994 which has grown into the monster asset management business that recently hired Osborne. The two are now wholly separate and fish in different ponds.

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7 hours ago, Bland Unsight said:

This will not be the case for many Mortgage Express borrowers. The bank wrote a shit ton of mortgages which reverted to being trackers at base rate +1.75% (so currently 2%). We have the Property118 result against the West Brom as clear evidence that these Mortgage Express mortgage contracts, which have been honoured thus far, will be honoured going forward - particularly if the government has made a guarantee that existing terms and conditions are honoured part of the terms of the sale and has sold at a value which reflects the fact that a lot of these loans pay a very low interest rate.

However, if you want something to be cheerful about you can reflect on another way in which Blackstone can act consistent with the terms and conditions. The Mortgage Express mortgages have the LTV clauses which walk and talk like margin calls (h/t as always to Paddles, link).

Hence Blackstone may be in a position where they hold a loan with a nominal value of £100 which pays 2% before the costs associated with managing it. However they bought it below the book value and indeed below the fair value.

Now at 31 March 2016 the book value (which will be the nominal value less impairments) of the B&B Mortgage Express BTL loans in UKAR was about £17bn (source).

A simplified way to look at what happens next is to imagine how these loans look to a bank. If the bank can borrow money at, say, 1.5% and expects the costs of running the mortgage book to amount to, say, 0.25% of its value per annum, so about £40m a year for the £17bn BTL loans, then what you are looking at is locking up some of your regulatory capital to get something which pays 0.25% net. You could get more than that by buying long-dated gilts. Hence if you want to sell a mortgage like this which has a nominal value of £100 you need to sell it for less than £100.

Let's say that after the fair value adjustment Blackstone end up paying £75 for the £100 loan.

They can now win big if they can force redemption, because the borrower pays back the nominal value of the debt (£100) and not what Blackstone paid for the debt (£75).

The PovertyLater muppets are always talking about "corporate big boys" and how these politically connected companies are going to be the ultimate beneficiaries if the leveraged portfolio muppets get rinsed. Time will tell if they are right or not, but what the PovertyLater clowns may not have considered is that there's now a "corporate big boy" who can make an absolute killing if house prices fall and they can call in all these mortgages. You don't even need massive falls to start triggering these clauses.

Here's the most recently publicly available state of play on the UKAR B&B mortgage book (same source as before, UKAR B&B accounts):

58dfba62c7a8c_BandBbookLTV31March2016.png.76c490ae6bde930614f59cb67626d2a4.png

These margin call clauses have been the dog that didn't bark for a long time now. It will be interesting to see if we're finally entering the phase where a suitably motivated vulture has the opportunity to use them to pick some flesh off the corpse of UK BTL. Blackstone may not be the pantomime villains that some of their critics made them out to be in light of their involvement in Southern Cross, but if I was a portfolio landlord paying 2% on a mortgage I'd not bet my life that they'll have my best interests at heart.

I always enjoy your more technical posts but this is a treasure.

I think you've nailed it with the comments I've highlighted.These margin call clauses were never politically acceptable being initiated by a UK high st bank.

 

Edited by Sancho Panza

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6 hours ago, Bland Unsight said:

This will not be the case for many Mortgage Express borrowers. The bank wrote a shit ton of mortgages which reverted to being trackers at base rate +1.75% (so currently 2%). We have the Property118 result against the West Brom as clear evidence that these Mortgage Express mortgage contracts, which have been honoured thus far, will be honoured going forward - particularly if the government has made a guarantee that existing terms and conditions are honoured part of the terms of the sale and has sold at a value which reflects the fact that a lot of these loans pay a very low interest rate.

However, if you want something to be cheerful about you can reflect on another way in which Blackstone can act consistent with the terms and conditions. The Mortgage Express mortgages have the LTV clauses which walk and talk like margin calls (h/t as always to Paddles, link).

Hence Blackstone may be in a position where they hold a loan with a nominal value of £100 which pays 2% before the costs associated with managing it. However they bought it below the book value and indeed below the fair value.

Now at 31 March 2016 the book value (which will be the nominal value less impairments) of the B&B Mortgage Express BTL loans in UKAR was about £17bn (source).

A simplified way to look at what happens next is to imagine how these loans look to a bank. If the bank can borrow money at, say, 1.5% and expects the costs of running the mortgage book to amount to, say, 0.25% of its value per annum, so about £40m a year for the £17bn BTL loans, then what you are looking at is locking up some of your regulatory capital to get something which pays 0.25% net. You could get more than that by buying long-dated gilts. Hence if you want to sell a mortgage like this which has a nominal value of £100 you need to sell it for less than £100.

 

Also worth considering the fact that they'll be well aware there's a massive risk to their capital ratios given the p1ss poor quality of the mortgage underwriting by B&B et el.

There's every incentive for them to collect their profits now.

PS Bland,any chance you can link me to the Basel 3 thread you and Neverwhere have running.I bookmarked it but have accidentally wiped it and am useless with the search function on here

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3 hours ago, Bland Unsight said:

Osborne is at BlackRock. Blackstone is real estate focussed private equity. Blackstone sold a modest mortgage securities business, BlackRock in 1994 which has grown into the monster asset management business that recently hired Osborne. The two are now wholly separate and fish in different ponds.

Apologies, thanks for the correction, and 'istry.

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I am probably missing something but doesn't the table show a significant LTV improvement over 2015/2016?  I.e.the riskiest (>100% LTV) loans are a third of what they were in 2015?

I am also wondering whether the is likely to be a reluctance for such margin calls until HPI really turns to HPC:  

Forced sales could spread price reductions into the wider market.  Other LTVs get higher: more forced sales, etc. Snowball effect  

Guess it depends on Blackstone's view whether HPC has started; if not, it may still be too early to kill zombies. 

Just playing devil's advocate here.   

8 hours ago, Bland Unsight said:

58dfba62c7a8c_BandBbookLTV31March2016.png.76c490ae6bde930614f59cb67626d2a4.png

 

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1 hour ago, Bear Hug said:

I am probably missing something but doesn't the table show a significant LTV improvement over 2015/2016?  I.e.the riskiest (>100% LTV) loans are a third of what they were in 2015?

I am also wondering whether the is likely to be a reluctance for such margin calls until HPI really turns to HPC:  

Forced sales could spread price reductions into the wider market.  Other LTVs get higher: more forced sales, etc. Snowball effect  

Guess it depends on Blackstone's view whether HPC has started; if not, it may still be too early to kill zombies. 

Just playing devil's advocate here.   

I am Saturday night drunk so I'll take this in steps.

Firstly my point in posting the table is that as the LTV clauses will generally be at 85% LTV so a 30% price fall brings lots of them into play. One sometimes hears BS arguments from leveraged landlords that they have such a magnificent equity cushion that even a 50% fall doesn't matter. The point posting the table is not to highlight that it improved last year. Of course it improved, house prices went up. The point of the table is that even though the underlying mortgage book closed almost ten f**king years ago there are still more than 30% of the mortgages which hit LTV margin call clauses on a 10% price drop. That is £5bn pounds worth of mortgages.

Secondly, lenders do not benefit from house price inflation directly. If they have an open mortgage book then they love HPI because it means the open mortgage book grows because people who are paying more to buy houses to must borrow more to pay higher prices, hence paying more interest etc. Neither of the two purchasers of this closed mortgage book are active mortgage lenders with open mortgage books. The whole attraction of BTL to borrowers is that mortgage borrowers keep the whole capital gain when banks stake BTL borrowers with money borrowed from depositors. Blackstone don't have an upside on these mortgages if prices stay high or go higher. If that happens then they just get what they paid for. The pay off is best if prices fall.

Thirdly, you're wrong about a vulture's perspective on a mortgage book. If prices fall by 40% then the stuff they bought at 50% LTV breaches its LTV rule. They can now repossess that and sell it. If you are the vulture who just bought the Mortgage Express loan book there is a sweet spot on the depth of a house price crash (and you have a quant who has access to all the data they need to tell you where it is) but the sweet spot is a fall in house prices. The bet pays off when prices fall.

Edited by Bland Unsight

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11 minutes ago, Bland Unsight said:

Thirdly, you're wrong about a vulture's perspective on a mortgage book. If prices fall by 40% then the stuff they bought at 50% LTV breaches its LTV rule. They can now repossess that and sell it. If you are the vulture who just bought the Mortgage Express loan book there is a sweet spot on the depth of a house price crash (and you have a quant who has access to all the data they need to tell you where it is) but the sweet spot is a fall in house prices. The bet pays off when prices fall.

Addendum: If you are a vulture, the price level of the sweet spot is zero, provided you are the first to sell as each wave of f**kwits gets eviscerated. That's true all the way down. It's also a lot of f**kwits. Fortunately UK property offers a surfeit of f**kwits. We even have a collective noun for f**kwits; accepted usage is a PovertyLater of f**kwits.

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27 minutes ago, Bland Unsight said:

Addendum: If you are a vulture, the price level of the sweet spot is zero, provided you are the first to sell as each wave of f**kwits gets eviscerated. That's true all the way down. It's also a lot of f**kwits. Fortunately UK property offers a surfeit of f**kwits. We even have a collective noun for f**kwits; accepted usage is a PovertyLater of f**kwits.

Further addendum: Some of the Property118 members know all this, but most don't. The ones who do keep their mouths shut and their tenants on six month ASTs. The ones who don't are spending tonight posting Grade A horseshit here. Posting horseshit won't save them from what's coming.

Sell now, sell everything.

 

Edited by Bland Unsight

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9 hours ago, Bland Unsight said:

Addendum: If you are a vulture, the price level of the sweet spot is zero, provided you are the first to sell as each wave of f**kwits gets eviscerated. That's true all the way down. It's also a lot of f**kwits. Fortunately UK property offers a surfeit of f**kwits. We even have a collective noun for f**kwits; accepted usage is a PovertyLater of f**kwits.

Thanks - I think I get it now.

Very low interest mortgages are good for the borrowers (who are in no rush to repay them) and bad for the lender.  Margin calls are lender's opportunity to get the loans repaid.

As prices fall, more and more loans qualify for the margin calls. 

I guess in the falling market it's also in the lender's interests to do the margin calls as soon as possible: any delays could mean they wouldn't get the all of the loan's value back.

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2 hours ago, Bear Hug said:

Thanks - I think I get it now.

Very low interest mortgages are good for the borrowers (who are in no rush to repay them) and bad for the lender.  Margin calls are lender's opportunity to get the loans repaid.

As prices fall, more and more loans qualify for the margin calls. 

I guess in the falling market it's also in the lender's interests to do the margin calls as soon as possible: any delays could mean they wouldn't get the all of the loan's value back.

That is how I understand matters.

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18 minutes ago, Bland Unsight said:

That is how I understand matters.

With margin calls, do you think the push will be to get rid of these borrowers and the property or just move them onto rates more appropriate to the position these people find themselves in? Offers the customers cannot refuse...

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1 hour ago, 24 year mortgage 8itch said:

With margin calls, do you think the push will be to get rid of these borrowers and the property or just move them onto rates more appropriate to the position these people find themselves in? Offers the customers cannot refuse...

Now that is an interesting thought...

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