Vulture Funds are back in the news this week as Permanent TSB has sold more than 10,000 loans to Start Mortgages, an affiliate of the Texan based Vulture Fund, Lone Star.
During the boom, Start Mortgages specialised in sub-prime loans to people unable to get loans from mainstream lenders. They then charged massive interest rates on this money and took aggressive action to repossess homes when people inevitably got into difficulty. In Ireland they have been one of the most active financial institutions in court repossession cases.
Just last year they were forced to stop repossession proceedings when it emerged that Start had been overcharging people illegally here. Instead of putting people out of their homes they had to reduce arrears and interest rates for a number customers thought to be in the thousands. This is ominous for the more than ten thousand mortgages sold to Start by PTSB.
Figures released by the company indicate that 7,400 of the mortgages in the Project Glas Portfolio are owner occupiers with 3,300 buy-to let mortgages also included. This will be a disaster for families if Start Mortgages continue to play their usual game.
Leo Varadkar has stated that he hopes the borrowers won’t be treated any differently, but his government has a 75% stake in PTSB and has effectively washed its hands of any responsibility.
As the major shareholder the government should have insisted that the bank go through the loan book on a case-by-case basis to stop people ending up on the streets. But they want the Vulture Fund to do their dirty work and meanwhile the share price at PTSB is up by 9%.
Lone Star got the mortgages for €1.3 billion even though they were originally valued at more than €2 billion. As if this discount of 35% wasn’t generous enough the company are also notorious for dodging their taxes.
Back in 2014, Lone Star made a profit of €1.24 billion thanks to its acquisition of billions worth of distressed assets. Ordinarily this would be expected to bring in hundreds of millions for the state, but thanks to creative accounting, Lone Star was able to escape with a bill of just €1 million – or less than 0.1% tax.
This was because the company had a second operation based in Luxembourg called LSF Lendings Sarl which ‘loaned’ large amounts of money to its Irish counterpart.
The Irish wing then used the interest it paid to itself as a way of writing down its Irish taxes. This particular avoidance mechanism is part of a family of tax dodging schemes introduced by Section 110 legislation. This loophole was (partly) shut off in 2016, but there is growing evidence that the government closed one loophole and opened up another one. According to this week’s Sunday Business Post for example, Vulture Funds are putting new strategies in place to avoid their taxes with considerable help from the state. This time the offending legislation is called L-QIAIF introduced in 2013 to attract the vultures here in the first place. Reacting to criticism that he was too close to the vulture funds, the ex-Finance Minister, Michael Noonan, once admitted that “vultures, carry out a very good service in the ecology. They clean up dead animals that are littered across the landscape”. This view dominates amongst the Irish establishment with a whole range of supports in place for these predatory financiers that are never available to ordinary people.
In the wake of the €13 billion Apple scandal, the government claimed to be cracking down on tax evasion, but research by the Trinity academics, Jim Stewart and Cillian Doyle has confirmed that, since 1997, the Revenue Commissioners have not initiated a single audit of a section 110 special purpose vehicle (SPV’s) or launched an investigation to make sure that any money coming into them was not was not from illegal sources.
The academics also revealed that the Irish tax authorities rarely meet to discuss the impact of Section 110 legislation, despite the fact that the IFSC plays host to hundreds of tax avoiding SPV’s via the brass plate operations of the major corporate law firms. In any genuine republic this would not be allowed to continue.
People Before Profit have put forward a range of suggestions to close tax loopholes and make the rich pay their way. We have also sponsored legislation that would stop people being put out of their homes but, as usual, this was voted down by the establishment parties. The vultures have won this round but we won’t be giving up without a fight. If anyone hears of people being evicted from their homes get in touch with PBP and we will help to organiser direct action in your area.