They destroyed our families, factories And they took our homes They left our bodies on the plains The vultures picked our bones –Bruce Springsteen, “Death to My Hometown”
Vulture funds, which I have written about here before, are back in the news courtesy of an excellent new report by Michael Byrne for the Debt and Development Coalition Ireland, entitled From Puerto Rico to the Dublin Docklands: Vulture Funds and Debt in Ireland and the Global South.
Vulture funds make their money by buying up “distressed” debt, i.e. debt that is at risk of not being repaid in full. The original creditor cuts their losses by selling the debt at a discount and the vulture then tries to get back as much as possible of the money owed.
This can be sovereign debt, such as when the NML Capital fund won a 2012 case against the Argentinian government entitling it to full repayment of debts that over 92 per cent of other creditors had long since agreed to restructure. NML now stands to make profits of 1,600 percent at the expense of the Argentinian people.
Another vulture fund – Fir Tree (which is active in Ireland) – has been to the forefront of a campaign to ensure that the government of Puerto Rico repays unsustainable debts by cutting public expenditure and reducing wages and workers’ rights.
The vultures came to Europe to make money out of the €879.1 billion of distressed debt (mostly related to property) estimated to be have been run up by European banks, much of which is now in the hands of public “bad banks” such as Ireland’s National Asset Management Agency (NAMA) and the defunct Irish Bank Resolution Corporation (IBRC).
NAMA’s largest single deal to date – the controversial Project Eagle – saw US fund Cerberus buy a loan portfolio originally worth £4.4 billion for just £1.2 billion.
Many of these loans are for commercial property, but many others are home loans. The Lone Star fund, for example, has acquired the entire loan book of Start Mortgages, which specialized in “sub-prime” lending in Ireland.
Does it matter to the debtor to whom they owe the money? It does if the new creditor is more likely than the old one to aggressively pursue repayment and eviction. Byrne cites US research showing that Lone Star and other vultures are more likely than banks to pursue foreclosure and less likely to negotiate a restructuring of the debt.
Tenants are also under pressure, as people in Tyrrelstown in west Dublin found out when a vulture fund sought to evict them after purchasing the properties. Fir Tree (when it is not busy imposing austerity on Puerto Rico) is amongst the funds that hold shares in the Irish Residential Real Estate Investment Trust (IRES), which is the largest landlord in Ireland after buying a vast number of apartments at a discount from NAMA. IRES has announced it is pursuing 20 percent rent increases across the board.
Where the vultures buy up development land (such as 400 acres in Cherrywood in Dublin), they are more likely to focus on the construction of commercial office space and high-end housing than the affordable accommodation the city desperately needs.
Given the various causes for concern here, it is all the more remarkable (if unsurprising) that the Irish government has been encouraging the vultures’ entry into the Irish market. The Department of Finance reportedly met with vultures 65 times in 2013 and 2014; both Enda Kenny and Michael Noonan met personally with such funds. Lobby groups campaigning for the rights of mortgage holders were reportedly met with just five times by the department over that period.
In March 2015, the department organized a conference specifically to facilitate networking between Irish and international property developers and funds. The vultures are able to avail of various favourable tax arrangements but they are not subject to regulation by the Irish Central Bank.
While ordinary people with mortgages are set to be squeezed by the vultures, not everyone has to repay their debts in full. NAMA, as indicated above, has independent.ie/opinion/columnists/carol-hunt/vulture-funds-circle-as-mortgage-crisis-exacts-its-toll-of-suffering-34694936.html">written off large tranches of debt, including €1.5 billion owed to the agency by just 80 debtors. IBRC wrote off €105 million owed to it by Denis O’Brien when selling him the Siteserv corporation, a subsidiary of which would go on to win contracts for installing water meters.
As Carol Hunt independent.ie/opinion/columnists/carol-hunt/vulture-funds-circle-as-mortgage-crisis-exacts-its-toll-of-suffering-34694936.html">put it in the Irish Independent, “when debt is racked up by governments, corporations, banks, or by privileged insiders, it can always be renegotiated or written off. That’s how the system works. It’s only when debts are owed from the poor to the rich that . . . debt become[s] a sacred obligation. It’s a way of keeping the cash/power flowing upwards. It’s also a way of keeping people in their assigned places.”
For a growing number of people in Ireland, that “assigned place” encompasses unaffordable rents, unsustainable mortgages and, for some, evictions and homelessness. While the vultures pick their bones.