using stocks as collateral

box_car_maker

hi there , i have a slightly unusual enquire

i was wondering whether banks have any truck with a stock portfolio when it comes to securing a loan , if i want to borrow 200 k from a bank and own a 300 k stock portfolio , would they be willing to allow me to use the dividend payments from the relevant shares as a way of repaying a mortgage , assuming the dividend earnings met loan repayment demands

i realise they bank might point to the fact that i could simply liquidate the portfolio and blow the money but could the bank sieze control of the portfolio as a form of security

thanks

Liam D Ferguson

What you're suggesting makes perfect sense but I'd say banks are highly unlikely to run with it. At present, they're only running with very straightforward propositions. Anything out of the ordinary is being turned down in my experience.

Even in the good ol' bad ol' days a bank wouldn't take dividend income as suitable income for repayment of a loan.

roro2

The banks used to happily lend up to 50% (probably more in some banks) of the value of blue-chip portfolios - they would take a pledge over the portfolio as security so that you couldn't sell the shares. Dividend income wouldn't really be taken into account in terms of servicing the debt though, and it was not common for mortgage lending - banks strangely preferring bricks and mortar type security despite the flaws in this strategy. But not anymore anyway - and at least one of the main banks was forcing the sale of shares they held as security in order to reduce customers' debt in recent years.

box_car_maker

if a portfolio consisted of high quality companies which consistently pay out dividends year in year out , you would think that offered as much security as a paying job in a country like ireland, i mean , surely the likelihood of mc donalds or shell going out of business is lower than someone who works as a mechanic , teacher or it engineer

again , i point to how the bank could take over the portfolio so i the borrower dont liquidate and blow it

roro2

A lot of the equity collateral the banks held in 05-08 was Irish bank shares, I'd imagine their current policies are in part a reaction to this. Plus lending out the small amounts that they are against equities won't help their mortgage statistics and commitments in this area...