Your choice of institution will define how debts fare
IT'S a bitterly unjust world for those whose Celtic Tiger investments have turned to salt. Some borrowers are getting off with "settlements" that see portions of their loans vanish into the great abyss, while others have to agree to have their wages "garnished" for decades to pay off what they owe.
Borrowers in the exact same position could just as easily find themselves with no settlement options at all -- some banks prefer to simply seize the assets or take court actions.
And then there's a whole other group of people who have yet to see any consequences from their reckless borrowing, because their number simply hasn't come up yet. Banks are universally reluctant to talk about their policies for dealing with troubled loans. In fact, some even make every customer that strikes a settlement sign a non-disclosure agreement so word won't get out.
The big fear is that if a bank is seen to be doing "deals" with some borrowers, other borrowers who can meet their obligations will demand the same deal and refuse to pay up.
But senior banking and other well-placed sources confirm that deals are indeed being done with borrowers across a whole range of institutions, including Ulster Bank, ACC, National Irish Bank, Anglo Irish Bank and Bank of Scotland (Ireland).
"Our opening statement is always that we don't do debt forgiveness," says one banking source. "We tell the borrower that we expect them to do everything that they can to pay off their debt in full.
"But we also tell them that we recognise that you can't get blood from a stone, and that in those circumstances, when all options have been exhausted, we are willing to settle."
Deals are usually cut only after banks have investigated the borrower rigorously, demanding detailed accounts of their income and spending and getting accountancy firms to carry out searches for any hidden assets.
The actual level of settlements action is still reasonably low, but more action is expected over the coming months as the domestic banks intensify efforts to get to grips with their troubled loan books.
Bank of Ireland has set up "challenged bank units" across its commercial lending areas and has assigned every customer to either "healthy" or "challenged" teams. Property cases are dealt with through a separate Special Property Group.
Over at AIB, management is setting up Enterprise Lending Solutions (ELS) units. The ELS allows customers with particular needs to deal with more specialised staff who will be able to better assist them on restructuring options.
The units are being actively staffed up, with AIB allegedly head-hunting at least 20 staff from Anglo Irish Bank's recovery unit and tapping some of the foreign banks for talent.
Almost all hires are on a short-term basis, reflecting the intensity of the work AIB expects to do in the immediate future.
The establishment of AIB's ELS comes four years after Ulster Bank began beefing up its Global Restructuring Group (GRG), and ACC and Bank of Scotland Ireland (BoSI) began turning up the heat on borrowers.
"AIB has been at sea," says one industry source. "In the past, when you went to meet them, the first thing you'd notice is there'd be eight people in the room, then they'd form a subcommittee of four to discuss things, then they'd put it off for a few months.
"Bank of Ireland is better, but they're both way behind the foreign banks." AIB and BoI are seen as the "nicest" banks to have a troubled debt with, even though they're less inclined to do settlements than some of the other banks.
"A bank like ACC sees everything as black and white; if someone can't pay, they're offered a settlement; if they can't pay that, it's receivership," says one industry source.
"National Irish Bank wouldn't be a million miles away."
BoSI is also known for settling or sending in receivers, while KBC pursues "mutually acceptable payment arrangements" through its dedicated recovery unit and Ulster is known for being "pragmatic" when debts can't be paid.
Anglo's regime chimes more with the foreign banks than BoI and AIB; settlements, sometimes by doing a deal with borrowers and sometimes by selling on the loan and letting the new bank deal with it, with every decision come down to what's most cost-effective for the bank.
Despite owning Anglo and AIB, the Government appears to be doing nothing to even the playing field of how people in identical situations are dealt with by the two institutions.
The Central Bank is trying to standardise things across all banks by framing a new code of conduct for how SMEs in "financial difficulties" are dealt with, not dissimilar to the code on mortgage arrears.
But ultimately it will still come down to a judgment call for individual banks on whether they decide to work with a business or call in the receiver, to write off a debt or sue for payment. When it comes to recovery, fairness across borrowers doesn't really come into it.