Saturday 10 December 2016

Coalition warns banks: reduce variable rates or face levy hikes

Government threatens to remove banks' power to veto debt deals with homeowners facing eviction

John Drennan and Shane Doran

Published 19/04/2015 | 02:30

An Taoiseach, Enda Kenny
An Taoiseach, Enda Kenny

Banks could be hit with severe levy hikes if they continue to refuse to cut variable mortgage rates for 300,000 customers across the country, the Sunday Independent has leaned.

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With the mortgage crisis gearing up to become a key issue in the General Election, Taosieach Enda Kenny, Tanaiste Joan Burton and senior Cabinet members are said to be "furious" at the banks' failure to pass on record low interest rates to hard-pressed homeowners.

Tough new measures to penalise lenders, including hiking the current bank levy of €150m, are now being actively canvassed at the highest levels of the Coalition.

One senior Government source told the Sunday Independent: "Doubling the bank levy could bring in a tidy sum that could be very useful for funding USC cuts."

"Mortgages, arrears and the variable rate are absolutely occupying the attention of the Economic Management Council and have been for some weeks now. This is the chief focus of Cabinet discussions."

Mr Kenny last week came under renewed pressure in the Dail when he was accused of "abandoning" the 300,000 families on variable mortgages, who are forced to pay an average of €6,000 a year more that those on tracker mortgages of around €200,000.

Mr Kenny said he did not have the power to "fix rates", but warned the Government is "not happy with the banks" who are charging far more to customers than they were paying to borrow the money.

While moves to hit banks would be popular politically, it could also frighten investors at a time when Permanent TSB, the country's' largest mortgage provider, is trying to raise €400m from the stock exchange. Potential investors in the much larger State-owned AIB are also likely to be concerned at such a move.

However, senior Government sources told the Sunday Independent that the only way to put pressure on the banks is to "hit them in the pocket".

"All the attention is on the mortgage arrears issue but there is only 30,000 of them, there are 300,000 variable mortgage holders. They are the working poor we talk about," one source said. "The only thing that moves banks is the thought of losing cash."

"The banks are seriously over-playing their hand on the variable mortgages; they are starting to believe their own spin. They would want to be careful. For all of the talk of recovery AIB and PTSB still only operate at our pleasure."

Fine Gael and Labour are also said to be united on the issue of the variable rate. A Government source said: "The banks are forcing this. There is no split, both Fine Gael and Labour are at one on this."

The Government also plans to heap more pressure on lenders over their failure to do deals with homeowners in arrears.

A report by Insolvency Service Ireland (ISI) last week revealed that banks are using their controversial veto to reject debt deals, even if it is costing them more money to do so.

In an interview with the Sunday Independent, ISI chief Lorcan O'Connor said: "It is unusual in that, unlike in other countries, banks are saying no to deals when it would be in their financial interest to agree to. In other countries, banks don't vote no to deals that will give them more money. Banks are voting no for principled reasons, notwithstanding the merits of the cases."

A Labour Government figure said the banks' failure to co-operate fully with the insolvency service "defies commercial logic". He added: "It is destroying hope for families in extremely difficult positions and the Government is not prepared to tolerate it."

The unprecedented move was discussed at the highest levels of the Economic Management Council and comes as the Coalition finalises its plans to combat the mortgage arrears crisis.

Senior government sources said the Coalition, which is currently finalising a package of measures designed to combat the mortgage crisis, is also looking at removing the banks' controversial veto on debt deals.

Under the arrears package, which will be announced at the end of this month following the Spring economic statement, the Circuit Court will review cases where a debt deal is rejected by the banks, in an approach similar to business examinership.

Under the new system, the courts will have the power to overturn the banks' veto, unlike the current regime where the banks' refusal is final and there is no provision for review or appeal.

However one minister warned: "This will not lead to a free for all; it is explicitly designed for solutions where banks are rejecting reasonable deals."

While the Coalition is standing firm on the issue of variable mortgage holders, bitter divisions are emerging between Fine Gael and Labour over plans to reduce the period for bankruptcies.

A new bill put forward by Labour TD Willie Penrose proposed cutting the current three-year bankruptcy term to just one year, similar to the UK. However, Fine Gael want to retain the current system.

Mr Penrose told the Sunday Independent: "Enda loves to say this is the best little country in the world to do business in, but how can that be the case if we have a system of cross-border bankruptcy apartheid on the island where it takes just a year to go bankrupt in the North?"

Sunday Independent

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