It's time for Governor Honohan to start kicking ass as banks play him for a fool
Published 29/09/2013 | 05:00
HAS Central Banker Patrick Honohan finally lost his halo?
The amiable Governor of the Central Bank has been a consistently popular figure at Oireachtas committees since his appointment in 2009. TDs liked him. He was one of the new brigade, appointed to clean up the mess left by his predecessors. Patrick was a break with the past.
Breaks with the past have turned out to be chillingly familiar faces in the banking world. In 2009, Bank of Ireland recalled its former boss, Pat Molloy, as its "new broom" governor to succeed the unlamented Richard Burrows. In its haste, the board somehow overlooked the reality that Patrick had worked in the same bank for 50 years.
Anglo Irish Bank was inspired. It appointed Alan Dukes as chairman. Few outsiders "went native" as quickly as Dukes. Other great white hopes parachuted on to bank boards as part of the brave new dawn included "public interest directors" like Ray MacSharry, Joe Walsh and Dick Spring. One by one the public has rumbled all these patriotic guys as relics of the old political regime or the discredited banking corps.
After the banking deluge, Matthew Elderfield came – and then vanished – as Financial Regulator. Elderfield, Patrick's deputy down in Dame Street, arrived on a five-year contract to clean the Augean stables. He made a good start, stared into the widening mortgage abyss and suddenly bolted after serving less than four of his five-year contract, heading full speed ahead for Lloyds Bank in London.
Well, thank God, at least we still have Patrick. The stalwart who blew the whistle on the duplicitous Fianna Fail government on November 18, 2010 is still in charge. Few who heard it will ever forget the Governor contacting RTE's Morning Ireland to tell the nation that the IMF was at the door. Politicians, who had been peddling the opposite line, exploded. Patrick was telling the people the truth. We, the people, owe him big time, as one of the few public figures ever to spill the beans in the face of fury from the government that appointed him.
That was Patrick's high point. After all the lies told to the nation, after all the greed, after all the vulgar largesse of the bankers, he was the man of the hour. A modest academic from Trinity College, Patrick was gentle in manner, humble in lifestyle, independent in mind and supremely competent in his understanding of banking.
That is why TDs deferred to him during his earlier appearances at Oireachtas committees. They sensed that the public trusted this man. Their questioning was always respectful, patient and conciliatory. We were all on the same side.
Not last week. By the end of Wednesday's session, TDs and senators, sensing blood, were competing to take lumps out of Honohan. The halo has been removed, the veneer of immunity from verbal attack has gone. Parliamentary bloodhounds like Fianna Fail's Michael McGrath, Sinn Fein's Pearse Doherty and FG's Kieran O'Donnell were sharpening their teeth for a savaging with an enthusiasm they normally reserve for the old guard in banking.
One TD even humiliated Honohan, insisting that the banks were "running rings around him".
Honohan sat alone on the podium. Matthew Elderfield was no longer there to support him. Matthew would have received identical treatment if he had not departed, beating the posse by days.
What has happened?
Honohan's honesty is no longer enough. The professor is blessed with all the qualities of the academic nobility, but there is now one fatal question hanging over his head. As one TD told me after the Governor's least impressive appearance ever: "Paddy cannot kick ass."
He was right. I immediately tried to imagine Honohan meeting Richie Boucher, chief executive of the Bank of Ireland. It would be the classic brain-meets-brawn encounter. If Boucher said "Boo", would Paddy jump?
Is the tail once again wagging the dog?
'Making a lot of noise, but doing very little, is becoming a bit of a habit for Honohan'
The indications are firmly pointing in that direction. Today, Paddy's job is to kick the bankers' asses. The signs are that their buttocks are not even bruised. The only game in town is mortgage arrears. The Central Bank has singularly failed to force the bankers to tackle the problem. Paddy and his cohorts in the bank have emerged with egg all over their faces. Mortgage arrears are continuing to rise, the bankers have managed to duck and dive, to dominate the debate with contrived camouflage like "strategic defaulters" and "legal letters". Paddy looks like an impotent spectator.
He even acknowledged as much on Wednesday. After offering the tired platitudes about how "banks are moving" on mortgage arrears, he boldly asserted that "strategic defaulters" – the bankers' favourite fantasy – were a "phoney concept".
Bravo, because that is not what David Duffy of AIB or Richie Boucher of Bank of Ireland are saying. Duffy based his plan for mortgage arrears resolution on the absurd premise that one in five mortgage defaulters were "strategic". In other words, that 20 per cent of borrowers are capable of paying, but are refusing. Duffy has been babbling this gibberish for months but has been allowed to lead the debate, uncontradicted. Worse still, he has been indulged, permitted by a weak Central Bank to base AIB's policy of mortgage arrears recovery on this make-believe.
Honohan is right. "Strategic defaulters" are probably very low in number. He convincingly spiked Duffy's nonsense when he assured the committee that "people decide themselves how to manage their short-term debt, they prioritise the best they can".
It was good to hear the debate opening wider. Was Paddy again siding with the people against the bankers?
Sadly debate is not enough, Instead of muttering out loud, what is he actually doing about these errant bankers? Has he summoned Duffy and Boucher into his office and bawled them out? Has he threatened to use the powers at his disposal if they continue to thwart his wishes? As one frustrated TD stated last Wednesday: "You are the boss." He does not seem to realise it.
Indeed, quite the opposite. Last week he spent precious committee time lamenting the bankers' failure to deliver on mortgage arrears. "We did not," he wailed, "expect the banks to be so persistently ineffective in getting their arms around this problem and delivering sustainable solutions." He went on to regret that there has been a "degree of wishful thinking" on behalf of the banks on the issue of mortgage arrears.
Not half as much as there has been on the part of the Central Bank. Wishful thinking is infectious. So is denial.
Patrick seems paralysed. He crowned his paralysis on mortgage arrears by revealing that the Central Bank was not going to take the matters revealed by last week's Sunday Independent's Anglo Tapes any further. He simply described the behaviour of the Anglo executives on the tapes as "outrageous". And that was the end of the matter.
Making a lot of noise, but doing very little, is becoming a bit of a habit for Honohan. Behind the benign bluster he has real powers.
He could summon Boucher, Duffy and the others and give them a week. If they continue to thwart his will on mortgage arrears, their banks will lose their licence and they themselves will undoubtedly lose their jobs. Alternatively, he could immediately append relevant conditions to their banking licences.
Honohan can simply tell them that he is imposing a condition on both banks that they must take a more honest view of the dour repayment prospects on their mortgage book. That means making larger, but realistic, provisions for bad debts.
That would soften their coughs.
He is an honest man. Honest men do not merely debate. They take action on big lies like fantasy mortgage provisions. Does he have the bottle? Will the academic kick ass?