Sunday 23 October 2016

Little people brace for yet another hit as banks off hook

Shane Ross

Published 22/11/2015 | 02:30

No role to play: Finance Minister Michael Noonan says it is not for him to monitor what
is happening on the bank floor; inset, how Shane Ross’s column from August 2014 warned
shareholders of the imminent collapse of AIB shares
No role to play: Finance Minister Michael Noonan says it is not for him to monitor what is happening on the bank floor; inset, how Shane Ross’s column from August 2014 warned shareholders of the imminent collapse of AIB shares

Remember the Banking Inquiry? The big game changer that was set to sort out Irish bankers once and for all. It was destined to uproot the diseased banking culture. Ireland's little people would never again be bullied. A general election was even postponed to accommodate it.

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Last week, the first draft of the doomed Banking Inquiry report landed. TDs on the Banking Inquiry Committee anticipated dynamite. They were deeply disappointed to discover the tortuously tepid tome that was presented to them for approval. Silent outrage bubbled beneath the surface in Leinster House all week.

One Inquiry insider told me that the draft report was " bulls**t", another that it "has been castrated". He was wrong, the Inquiry was born a eunuch.

Finally, an influential TD on the Inquiry insisted not only that it will be radically changed by the politicians, but there will be at least one minority report. The omens are woeful.

The Banking Inquiry is in tatters. Its fundamental flaws are coming home to roost. Seen by Coalition politicians as a picture opportunity, a media-fest of bankers and Fianna Fail on parade, they are now hoisted by their own petard. The final report will be emasculated.

The report was not written by the members. According to an Inquiry spokesperson it was penned by the "investigators", anonymous "experts" appointed to assist the Inquiry in its work.

And who are they? Well, there are no less than 20 of them, led by three "senior" investigators. Not being politicians they are hardly in the grandstanding business. They are sticklers for the rigid rules.

Politicians want to lambaste a few bankers. Fine Gael members want to hang Fianna Fail before the election. If they had been given free rein, political rhetoric would have by-passed the absurdly restrictive rules of the Inquiry.

The rules forbade adverse findings of fact against individuals and banned even the perception of bias against anyone, banker or politician. They were utterly crackers, but the investigators' draft report has probably implemented them to the letter. Senior investigator Peter Murray is a career banker. His experience in banking includes two years at the Bank of Ireland, a seven-year stint at ACC and 15 years with a German bank. He recently finished a stint in the Nama stable.

Two other "senior" investigators lead the team of authors. The first is Helen Bunbury, who boasts 16 years at insurance giant RSA. The second is Pat McLoughlin, whose credentials include 25 years at the HSE and other health boards.

There are 17 other "investigators" who helped with the draft report. What sort of a banking report would you expect from 20 non-political people accustomed to abiding by the terms of reference?

The bankers are almost out of the woods. Sidelined politicians threatening to 'decastrate' the report should have thought of this before they agreed the terms of engagement.

It will be an uphill task. If they fail, the Inquiry could partially restore the reputations of many villains of the banking collapse. What a boomerang. Of course, the report is full of criticism, but it will hit out at the system, pulling its punches on the actions of the big players.

The big shots are almost off the hook. The little people of Ireland will stand and stare as the relieved bankers walk away from the Inquiry. It will offer no hope to those who suffered at their hands, the small savers, vulnerable borrowers or battered shareholders.

They never mattered. Nothing has changed: only last week the little people of Ireland will have been equally stunned by another emerging banking scandal. While Banking Inquiry TDs were strutting the corridors of Leinster House with steam coming out of their ears, mandarins in the nearby department of finance were plotting with AIB to put the finishing touches to the sale of the bank. A reorganisation of AIB's shares was confirmed. Ninety thousand small shareholders will be sacrificed, forced to accept one AIB share for every 250 they hold. The effect of the measure was to decimate AIB's share price.

The State will benefit from this manoeuvre. AIB will benefit. Small shareholders will be further impoverished. AIB shares have nearly halved, tanking from 7.5 cents to 4 cents as the news emerged. Widows and orphans have been sinking funds into AIB in recent months at absurdly high levels in the misguided belief that the good news being spun about AIB's recovery would be reflected in a share price that stood at a deceptively tempting 11 cents. They saw B of I shares trading above 30 cents and naively bought AIB in the vain hope of a dividend and a capital gain.

All the time, clever professional investors were unloading. They knew that the market in AIB shares was saturated. Insiders fully understood that AIB shares were grossly overvalued. It was a one-way bet. Michael Noonan warned them. Journalists warned them. AIB's chairman himself, Richard Pym, warned them.

Many small investors did not hear the warnings. Most didn't understand that they were doomed. Others clung desperately onto their shares at 11 cents, as they had already watched them tumble from a giddy €24.

The AIB share 'fix' had been signalled months ago in language that no layman could possibly understand. The big shots understood what was going on in this sophisticated piece of financial acrobatics. The smaller fry simply saw the single digit price of a once safe-haven investment and bought, believing that they could not go wrong, long- term.

There will be no long term. AIB was vastly overvalued - at more than the mighty Deutsche Bank - by the innocents in the market. Every stockbroker in town knew this. Yet how did they allow their clients to jump into certain oblivion?

And why did AIB not demand that its shares were suspended from dealings as a false market was in existence?

Banks never do the decent thing. Stockbrokers and the stock exchange are in the same loop. Last Thursday, in answer to a question why the Irish stock exchange had not suspended AIB shares, a spokesman told me that "the market price of an individual company's shares is determined by the price at which a seller is willing to sell and a buyer is willing to buy."

In other words, "we are not in the business of protecting 90,000 small mug punters". The fortune of the market favours the bankers, not the brave.

Victims of the system need not look to the Banking Inquiry or to politicians to save them.

Mortgage holders and small customers are in the same danger zone.

In the Dail last Wednesday, Michael Noonan threw them to the wolves. Under questioning from Banking Inquiry member Michael McGrath, the Minister for Finance

responded that he had "no role in directing the day-to day activities of Bank of Ireland or any other bank".

He weakly "disapproved" of Bank of Ireland's decision to impose minimum limits on over-the-counter withdrawals of €700 and of €3,000 on lodgements. He even believed it was "unnecessary". He protested that it was not for him to "go in and monitor what is happening on the floor of the bank"

He pointed out that although he held 14pc of Bank of Ireland shares, Bank of Ireland is a "private bank that is quoted on the Stock Exchange".

Decoded, leave the banks to do their own thing. Customers are collateral damage.

In answer to another question about the Bank of Ireland's refusal to reduce its sky high Standard Variable Rate mortgages to suffering borrowers, the minister even chastised customers for their "inertia" in responding to 1pc reductions.

Oh, it's the lazy customers' fault, not the devious bankers'.

The Banking Inquiry is set to fizzle out. Even before the ink is dry bankers are back to business as usual.

Sunday Independent

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