independent

Sunday 20 April 2014

Shane Ross: Paddy confronts banker cabal

LAST Thursday, Patrick Honohan laid claim to be Brian Lenihan's proudest legacy.

The Central Bank governor stabbed his new Fine Gael/ Labour masters in the back at a conference in Dublin. At the same time, he delivered an uppercut to Ireland's bankers.

His outburst of independence was true to form. Honohan is happy to lash out at any body obstructing economic recovery. Almost a year ago, he had rebuked his patrons -- the late Brian Lenihan and Taoiseach Brian Cowen -- for allowing their Cabinet colleagues to peddle porkies by denying rumours of talks with the IMF. Patrick spilled the beans when he chose RTE's Morning Ireland flagship programme to tell the nation that the IMF's Ajai Chopra was already packing his suitcase for a swoop on Dublin.

The intervention was explosive. The Government was forced to come clean.

Lenihan and Cowen are believed to have blown their tops. Their chosen Messiah had betrayed them.

Patrick is nobody's prisoner in the political betrayal stakes. On Thursday, he betrayed the new Government and the nation's bankers in the same speech -- which is exactly what the nation needs in a central banker.

Once again, Patrick's timing was deadly. A day after the Kenny/Gilmore regime had published its long-awaited report on mortgage arrears, the bearded academic launched his broadside on the bankers' delay in addressing the mortgage crisis. He called on them to stop pussyfooting.

He insisted that they had plenty of capital to tackle the job, declaring that, to date, banks have restructured relatively few loans. They should "ramp up" their efforts.

Patrick was on the button. In the process, he did the authors of the mortgage report no favours. He was torpedoing it.

Quite a scolding for the bankers from the governor, just as they were grovelling back into favour with the Government.

A day earlier, the Irish Bankers Federation (IBF) had "welcomed the publication of the report and recommendations... on mortgage arrears".

A kiss of death for the report. If the Irish Bankers Federation wanted to do the Government any favours it should have buttoned its lips. If the mortgage report is good news for the bankers, the rest of us should hold our noses.

Hold them tight. It is a banker's charter.

Is anyone surprised? It was, at least partially, written by them. This "inter-departmental group" was stuffed with civil servants and... guess who?

Yes, buried at the bottom of Appendix 3's list of authors of the report are the names of two bankers. Above them, three central bankers and 16 civil servants are listed. The group was chaired by Declan Keane, seconded from elite accountants KPMG -- which happens to be auditor to AIB.

There were no punters in the cabal, nobody in trouble with their mortgage, no representatives of those at the mortgage coalface like MABS, New Beginning, the Free Legal Advice Centre or St Vincent de Paul. Comfortable civil servants, an elite accountant, central bankers and two bankers are handing down solutions for those fighting to hold on to their homes.

The findings were entirely predictable, considering the composition of the cabal.

The two bankers, incredibly, both came from the AIB stable. Neither has an obvious record of sympathy for the punter's plight.

The first, Michael Quirke, is AIB's head of mortgage products. He rarely surfaces above the parapet, but last year he was first out of the traps to defend a crippling 0.5 per cent hike in variable mortgages from AIB, the second in a year.

Mike was unsympathetic to the difficulties facing his customers. He maintained that the increase (of €50 a month on a €100,000 mortgage) was a "measured response" to the challenges facing AIB and was necessary to ensure that the bank achieved an economic return on its mortgage book.

Every inch a banker. Indeed, Mike helped to create the problem of mortgage arrears!

Ditto the other banker on the working group: Owen Purcell, head of retail products at EBS (now owned by AIB) for several years.

The two bankers chosen to join the dreaded group held key positions at the mortgage arm of their banks at a time when both were sinking into deep doo-doo for overlending. No wonder the report was welcomed by the IBF. It is a tonic for those it coyly calls "the mortgage lenders" -- meaning, of course, the bankers themselves. It ominously refers to a range of solutions to be developed "by the banks".

The last people on God's earth that should be allowed to develop the solutions are the banks. On Tuesday, my Dail colleague Joe Higgins described letting the banks provide the solutions as "like sending a bunch of marauding foxes that had raided a henhouse back to give mouth-to mouth resuscitation to their victims".

The report is an a-la-carte menu of mortgage reliefs. It lacks any radical approach. It includes bank-friendly solutions like split mortgages, trade-down homeloans, relief schemes -- but no blanket write-offs.

Many of the solutions are sensible, but the general thrust is a cop-out, handing our old enemies the bankers the new tools with which to carry out their crucifixion. If the Government buys in to this report, it will be the latest regime to fall under the bankers' spell.

Suddenly, on Wednesday, a white knight rode to the rescue. As the Government shaped up for a two-day Dail debate -- followed by the ritual capitulation -- an unlikely genius appeared with an awkwardly sensible alternative.

Fianna Fail published a bill. Michael McGrath, of the non -toxic wing of Fianna Fail, circulated a solution that reduced the power of the banks in the hunt for a mortgage-arrears solution.

Michael's bill plots a simple way forward. He wants a Debt Settlement and Mortgage Resolution Office. It will stand between the banks and the client. It will be independent. It will arrange a deal. Any deal must be accepted by 60 per cent of a debtor's creditors.

The beauty of Michael McGrath's solution is that a buffer is placed between the banks and the borrower. The banks will not be allowed to bully the borrower.

Last week, I asked the distinctly non-toxic McGrath how he would ensure that the Debt Resolution Office would be independent. He was happy to amend the bill to include a board made of non-banking interests including Mabs, New Beginning, St Vincent de Paul and Flac. The office would be a banker-free zone.

Did you ever think you would see the day that the non-toxic elements of Fianna Fail wrote a bill that would expose the new Coalition as captives of banking interests?

The bill is a start, but it should go further. We need a ruthless, independent debt agency, which adjudicates mortgage arrears on a case- by-case basis. The lender bank should be allowed to put its case, but will have no input into the decision. The bank will be handed down a tailor- made solution and instructed to implement it.

On Friday morning, Financial Regulator Matthew Elderfield, the second proud legacy of Brian Lenihan, waded into the mortgage war of words. Matthew warned the banks to stop hiking variable mortgages to compensate for losses on trackers. He would not tolerate such trickery.

Lenihan appointed two tribunes of the people. A pity the current Government is more in tune with the barbarians at the banks than with the tribunes.

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