Saturday 24 March 2018

Ulster Bank lost 20pc of deposits within weeks of bank guarantee, Banking Inquiry told

Ulster Bank's Headquarters
Ulster Bank's Headquarters

Clodagh Sheehy

ULSTER Bank lost €4bn in deposits within weeks of the Bank Guarantee when its customers were targeted by other Irish banks.

The loss amounted to 20pc of Ulster bank’s total deposits, the Banking Inquiry has been told.

The Financial Regulator was also given the biggest share of the blame for the banking crisis during the hearing.

Robert Gallagher, former executive at the Ulster Bank, responding to questions from Deputy Michael McGrath explained that €4bn had flowed out of the bank in the weeks after the Bank Guarantee .

He said there was “no doubt in my mind” that staff at the banks covered by the Guarantee were “proactive with our customer base” at the time to encourage customers to move their deposits.

Mr Gallagher said Ulster Bank Board and representatives of the parent company, Royal Bank of Scotland, proactively sought to have Ulster Bank included in the Guarantee but this had not happened.

Ulster Bank then required and received assurances and continued support from RBS which ultimately cut back the outflow of deposits.

Mr Gallagher also told Pearse Doherty that Ulster Bank had needed €15bn bailout from their parent company in the wake of the banking crisis.

Former chief economist with Ulster Bank, Pat McArdle said the Financial Regulator should take the greatest blame for the banking crisis.

Mr McArdle said he disagreed with Central Bank Governor Prof Patrick Honohan that the biggest responsibility lay with the directors and senior managements of the banks that got into trouble.

“In my view the Regulator had a higher degree of responsibility. The Regulator was the only one with full information on large exposures” he added and “critically the only institution that could have sought to curb excessive balance sheet growth”.

Mr McArdle insisted that only the Regulator had to capacity to do something about this “and the alarm bells should have been ringing in Dame Street for the best part of a decade”.

All of the banks had chosen to “stay with the herd and go over the cliff together” and “all this indicates that failures of supervision were at the heart of the financial crisis.”

Earlier Mr Gallagher agreed with a suggestion by Deputy Joe Higgins that his remuneration in the years running up to the banking crash was “excessive”.

Mr Gallagher’s basic salary was €370,000 in 2005 and €470,000 in 2006 along with bonuses which rose from €99,000 in 2005 to €580,000 in 2008.

He said, however that like all executives his salary was decided by the RBS group independent of him and had to meet a matrix of objectives which included things like staff leadership, running a business, customer engagement and performance.

Mr Michael Torpey, former finance director at Ulster Bank, said lessons had been learned not just in Ireland but internationally in relation to remuneration since that time.

Both men declined to comment on their current wages - Mr Torpey as chief executive of corporate and treasury at Bank of Ireland and Mr Gallagher as head of the Irish operation of global private equity giant KKR.

Questioned by Deputy John Paul Phelan about the introduction of 100pc mortgages, Mr Torpey agreed this was “not a good move” by the bank

He denied, however, that his bank was responsible for bringing this product to the market and driving it.

He said it had been available in a number of institutions at the time “on a case by case basis” before it became publicly available.

Mr Torpey said the housing market at the time was “extremely competitive” and this was one of a range of products introduced to increase market share.

The product did contribute to the overheating of the market but was only one element.

It “didn’t move the dial in any dramatic fashion but it was not a good move to make with the benefit of hindsight,” he added.

Neither Mr Torpey nor Mr Robert Gallagher, former executive at Ulster Bank, would be drawn on the bank’s loan to property developer Sean Dunne for the Jury’s/Berkeley Court site in Dublin in 2005.

Mr Torpey said as financial director he had no part to play in these matters and would have no knowledge of individual customers, their loan applications or the credit decisions which would come before a credit committee.

Mr Gallagher said at the time of sale and purchase of that asset he was not with Ulster Bank and could not comment.

John Beggs,  former chief economist at global treasury in AIB disagreed with previous testimony to the Inquiry by ESRI’s John Fitzgerald.

Mr Beggs said he had never asked Mr Fitzgerald to carry out stress tests on behalf of AIB and he had no knowledge that the board had any misgivings  about the stress testing as far back as 2005.

Dan McLaughlin, former chief economist of Bank of Ireland, held the view  the degree of bank regulation and surveillance was” inadequate across many jurisdictions”

He expressed surprise that subordinated debt was included in the Bank Guarantee

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