Wednesday 21 November 2018

ICS building society savers have been short-changed

Former director Charles Lysaght feels that the ICS building society customers deserve better

GONE: The old ICS building at the corner of Westmoreland and D'Olier Streets. Photo: Kyran O'Brien
GONE: The old ICS building at the corner of Westmoreland and D'Olier Streets. Photo: Kyran O'Brien

Charles Lysaght

I was a director of the ICS building society from 1981 until 2009 and so it was with sadness that I learned it will cease trading on September 1 - 150 years after it was founded as the Irish Civil Service Building Society, with great engineer William Dargan as first president.

It will then be wound up.

The decision was made 
by controlling shareholder Bank of Ireland and facilitated by Government through the Central Bank Act 2014, allowing the ICS "acting by its directors" to transfer its loans and saving accounts to the B of I.

The effect of this legislation is to disenfranchise the savers, who have the majority of votes in the Society, depriving them of a vote on this transfer and on the winding up of the Society.

These savers have been offered no compensation for the confiscation of their voting rights. As a vote is a property right, and as such protected by the Constitution, that must be unconstitutional.

It is a sad reflection on the legislators who debated the legislation in the Oireachtas that none, not even those deputies and senators - all independents - who spoke against the bill, identified this flaw. They were exercised solely by the interests of defaulting borrowers and the danger that "vultures", to whom the Bank of Ireland might sell on the ICS loans, would come down heavily on these borrowers.

The Irish Civil Service Building Society (renamed the ICS in 1986) was until 1984 unique among building societies in that the generality of its savers did not have a vote. It had investment shares that were traded on the stock exchange making the Society, in essentials, similar to a public company.

In 1984 Bank of Ireland made a bid for these investment shares giving an undertaking, now to be dishonoured, that they would maintain the Society in existence as a separate entity with its own branch network.

After other building societies protested, the 
Minister for Local Government (who then had responsibility for building societies), forced the bank to "mutualise" the Society, giving savers a vote in governance and a right to elect a majority of the board. I and other pre-takeover directors became the directors elected by the savers.

Bank of Ireland was not satisfied with the control that this gave them. After the coalition government, with its disobliging ministers, left office in 1987, the bank lobbied successfully for legislation giving them a vote in the election of all directors. This enabled them to fill the board with their nominees.

Honourably they did not break their undertaking to keep me on the board - though I became a kind of itching powder, reminding them of undertakings given at the time of the takeover and pointing out that, as ICS was a mutual society, the board was obliged to run it in the interests of savers as well as the Bank of Ireland.

In particular, I objected to strategems (politely described as "margin management") that, though falling short of deception, seemed to me to take advantage of the unawareness or lack of expertise of savers. Contrary to the general perception, fuelled by the media and politicians, banks are much more exploitative of savers - especially vulnerable small savers - than of borrowers.

In breach of the spirit of the undertaking to maintain the ICS as a separate entity it was integrated almost totally into B of I. The non-executive members of the board were marginalised, being given no say in the appointment or assessment of executives and kept off the audit committee. While good news stories and vague general policy was run past us at board meetings, which became less frequent, efforts to enquire into its actual implementation were resisted firmly.

The ICS grew hugely, specialising in loans sold through the broker channel, which it was largely responsible for bringing into existence in the 1980s. 
It ended in tears when the housing market collapsed in 2008. The ICS has since reported losses unprecedented in its history.

As punishment for getting state aid to be bailed out, the European Commission decreed that Bank of Ireland should be prohibited from selling its mortgages through brokers. Accordingly, they were to be required to sell the ICS, which sold most of the bank group's broker-sourced mortgages.

That proposal, which would have kept ICS in existence, albeit under new ownership, was abandoned. No reasons have been given by the European Commission or by Government for that decision, nor has information been provided on what (if any) efforts were made to sell the ICS. Its latest balance sheet indicates that it is still solvent and so saleable.

As a gesture towards stimulating competition in the mortgage market, B of I was empowered to sell the ICS's distribution platform - essentially its broker contacts and its brand - and up to €1bn out of the ICS's €5bn mortgages and matching deposits.

In the event, it has sold only €250,000 of these mortgages, to a new concern called Dilosk. It is a peculiar transaction. It enables Dilosk to use the ICS trademark when it is not the ICS. By so doing, it belies the whole purpose of a trademark - which is to identify its owner. Dilosk is unlikely to have sufficient scale to be an effective competitor.

The whole episode is testimony to the ongoing cosy relationship between the banks and the Department of Finance that has been so detrimental to the interests of customers and the public. One would have hoped that the crash would have brought that kind of thing to an end.

Sunday Indo Business

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