Business Irish

Tuesday 17 July 2018

Richard Curran: Banking culture report is a waste of time - it must be changed now

Finance Minister Paschal Donohoe at a press conference on the Central Bank’s tracker mortgage examinations. Photo: Mark Condren
Finance Minister Paschal Donohoe at a press conference on the Central Bank’s tracker mortgage examinations. Photo: Mark Condren
Richard Curran

Richard Curran

The public's trust in banks has been "deeply shattered" by the tracker mortgage scandal, according to Tanaiste Frances Fitzgerald. So what now? Well, Taoiseach Leo Varadkar said it will be some time before people can trust banks again. So what will people do in the meantime?

Carry on as usual is the answer. There isn't enough competition in the financial services market to provide customers with many other options. It is also reasonable to say that people's trust in banks was shattered a very long time ago. It wasn't even in 2008 with the financial crisis but long before that with the hearings around the DIRT Inquiry at the Public Accounts Committee in the late 1990s.

But the public's trust and confidence in politicians has taken a bit of a hammering too.

Some lessons have been learned by the Central Bank and the banks themselves from the financial crisis but those lessons are mainly around ensuring the banks don't go under again.

Despite the hand-wringing and finger waving by politicians in the last two weeks, it all rings a little hollow given this issue arose on a sizeable scale seven years ago.

The decision by Paschal Donohoe to grant the banks more time to pony up on compensation suggests he isn't sure what else to do. The entire apparatus and process around this tracker investigation and redress scheme has been inadequate and yet it took place under the noses of the Government.

Commitments by the banks to provide compensation to most tracker victims does not shed any light on what happens if the compensation awarded is lowballed by the banks and is totally inadequate. Who will adjudicate on that?

It may fall to the courts to decide but many people will not have the stomach or resources to pursue lengthy legal actions.

The decision to conduct a report into the "culture of banking" in Ireland is a complete waste of time. The Government should skip that empty exercise and just go straight to how you change a culture in banking.

Possible measures include greater incentives for whistleblowing, stronger consumer protection, larger penalties and mechanisms to ensure that individuals are held accountable where wrongdoing takes place.

The Central Bank and the Government should move straight on to examining how to enact those kinds of changes instead of a waffly time-wasting report on the culture of banking.

The report is either an exercise in wasting time or buying time - namely a way for the Government to promise something until this all blows over.

To understand Irish banking culture you only have to go back to the DIRT Inquiry and what we learned from that debacle and how banks facilitated mass tax evasion by customers while everybody turned a blind eye.

At the DIRT Inquiry hearings, then chairman of Bank of Ireland Howard Kilroy made an interesting contribution. He said: "As far as I am concerned, I, the chairman or governor and the board have to take ultimate responsibility and indeed, if you choose to censure this bank, then my name should be at the top of the list but that doesn't mean that I should know all the detail that's going on and the underlying affairs of the bank."

What does this mean? That he should take responsibility by virtue of his position even though he doesn't believe he is directly responsible. Fast forward to today, and nobody has lost their job over the largest overcharging scandal in Irish banking history that occurred across 11 different banks.

The banking sector is full of codes of conduct and ethical rules for staff. Bank of Ireland's says in its code: "The code of conduct is not just about knowing what is the right thing to do, it's also about doing it."

It also emphasises that "customers are at the heart of what we do. We act with integrity in all our dealings with customers."

Bank of Ireland has made provisions of €25m to cover its part in the tracker scandal. It has admitted that more may now be required but the cost is "manageable."

What has changed in the last two weeks other than a greater public and political stink about it all?

Nothing. What happened to customers had already happened.

There is a sense this scandal is about to get bigger and more costly for banks rather than come to an end.

Nama lands billions from the sale of low-hanging fruit

They may not be cracking open the champagne at Nama headquarters but no doubt they are feeling quite pleased with themselves. The agency announced this week that it had paid down the last of its senior debt, which brought the total debt repayment to €30.2bn and it was all paid three years ahead of schedule.

But perhaps it doesn't represent such a brilliant masterstroke when you look closely at the figures. Nama says it has just €3.7bn worth of assets left on its books.

However, that €3.7bn represents loans of €26.7bn in the original total of €74bn in loans it acquired. Nama has basically sold down loans and assets that were originally €47bn and it has taken in €32.2bn for them. That is a discount of just 32pc.

The remaining assets are the real basket case stuff that Nama reckons it can only get €3.7bn for. That is a discount of 86.2pc. It consists of 4,835 loans and 93pc of them are non-performing.

Talk about selling the good stuff in a hurry (three years early in a rising market) and doing very little with the other €26.7bn of loans. Only one-third of it has seen enforcement, with the rest (originally €15.9bn worth of loans) sitting massively in arrears.

Nama has done what the Finance Minister wanted to do, namely sell down quickly to take that financial risk off the Irish balance sheet.

But it has moved so rapidly that it has left over one-third of what it acquired sitting there, worth just 13pc of its original loan value and still to be sold.

What a car boot sale that will be. It has truly gathered and flogged off the low hanging fruit.

Alcohol ad ban misses the target

Taoiseach Leo Varadkar said during the week that he planned to reintroduce the controversial and long-stalled Public Health (Alcohol) Bill 2015 in the Seanad on November 8.

The Government is quite determined to press ahead with the changes despite much opposition from the drinks industry. While most of the focus has been on the Bill's ban on below-cost selling, the advertisement restrictions will mark a very significant change.

Under the Bill, drink ads will not be allowed to show one or more people (whether drinking or not), a description of the taste of the product, an image of a pub, restaurant or off-licence or any notion of conviviality, according to the drinks industry.

It would mean the end of iconic drinks ads - mainly for Guinness in Ireland. That might not hurt drinks brands, like Guinness which are already so well established. However, it would make it impossible for a drinks company (new or old, large or small) to bring a new product to market. Nobody would know it was there.

There is also a TV advertising watershed of nine o'clock to protect young people. It all sounds pretty comprehensive, but deeply flawed. None of the restrictions on advertising or the watershed will apply to social media - namely the place where most young people are watching content.

It's a big bazooka that will definitely miss the target.

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