Business Irish

Wednesday 18 July 2018

Richard Curran: BoI finally forced into doing right thing with tracker scandal pledge

New Bank of Ireland chief executive Francesca McDonagh has promised ‘fair outcomes’
New Bank of Ireland chief executive Francesca McDonagh has promised ‘fair outcomes’
Richard Curran

Richard Curran

There is an old saying about "don't look for something and you won't find it". Bank of Ireland has now found a further 6,000 tracker mortgage customers whom it treated unfairly and who deserve compensation. The bank wasn't looking all that hard before. Clearly something radical has happened.

Several factors have brought about this change. The arrival of new chief executive Francesa McDonagh is one, because it is always easier to come into an organisation and take a different tack rather than keep digging the hole you started in the past.

She should be commended for her refreshing new approach. The bank has a new ceo but the board is the same. I don't know how they square their role in this appalling debacle.

The rather late intervention by the Government, where finance minister Paschal Donohoe gave bank chief executives a right b******ing and threatened to jack up the banking levy, is another factor.

This intervention raises the question of where Michael Noonan was in the preceding years when the facts of the case remained the same and State-owned banks were shafting their customers.

The tracker mortgage scandal has been around for several years but it took a major ratcheting up in the publicity and political stakes to get this kind of outcome from Bank of Ireland. It also raises questions about the approach to the issue taken by the previous Bank of Ireland chief executive, Richie Boucher.

Back in 2015, when asked whether his bank had cases like those just then unearthed at PTSB, Mr Boucher said: "If we had material disclosure of that kind, I would be making it."

The statement issued by McDonagh on Thursday is a radical shift in tone and language. It implies a significant move away from a purely legalistic attitude to the issue by promising to take an approach which "seeks to respect our legal and contractual commitments and also ensure fair outcomes are achieved for our customers…"

The last bit is the new, but long overdue, departure from the old approach which now includes an extra 6,000 customers.

Bank of Ireland's decision to acknowledge that a further 6,000 customers were negatively and unfairly affected by the bank's decisions on trackers sets the bar higher for other retail banks, especially Ulster Bank and KBC. This will cost Bank of Ireland €150m to €175m.

But it isn't the end of the matter. What happens if customers are offered derisory compensation payments? This still has some way to go.

Central Bank can cool house price rises with mortgage cap

Tracker mortgage compensation payments may go some way towards alleviating the personal and financial stress victims suffered at the hands of the banks. Long-suffering customers may even decide to put the compensation money towards buying a new house.

House prices continue to rise sharply. Residential property prices shot up by 12.2pc in Dublin in the year to September. In Dublin city the increase was 13.9pc.

This is despite the mortgage-lending caps put in place by the Central Bank of Ireland. One shudders to think where house prices might be now if the Central Bank had not intervened in that way.

Developers would say that prices would be higher, but more houses would be built, which in turn would eventually cool the market nicely. Unfortunately, this sounds like complete rubbish and a re-run of the last boom/soft landing theory.

The gains are partially driven by demographics and lack of supply but more particularly, the number of people getting out of negative equity. Back in 2012, at the bottom of the market, there were several hundred thousand home owners in negative equity.

Many were trapped in homes they had only envisaged owning for a few years before trading up. They are now finally escaping as house prices in the capital have climbed around 87pc since the bottom of the market.

Two questions arise, will they keep going up and will there be another crash? Demographics, demand and supply would all suggest that prices should keep rising, excluding some outside external shock.

But they may not keep rising at these rates. Davy Stockbrokers chief economist Conall Mac Coille pointed out that house price growth will cool next year as banks reach the limits on how much mortgage money they can lend out beyond the cap limit.

Around 18pc of new mortgage loans exceeded the threshold of 3.5 times their income. The banks can only allow 20pc of new mortgage lending to exceed that limit.

Mr Mac Coille believes the cooling is most likely in Dublin because that is where the higher mortgages are.

That does not mean we are heading for significant house price falls. These price rises are not built on a credit-fuelled frenzy and if anything, the rules on lending will intervene to take some heat out of the market.

If it isn't all built on unsustainable credit, then massive falls are unlikely.

Either way, the political intervention on the tracker-mortgage scandal has taken the spotlight off the Government in relation to housing policy and its failure to solve the problem.

Tough EU medicine for Ireland

We reckoned we had a shot at landing the European medicines agency for Dublin when it leaves London after Brexit. A bit like bidding to host the Rugby World Cup, we are getting a lesson in realpolitik on this one too.

Bratislava and Milan have emerged as front runners to host the plumb agency which has 900 staff and receives visits from 35,000 regulators and scientists each year.

So why Bratislava and Milan? We thought we had a good shot with the huge pharmaceutical industry presence in Ireland, plus our English-language skills and our proximity to London for existing staff that might want to move.

The Slovak bid is seen by officials as the strongest from central and Eastern Europe, a region which is under-represented in EU agencies. Slovakia is also being viewed as a shining light of some pro-EU sentiment in a wider region that has become more hostile to European integration.

So what about Milan? Diplomats told the Financial Times that Italy had gone as far as offering more troops for new Nato battlegroups in the Baltic states in exchange for votes from the region for Milan. The Italians have also benefited from problems with the rival bid from Barcelona - a southern European contender - which has been set back by the Catalan crisis.

So, if Slovakia benefits from being one of the central and Eastern European region members and Milan is seen as a bid from Southern Europe. What bloc does Ireland belong to? Where exactly are we on the EU map?

And of course very little of this seems to have anything do with medicine. It is just politics and geography.

IP clampdown €300bn too late

You would think Ireland was the invention hub of the world. Our GDP figures show that in 2016 around €300bn of intellectual property was registered with Irish companies. This massive inflow did not denote a flurry of innovative thinking (unless by the tax advisers) but the fact that under Irish tax law companies could write-off 100pc of their profits from this IP against tax.

The intellectual property did not have to be developed in Ireland but simply developed elsewhere or bought in a takeover, and shifted here.

The director of the OECD Centre for Tax Policy and Administration Pascal Saint-Amans told RTE last week that companies should not be able to book intellectual property offshore or move the royalties to pay for IP to an offshore jurisdiction, without levying any tax.

New rules to clamp down on this sort of thing are being implemented. They are just €300bn too late in Ireland's case.

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