Business Irish

Thursday 22 August 2019

The banks' Pauline conversion spreads and tracker bill keeps rising

Philip Lane, Governor of the Central Bank which has spearheaded recent action over the tracker mortgage scandal. Photo: Bloomberg
Philip Lane, Governor of the Central Bank which has spearheaded recent action over the tracker mortgage scandal. Photo: Bloomberg
Richard Curran

Richard Curran

KBC became the latest bank to take a, shall we say, fresh look at how it was calculating tracker mortgage redress and come up with a different number. In KBC Bank's case the cost shot up dramatically.

The lender had taken a €4.4m provision in 2016 to cover the cost of the debacle and has now decided the cost will be around €54.4m. Talk about seeing things in a new light.

But rather than simply see an industry-wide conspiracy, the various bank responses to the tracker scandal should be seen in the context of what was going on in each bank over recent years.

For example, KBC Bank Ireland was undergoing an internal group process whereby its parent was considering whether to sell it, close it or remain the Irish market.

The decision has now been made and it is to remain in the Irish market.

AIB was preparing for a return to the stock market through an IPO. How damaging would an enormous overcharging scandal without clear and contained costs and parameters have been to that process? Now it has got the IPO away very successfully.

Bank of Ireland was blazing its own trail as a heavily commercially driven and re-focused bank after the financial crash. The appointment of a new chief executive provided a catalyst to act more fairly.

Each bank had its own set of reasons and context for low-balling tracker redress.

KBC said last month that as many as 1,661 of its customers may have been affected by overcharging, including 571 customers that had been 'rectified' in 2010. There were a further 490 that had been found under an industry-wide review that began in 2015. It also said that it anticipated that a further 200-600 cases may be identified.

Clearly KBC, Bank of Ireland and others are taking a deeper look at their criteria for who they overcharged. But all of these banks have failed to say exactly what those criteria are. Even following this new 'Pauline conversion' they have yet to say, 'this is how we were defining the group we had overcharged, and this is what we are doing now'. Presumably, the comparisons would be simply too embarrassing for the lot of them.

The Central Bank has finally got the bit between its teeth and can sense this process is finally going its way.

KBC Bank is part of the wider Belgium-based KBC Group. It has lots to say about its culture and values. Under the heading of 'behaviour', KBC says it adheres to accountability by taking "personal responsibility towards our clients, our colleagues, our shareholders, our communities".

Under 'responsiveness' it says it acts "readily and sympathetically on suggestions, influences, appeals and efforts of our colleagues, management and clients".

So, what triggered the re-assessment of its tracker analysis and redress? Did someone read their own website on culture and values or was it simply the threats from the Central Bank and also the Government that it would hit all of the banks with higher taxes and levies?

Regardless of the motive, there is still a long way to go in this tracker crisis. Other banks may want to get new figures off their chest as they widen the scope of their redress to more and more customers.

Even after that process is done, the Central Bank may still have more to say on the subject of who has been included or excluded from compensation. Then there is the thorny issue of the levels of compensation and how many of them will be challenged.

Then there is the issue of individual accountability and whether certain executives at all of the banks can be brought to book for this appalling debacle. I fear that process may deliver the least. Expect that aspect to fizzle out as the burden of proof is very high.

At least, after years of overcharging, this sorry mess is finally heading in the right direction.

Time to stem our reputational losses and collect Apple's €13bn

Ireland Inc has taken quite a reputational hit over the Apple tax debacle and the European Commission finding that the tech giant should pay us €13bn in back-taxes.

That was bad enough. Even more surprising is that the reputational damage is rumbling on. An initial target for appointing managers to handle the €13bn until the outcome of European Court challenge, has not been met.

After indicating that somebody would be in place by mid-November, it still hasn't happened and the money has still not been collected. The Government says it was never a deadline but just a guideline time frame.

One can only surmise that the lawyers are poring all over this one.

Ordinarily, you pay the tax, and then if the appeal is successful, you get the money back. But Ireland and Apple are in new territory here because neither believes the money is actually owed.

And there is the fact that €13bn is a large chunk of change. Once paid over, who owns the money? Who will receive any investment return on it? Who pays the management fees etc? I hear the most tricky question exercising minds is who carries the risk if the money is lost? Let's say the €13bn is invested in some corporate bonds and the company goes bust. Apple might want the Government to carry the risk in the event the court case goes their way and the money is to be repaid back to the company a few years down the road.

What if Ireland goes bust? We did before. The €13bn could be viewed as a contingent liability of the Irish state. Would Apple seek some kind of security, mortgage or charge over the €13bn and if so, secured on what?

Lawyers could come up with 50 different nightmare scenarios for Apple and the Government on this one without any difficulty.

Yet, the reality should be pretty straightforward. Right now, Apple owes us the money. They should pay it and it is our money to do with as we wish. We get the investment return and we pay the management fees.

If we lose some of it, all of it, or go bust, and Apple wins the European Court case, then Apple would be a standard creditor of the Irish State.

It is only six weeks of Apple profits. It is time to get on with it.

US banks' 'stop-gap' plan could limit post-Brexit jobs bonanza

When it comes to an IFSC post-Brexit jobs bonanza, we may have to mind the 'stop-gap'.

Big US banks are drawing up 'stop gap' Brexit plans, to avoid moving some jobs out of London once the UK leaves the EU.

Morgan Stanley, Citigroup and Bank of America are among the banks described by the Financial Times as planning to use London branches of their EU subsidiaries to smooth the process of building new headquarters on the Continent.

The plan is this. Currently, US banks use London operations to "passport" their services across the rest of the EU. A new arrangement would see them reversing that in a way and using London branches of their EU divisions. This might be a way of employing fewer people in the EU while channelling business through that EU presence to London where a lot of the work would be handled. The EU might have something to say about it as it could end up brass-plating European operations while keeping jobs in London.

Mind you, we couldn't complain. We've had a few brass plates down on the Liffey before.

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