Saturday 24 March 2018

Richard Curran: AIB expecting a big hit from Central Bank tracker probe


In the last two years AIB has enjoyed €1.1bn in write-backs Photo: Bloomberg Finance LP
In the last two years AIB has enjoyed €1.1bn in write-backs Photo: Bloomberg Finance LP
Richard Curran

Richard Curran

We shouldn't underestimate the scale of the turnaround at AIB in recent years. Nor should we get carried away with it. The State-owned bank's €1.9bn pre-tax profit might prompt some to do a double take, given that it was still reporting losses of around €10bn five years ago.

However, that profit figure is greatly enhanced by a €923m write-back of earlier provisions for loan losses. This is where the bank sets aside a sum of money that it believes it will need to cover losses on its loans. As time goes on, things improve and it doesn't actually need to absorb as big a loss. The measure gives its bottom line a boost and flatters its reported performance.

In the last two years, AIB has enjoyed €1.1bn in write-backs. It is a little like saying this was €1.1bn of the €20bn State capital injection it hasn't ended up needing to use.

Rather than have the State just grab the write-back money, it makes more sense for the State to leave it in the company - enhancing the value of the business it owns and hopes to sell.

And by this July, AIB will have paid around €6.5bn to the State through a €3.5bn repayment of bonds and the rest through levies, fees, bond coupons and dividends.

Overall, AIB has done well. Exclude the write-back and it still generated a solid €1bn in profit last year. It is getting through its legacy issues with some momentum now. It has plenty of capital and it is back lending in the mortgage, personal and business market. Its total loan book stopped shrinking last year for the first time since 2008.

The bank's position has not been helped by the ballooning of its pension deficit, up another €500m, and the massive €105m hit it is expecting to take on foot of a Central Bank tracker mortgage redress scheme.

Somehow, in assessing AIB's chances of re-floating on the stock market, its behaviour in relation to tracker mortgage holders has slipped under the radar. Like Permanent TSB and others, it is clear that AIB did not offer a certain number of mortgage holders the tracker rates to which they were entitled.

The Central Bank probe has yet to be completed, but AIB is clearly expecting a cost of €105m from it. And nobody has resigned. Nobody has been held to account in any of the banks for this extraordinary rip-off.

It does not reflect well when banks that were saved by taxpayers rip off those same people through tracker mortgage rates - and nobody is held to account.

It is possible that the Central Bank will insist on some kind of "executive" redress at various banks when its investigation is completed. It should.

Nobody taking a punt on gambling regulation

Betting giant Paddy Power got a right rap on the knuckles from the UK Gambling Commission during the week.

An investigation by the commission found that the bookmaker had failed to "keep crime out of gambling and protect vulnerable people".

The report examined the relationship Paddy Power had with three of its customers, and identified "serious failings".

Paddy Power put its hands up, apologised and agree to pay £280,000 (€360,000) to "an agreed socially responsible cause", pay some money to the costs of the investigation and amend its policies and procedures based on the findings of the investigation.

That would not happen in Ireland, simply because we don't have a gambling regulator. Seven years after a Department of Justice review of gambling laws, which dated from 1931 and 1956, there is still no investigative or regulatory authority.

The UK Gambling Commission is the licensing and regulatory authority. Here, you apply to the Revenue Commissioners for a licence after getting a certificate from the gardaí that you are fit and proper person and a tax-clearance certificate.

The UK commission has over 250 staff, conducts 1,600 site visits per year and deals with around 67,000 enquiries from the public. It then publishes the outcome of investigations, such as last week.

The Betting (Amendment) Act 2015 in Ireland ensured that online betting is subject to a 1pc betting tax for the first time.

It also tweaked the licensing application process but the notion of actually regulating the industry here is bogged down in the Department of Justice with a 2013 Gambling Bill.

The snail's pace of reform doesn't appear to be the industry's fault, just the politicians'. Much of what the industry in Ireland does is down to self-regulation and voluntary codes. This is admirable on one level but not exactly satisfactory. Paddy Power, which looks set to join the FTSE 100, has openly welcomed the proposals contained in the Bill to have a regulatory inspectorate as part of the Department of Justice and said it would like to see the new regulatory body be fully independent.

The problems are many and it isn't just with bookies. The Gaming and Leisure Association of Ireland (GLAI), which represents private members' clubs, has claimed there are up to 8,700 unlicensed gaming machines in Ireland and estimated they take in around €8,900 per year each.

Doubts have been raised about whether virtual roulette machines in bookies constitute gaming or betting. An actual physical table would carry a Vat rate of 23pc, but a virtual one is Vat-free and carries a 1pc betting tax. With the new stalemate at Leinster House, politicians are more likely to place a bet on when the next election will be than activate badly needed legislation to regulate the industry.

Mike Ashley might be clocking in at Clerys

As Paddy Power prepares to join the FTSE 100, one company dropping out of the index is Mike Ashley's Sport Direct.

The billionaire owner of Newcastle United football club has been reported to be looking at the former Clerys building on O'Connell Street as part of an expansion of his sports clothing operations in Ireland.

Steeped in Dublin history, sadly Clerys is now associated with the hundreds of workers who were royally shafted when it closed down following an asset-stripping operation by its owners.

Ashley is no stranger to controversy when it comes to some employees who work at Sports Direct warehouses in the UK. The Guardian newspaper sent someone under cover to work at its Shirebrook warehouse in Derbyshire last year. Many staff there are employed through agencies.

The newspaper investigation found more than 80pc of staff were on zero hours contracts. Workers were also harangued over the tannoy system for not working fast enough.

They were also warned they would be sacked if they receive six black marks or 'strikes' over a six-month period for offences including a 'period of reported sickness', 'errors', 'excessive/long toilet breaks', 'time-wasting', 'excessive chatting', 'horseplay' and 'using a mobile phone in the warehouse'.

Most controversially, employees were subjected to compulsory security searches as they clocked out to leave work, because the company was so concerned about the possibility of theft.

The searches took up to 15 minutes and involved rolling up trouser legs and showing the top of their underwear.

It added one hour and fifteen minutes to their time at work per week and they weren't even paid for it.

Ashley responded by querying the number of zero-hour contracts and announcing a new pay structure which would cost the company £10m (€12.9m).

He has since invited local MPs into the Sport Direct warehouse to inspect conditions.

So, everything is alright then!

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