Monday 21 October 2019

Richard Curran: Time for plain talking about who is to blame for tracker scandal

Central Bank Governor Philip Lane, acting deputy governor Bernard Sheridan and director of enforcement Derville Rowland arriving for the Oireachtas Finance Committee meeting Picture: Tom Burke
Central Bank Governor Philip Lane, acting deputy governor Bernard Sheridan and director of enforcement Derville Rowland arriving for the Oireachtas Finance Committee meeting Picture: Tom Burke
Richard Curran

Richard Curran

In the aftermath of the banking crisis - yes, the one that is on track to cost taxpayers and bank customers a net €32bn - we were told the problems in the sector were "systemic". In a way it meant that everyone was to blame, so therefore nobody was to blame.

We were also told about the "culture" in the banks that contributed to these rather expensive €32bn-worth of mistakes.

Well, the words "systemic" and "culture" cropped up again last week in relation to banks and the regulator. Central Bank governor Philip Lane was giving an update on his investigation into the tracker mortgage scandal. This is the one which saw more than 10,000 people charged the wrong interest rate by multiple banks at a final cost of up to €500m. Some lost their homes.

Lane told the Finance Committee there was a "culture in banks of interpreting mortgage contracts in favour of lenders and not in favour of consumers". Well that is a surprise and what a shocker that must have been when that was uncovered!

He added that there was a "systemic and widespread aspect to this".

Given that most of the banks operating in the Irish market were at it, you definitely could say that, Philip.

A bit like the Garda Commissioner and the breath tests, there is a time for plain language that spells out what happened here.

But who will carry the can? Were rules breached? Will heads roll? Well, the investigations are still ongoing and won't be complete until September 2017 at the earliest. Apart from having to look at close to two million mortgage accounts, there are question marks over the level of co-operation provided by the banks.

The Central Bank is conducting enforcement investigations in some cases. Curiously, in a week when his director of enforcement, Derville Rowland, said she had held discussions with gardai about certain matters, no formal report has been made to them.

In fact, Lane told the committee: "We may also commence other investigations, as appropriate, into other lenders and persons concerned in the management of such entities."

Justice moves slowly in financial services regulation.

The Central Bank intervened on this issue between 2008 and 2015 which resulted in 7,100 customer accounts affected by tracker issues being resolved. That was a positive outcome but why did it take that long before commencing a formal examination of the practice and its widespread use in 2015?

I have no doubt that thousands of tracker victims will get recourse and the Central Bank has done its job in that regard.

But we are none the wiser as to who is to blame, as in what executives and what levels in the banks, and whether they will pay any price.

Investigations under the Central Bank's Administrative Sanctions Procedure can result in disqualification of directors and personal fines.

We will have to wait and see what happens.

Perhaps it was all just one big industry-wide misunderstanding.

State cap on banker pay is starting to look outdated

Speaking of bankers, there is little room for misinterpreting the rules surrounding bank chief executive pay. Bank of Ireland chief executive Richie Boucher is retiring after nine years at the helm of the bank. His remuneration, at around €943,000 last year, was not covered by the State cap of €500,000 but his successor's might be.

Boucher's pay was agreed before the cap came into force.

The ridiculousness of this rule at this stage really came home during the week when it emerged that FBD chief executive Fiona Muldoon earned €900,000 last year running a financial services company with a market capitalisation of €273m. Boucher's Bank of Ireland has a market cap of €7.8bn.

If the State's 15pc shareholding can enforce the cap, despite Bank of Ireland having paid back all of the money it received from the State, then someone like Muldoon would be practically halving her earnings to take the job.

What sort of hit might an international banker be taking? It becomes all the more contentious when you see that AIB chief executive Bernard Byrne, overseeing one of the biggest bank IPOs in the world at the moment, is on €500,000 plus a pension top-up of €100,000.

His non-executive chairman, Richard Pym, earned €365,000 last year. The non-executive chairman of Bank of Ireland earned €490,000.

Most experts agree the banks began to get it hopelessly wrong on lending, wholesale funding, property, 100pc mortgages and executive pay, from about 2003 onwards. AIB chief executive Tom Mulcahy was paid €1.2m to run the bank in 2000 - 17 years ago.

It's a case of if 'it ain't broke don't fix it' at Breen's DCC

Someone who has been very well remunerated for their efforts is outgoing DCC chief executive Tommy Breen. He delivered a 664pc shareholder return during his nine-year stint at the helm of the distribution and services group.

Breen's pay shot up as he and his management team delivered for shareholders and the group, originally founded by Jim Flavin, became a FTSE 100 stock. Breen earned €4.4m in remuneration last year and his total earnings, excluding dividends, amounted to €19.4m since 2010.

He leaves with 220,000 shares in DCC currently valued at €18.3m. He has another 106,500 share options at various prices that are currently in the money.

Steady as she goes worked well for Breen at DCC and his successor, Donal Murphy, is another company insider who knows the business extremely well. If anything it has been a little too steady given the company's extremely low debt profile at a time when borrowed money is cheap. It is a conservative approach, with net debt standing at around £420m or just one times Ebidta. Murphy shouldn't go acquisition crazy but he might want to cut loose just a little. Meanwhile, company founder Jim Flavin's shareholding of 3pc of DCC is worth a tidy €220m.

Oireachtas committee hits the easy targets in health reform

When you have a broken system, it can often only make things worse to tinker around with it. Either you scrap it and start again, or be very careful about tweaking it.

This is certainly the case with the recommendation of the Oireachtas Committee on the future of healthcare that tax relief on health insurance should be scrapped.

The committee, chaired by Roisin Shortall, recommends that public money should only be spent in the public interest and for public good. That is a reasonable principle if you wanted to design a brand new health system.

But applying it to a €200 per year tax relief on health insurance will only backfire.

First of all, half of the population pay for private health insurance. The reason the figure is so high is not because they are all loaded but because the public system is so unreliable and poor.

Losing the tax relief could affect the numbers on health insurance. This would increase the burden on the public system. It would also ensure that fewer people are paying the community-rated private health insurance pot, which in turn would cause private cover to keep going up.

The State collects a levy on health insurance policies, so fewer customers would mean a fall in State revenue from the levy. Public hospitals are increasingly dependent on the income from private patients.

Surely it would be better to build model for a new system from the ground up. That might mean ensuring we had an adequately funded and efficient public system. That would cost a lot of money and require taking on some very tough public sector vested interests. That would be politically challenging.

Therefore the committee is taking an easy way out by penalising further, those it perceives to be well off.

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