Monday 16 September 2019

Banks still profit from ministerial cowardice

Yates country

‘Pussycat’: Finance Minister Paschal Donohoe is set to succumb to special treatment for the eye-watering profits of banks
‘Pussycat’: Finance Minister Paschal Donohoe is set to succumb to special treatment for the eye-watering profits of banks
Ivan Yates

Ivan Yates

We've learned what damage is caused by decades of deference to the Catholic hierarchy. As the State declares a new secular/Church covenant, hiding in plain sight could well lie another culture of official capitulation.

The political submissiveness to bankers over recent years is if anything even more acquiescent than our past supplication to the bishops.

Its latest manifestation? In coming weeks, Finance Minister Paschal 'pussycat' Donohoe is set to succumb to special treatment for the eye-watering profits of banks.

The Oireachtas Finance committee favoured €2.5bn of annual bank profits (2017) when it comes to yielding corporation profits tax receipts.

Collectively, Bank of Ireland, AIB and PTSB have written off some €110bn of accumulated losses against profits for umpteen years.

Remember, we're talking about the most profitable financial institutions in the eurozone.

Irish bank customers routinely pay almost double the cost on standard variable and fixed-rate loans.

As a percentage rate return on both assets and equity, our banks get yields that are 50pc more than continental ones.

It all represents a sustained zero profit tax scenario. Meanwhile, our finance minister is firmly rejecting any consideration of a ceiling or time-limited sunset clause.

The acceptance of specious arguments that a bank levy of €150m suffices as the total tax contribution from a sector that bankrupt the State shows how our politicians are still prostrating themselves before our banking overlords.

While multinationals can up sticks and relocate elsewhere, our banks will stay in their most lucrative market enjoying minimal competition.

There has been no new entrant in five years. It's not that there weren't applicants.

German public bank Sparkasse has the best EU record of long-term cheap finance. €1.1trn assets. Not for profit.

It lobbied politicians to establish five regional banks to provide low-cost long-term SME and mortgage finance here. But it was given short shrift by the minister.

The grounds on which Sparkasse was turned away included a refusal to commit €170m of Exchequer seed capital. And yet we blew the national pension kitty by a multiple of 10 on equity investments to recapitalise our bankrupt local failures.

Some €17.5bn was injected from the NPRF. Notions of greater competition were grounded before they could fly in favour of propping up our cosseted Untouchables.

It seems like an extraordinary thing to say after all that pain and misery, but the lessons of the banking crash need to be relearned.

Let us call to mind our sins, briefly. A lack of regulatory oversight allowed loan books to balloon to three times their deposit base.

From 2003 to 2007, loan portfolios leapt from €16bn to more than €100bn. The inevitable credit boom that followed inflated a property bubble. Guess what? It burst.

A naïve political culture bought into the bankers' assurances of merely suffering from temporary liquidity problems.

And so the Banking Guarantee from September 29, 2008 to September 29, 2010 initially cost taxpayers an outlay of €64.6bn. According to the Central Bank, by the end of 2016 this was reduced to €46.7bn - adding €58.4bn to our national debt.

The banks have some brass neck to bleed taxpayers so brutally for cash transfusions to survive, only to turn around a decade later and then refuse to pay profits tax.

Any comparisons with other sectors are erroneous. Free enterprise does not have the luxury of Exchequer bailouts.

As far as the banks go, it's heads they win, tails we lose. Irrespective of whatever bank board room or executive error, banks are too big, too important to fail.

Bankers know they have immunity from their mistakes. Yet they still get to claim they won't pay profits tax. They have enjoyed a charmed life of State protection. Take the response to the tracker mortgage scandal. The Central Bank has dual regulatory roles - ensuring the banks meet their prudential requirements and also looking after consumer protection.

The banks had a culture of concealment.

They denied customers their contractual right to their tracker terms. There was an initial admission of 13,000 cases but the figure now is closer to 20,000.

Some independent estimates predict 35,000. Enormous distress, including the forfeiture of homes, has been inflicted by these institutions.

No class action is allowed under the Irish legal system. No structured redress or compensation scheme was enacted.

The Competition and Consumer Protection Commission should be given the independent statutory role of safeguarding mortgage holders' rights.

The ultimate cost of up to €1bn will have to be picked up by bank customers ultimately in our current captive market.

Despite 700 cases (offences) proven before the Financial Services Ombudsman, no individual banker has faced criminal prosecution or even censure; no Garda files, no DPP action despite the most distressing personal testimonies before the Oireachtas Finance committee.

Subservience to banks doesn't stop there. Right now we're in the middle of wholesale transfers of distressed mortgages to vulture funds.

Banks failed to provide realistic restructured solutions to 13,000 families with unsustainable mortgages.

Banks can outsource their dirty work and let the State absorb the social housing consequences, while there's no obligation on them to put in place solutions such as mortgage-to-rent schemes.

These non-performing loans (NPLs) in the case of PTSB have an average value of €175,000. The 40pc sales discounts to Lone Star and Cerberus aren't offered to homeowners seeking to retain the roof over their head.

Today's NPL is tomorrow's emergency housing applicant because, inevitably, buy-to-let tenants and evicted former homeowners will become homeless.

An official blind eye has been turned to vulture funds' elusive track record of off-shore offices, service agents and dubious Section 110 'charitable status' tax relief.

Over the past four years, the biggest beneficiaries of the failed housing supply initiatives have been Nama and the banks.

Land hoarding, instead of house construction, has transformed their balance sheets. Prime Dublin sites have doubled in value while resultant rent hikes drive up the cost of living.

And somehow the Department of Finance still feels that bankers' interests are at one with the national interest.

Do ministers and the financial mandarins actually think the share prices of AIB/PTSB are more important than consumer protection, homelessness, or introducing foreign banking competition?

You can bank on it. They do.

Irish Independent

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