Thursday 19 September 2019

Noonan could help variable victims, but he won't

A WORLD OF HIS OWN: Michael Noonan could stop the fleecing of standard variable rate mortgage holders with one stroke. Photo: Mark Condren
A WORLD OF HIS OWN: Michael Noonan could stop the fleecing of standard variable rate mortgage holders with one stroke. Photo: Mark Condren

Shane Ross

Bravo for the bankers. Have you swallowed the new narrative from the banks? Bankers and their fellow travellers are peddling big, big porkies.

Spot the true statement, the odd man out.

The narrative goes something like this: the worst is over; bank boards are cleaned up; share options are a distant memory; overcharging is overcome; taxpayers will get their money back; the Banking Inquiry will banish abuses for ever; the Government is in charge at the State-owned banks; the financial institutions have been reformed; the banks are back in profit.

Yes, the last is the only claim that is remotely true - provided that you do not too closely examine the bankers' dubious methodology for reaching a 'profit' figure. And one of the key elements of their phantom profits is the pillaging of clients with standard variable rate mortgages.

Last week, standard variable mortgages blew a big hole in the new narrative. As Fianna Fail TD Michael McGrath explained in the Dail, 300,000 clients of the banks are the victims of "extortion". The unluckiest of all bank victims - innocent mortgage borrowers captured in the old days of higher interest rates - are being fleeced. Their jailers in AIB, Bank of Ireland and Permanent TSB are refusing to loosen their mortgage chains in line with falls in rates in Europe.

Meanwhile, the bankers' recent prisoners are receiving more lenient treatment. New borrowers are being seduced into the variable mortgage bed with marginally better terms than the battered old ones.

Yet both are being massively overcharged. No other borrowers in Europe are being treated so badly. Ireland's banks have consistently refused to pass on many of the European Central Bank's (ECB) cuts in interest rates to their customers.

The ECB lends to Ireland's banks at an all-time low of 0.05pc. Our, supposedly reformed, squeaky clean outfits refuse to allow their clients to benefit. They borrow at around that give-away level. They pay small depositors a pitiful 0.5pc. They charge captured variable rate victims what they like - normally over 4pc. Borrowers on the books for a few years cannot escape their clutches as most competitors have fled the country.

In the "reformed" world of Irish banking a terrible ugliness is born. Happily the problem is instantly soluble: AIB, one of the worst offenders, is State-owned. So is Permanent TSB. Even Bank of Ireland's biggest shareholder is now the Government. So our great crusaders for banking reform, Enda Kenny and Michael Noonan, are on hand to protect us.

As majority owners or largest shareholders, they have huge leverage. Thank God the banks are no longer privately-owned, free, unregulated highwaymen. Unfortunately they are different types of highwaymen. They are state-sponsored highwaymen. Yet the sponsors are denying their sponsorship.

Last Wednesday, Michael Noonan walked away from his responsibility for the punitive variable mortgage rates. Under pressure in the Dail, he announced that he was meeting Central Bank governor Patrick Honohan on Thursday and would see what "influence" the Central Bank "would bring to bear to bring variable rate mortgages closer to the cost of funds".

He might as well have been meeting the Angel Gabriel. It was a monstrous red herring. Honohan can do absolutely nothing to force the banks to end their extortion. There is only one man on God's earth who can stop it. His name is Noonan.

Noonan's meeting with Honohan was cosmetic. The likeable Central Bank governor must have given the minister a polite flea in his ear. He was not going to be a scapegoat for the Government's refusal to recognise its duty to borrowers.

Noonan emerged from the encounter with nothing. He feebly announced that the Central Bank was going to do a bit more "research" into whether Ireland's banks were charging an excessive margin above the record low ECB rate.

We do not need grandiose research to know the answer. The Central Bank had already pre-empted Noonan's diversion on Wednesday when its chief economist, Gabriel Fagan, reminded us that the governor had recently insisted that it was "undesirable" for the Central Bank to try to control rates. More importantly, it is beyond the regulator's powers.

The Government is indulging itself in a piece of pretence. It feigns detachment from the operation of State banks, leaving them to torture customers without interference. It stands by and watches, wringing its hands.

On Wednesday evening, Noonan's junior, Simon Harris, pronounced the banks "independent commercial entities". He may be right, but only because the Government has allowed them to run amok. The bankers are back in the saddle. The Government are owner-spectators.

There is still time to put manners on the highwaymen and to rescue the victims of the variable rate mortgage scam - but do not rely on the Government, firmly embedded in the bankers' corner ever since they surrendered the power of veto in insolvency deals to the banks.

If Noonan is serious he should start with a few scalps at AIB and Bank of Ireland, the principal offenders. As the 99.8pc holder in AIB there is nothing to stop him from ringing up the departing, AIB chief David Duffy and telling him to reduce rates to the average charged by European banks. Last Thursday RTE's David Murphy exposed the extent of the difference. In a staggering example, Murphy showed how an Irish borrower with a €250,000 variable rate mortgage was paying €73,000 more than his European counterpart over 25 years.

Similarly, as the largest shareholder in Bank of Ireland, Noonan should call the €490,000 a year part-time governor Archie Kane or its equally overpaid chief executive Richie Boucher and order an immediate rate reduction for variable rate mortgage victims.

Would any of them tell the minister to jump in a lake? The answer is probably "Yes".

Irish banks are arguably the only state-owned institutions on the planet where the shareholder boss is the junior partner in its relationship with its bailed-out baby.

Noonan has an early opportunity. AIB and Bank of Ireland are both holding annual general meetings in three weeks' time. All the directors are due for re-election. Noonan should tell AIB chairman Richard Pym and the over-rated David Duffy that, if they refuse to lower rates, the State will cast its votes against the entire board's re-election.

He could repeat the threat to Archie and Richie in the Bank of Ireland. Noonan's problem is that both banks would probably tell him to get lost. The Coalition has foolishly championed a strategy of nurturing the two monsters, more commonly known as the Government's "pillar bank" policy.

He may have withdrawn the bank guarantee, but his commitment to featherbedding the duo has gifted them an impregnable position. It has frightened off competition. Consequently, the two giants are now unchallenged in the Irish market. A fresh cartel is born. And the Coalition is colluding with the cartel. Suddenly, the Government itself has joined the ranks of prisoners of the banks.

Alternatively, he could ring the €150,000-a-year government appointee to the board of AIB, Michael Somers, and give him similar orders. He could even summon Tom Considine, the "public interest" director of the Bank of Ireland and command him to look after the public interest.

Instead, he is relying on Central Bank "research" to persuade the bankers of the necessity to reduce rates. In a flight of fantasy, he even suggests that the bankers will yield to "moral persuasion"!

Irish bankers, the highwaymen of European finance, have recruited a powerful fellow traveller. The Government is colluding with the cartel.

Banking Inquiry or not, there is less chance of radical bank reform now than there was on the night of the bank guarantee. The new narrative is nonsense.

Sunday Indo Business

Today's news headlines, directly to your inbox every morning.

Don't Miss