It might have been the wet weather outside but yesterday’s proceedings at the Oireachtas finance committee were something of a damp squib compared with previous outings with the banks.
AIB's hit squad, led by chief executive David Duffy, were grilled for just shy of one and three-quarter hours but, at times there were no more than one or two committee members in the room. And that was just half the length of time that the committee detained Bank of Ireland boss Richie Boucher for his appearance last week, when there was a full house of members to grill him.
Ulster Bank were first up yesterday and, after an informative opening statement by chief executive Jim Brown, the bank's representatives were given a dressing down by Fianna Fáil's Michael McGrath.
All the banks were asked to submit answers to 42 questions in advance of their meetings. Waving the document in his hand, Mr McGrath described Ulster Bank’s questionnaire sheet as of the “poorest quality” received from the four banks who attended over an eight-day period.
Kieran O’Donnell of Fine Gael wasn’t amused at the bank’s reluctance to share information on the cost of funding or net interest margin for the bank in the Republic.
Mr Brown said this wasn’t possible for “commercial reasons”. Ulster Bank though did share some interesting statistics on its mortgage arrears.
A couple of thousand arrears customers restructured with the bank's so-called economic concession product, have since come out of arrears although they retain the product. There are currently 1,885 on this product, which is Ulster Bank's alternative to a split mortgage, according to the bank's executive Stephen Bell.
In effect, the borrower continues to pay down the capital cost of the mortgage while the interest bill is reduced to as low as 0.5 per cent above the ECB rate for a period of up to seven years. Mr Bell said this was a more cost-effective option for borrowers than the split, which breaks a mortgage into two parts with one being warehoused for repayment at a later date.
He was also scathing of the mortgage-to-rent proposition as it currently stands, describing it as “completely over engineered” and a “bureaucratic disaster”. “It will simply never work,” he said, adding that the bank was investigating its own mortgage-to-lease proposition. “We are actively working on that.”
Mr Bell told the committee that Ulster Bank seeks to avoid repossessions if possible. “We don’t want to repossess anybody’s home,” he said, adding that if a situation arose where an arrears customer could secure social housing, the bank would effect a voluntary sale of the property and write off the residual debt.
There was a bit of jousting with Sinn Féin's Pearse Doherty about the record €3.5 million fine imposed by the Central Bank this week for IT systems failures dating back to the summer of 2012 which left hundreds of thousands of customers locked out of their accounts for up to 28 days.
Mr Brown said the total compensation paid to customers was about £100 million. Significant investment in the IT systems has since taken place and the bank was confident the failure would not be repeated.
Mr Duffy’s opening remarks shed little new light on the financial performance of the bank.
Committee members wanted to know when the State might expect to have its near €21 billion bailout repaid. Mr McGrath was first into action asking if the money would be fully repaid and when taxpayers could expect a cheque.
Mr Duffy repeated his previous statements to the effect that AIB intends to repay the full amount but tried to sidestep the question on when. He eventually relented and said that, all things being equal, it could be repaid within 10 years, probably through the sale of stakes in the bank and through dividend payments.
Further good news for taxpayers came with AIB's chief financial officer Mark Bourke telling Mr Doherty that it could, for the first time, be in a position to pay the annual coupon on the State's €3.5 billion in preference shares. This would involve a cheque for €280 million being handed over next May. To date, the coupon has been paid by way of additional shares rather than cash.
Executive remuneration was also raised with AIB. In its questionnaire response, the bank stated that 942 of its employees were earning €100,000 or more at the end of 2013. When asked by anti austerity TD Paul Murphy if this was justified, Mr Duffy said the numbers earning in excess of €100,000 had reduced by 40 per cent in the three years he has been at the bank.
Mr Duffy also pointed out that he was running a “commercial enterprise” that was seeking to repay €21 billion to the State and that this involved paying market rates to recruit the necessary “talent”. He noted that it had taken two years to recruit a chief financial officer – a position filled by Mr Bourke earlier this year.
The Central Bank’s new rules on mortgage lending got an airing. These will require borrowers to have a minimum 20 per cent deposit to qualify for a home loan, with some exceptions, while also requiring the banks to apply a loan-to-income ratio of 3.5 times.
Mr Brown said that 68 per cent of the mortgages it has approved for first-time buyers this year would have fallen foul of the new rules. “The proposals as they stand will impact the ability of many first-time buyers to acquire their home,” he said.
Mr Duffy, who is also president of the Banking & Payments Federation Ireland, said the new rules were “valid” in the sense of ensuring prudent lending but could have “unintended consequences” and probably required of period of time for transition.
