Oireachtas Joint and Select Committees
Tuesday, 3 September 2013
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Overview of Financial Sector: Discussion with AIB
2:00 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We now move on to No. 6 on today's agenda, which is an overview of the financial sector, Allied Irish Banks. I welcome Mr. David Duffy, chief executive officer with Allied Irish Banks. Mr. Duffy is accompanied by Mr. Bernard Byrne, director of personal and banking business, Mr. Myles O'Grady, acting chief financial officer, and Mr. Brendan O'Connor, head of financial solutions group. The format of the meeting will be that Mr. Duffy will make some opening remarks which we will follow with a question and answer session. I remind members, witnesses and those in the public Gallery that all mobile phones must be switched off as even on silent mode they interfere with television broadcasting. I ask that they be put either on airplane mode because we might take off this afternoon or on silent mode.
I wish to advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they will be entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.
When Mr. Duffy has concluded his opening statement we will allow 15 minutes per designated speaker for the first round of questions, ten minutes for the next round of questions and five minutes for the round of questions after that. Some groups may wish to divide their times in those allotments.
I welcome Mr. Duffy and his colleagues. The last time they were before the committee was eight or nine months ago. At that time it was apparent that the banks did not have specific targets with regard to how they would resolve their distressed mortgage book. Since then the targets have been set out, with a target figure of 20% by the end of June and 50% by year's end. The Members and I would be very grateful if Mr. Duffy could be cognisant in his presentation as to the way those figures reflect AIB's meeting of that target and how they break down. I thank Mr. Duffy for coming before the committee.
Mr. David Duffy:
I will make a few comments and try to keep them as brief as possible to allow time for what I know will be an extensive discussion. I thank the committee for the opportunity to spend time here because I know that the matters tabled for discussion are material, significant and, in some cases, traumatic.
I remind the committee of AIB's role as we have articulated it, and we have outlined it in our note. The primary role is the support of the Irish economy through lending in mortgages and in the world of small and medium enterprises, SMEs, but obviously, given the circumstances, another key activity has to be engaging in the restructuring of mortgage arrears and SMEs. Behind all of that we have to have a mind to returning AIB to sustainable profitability as, ultimately, that leads to a return of funds to the taxpayer. Last but by no means least, we have to make sure that we provide excellent service to the customer, whether in distress or in growth orientation.
With regard to the specific performance, we have published our results so I do not intend to go through those in great detail. As a headline we have returned to pre-provision operating profit and there is a general improvement in all elements of the business. With that in mind we have restructured our balance sheet. We have a very deep cost-cutting programme, and we have seen a steady demand for lending, some of which we will go through today.
We are particularly focused on investing in the technology side of a banking model. Our overall post-provision loss has been reduced by 40%, our customer accounts have increased by €1.2 billion for the year and we have added more than 90,000 customers during the year thus far. Our bad debt provisions, that being a forecast of what we think the liabilities will be in the future for arrears and other matters, fell by 53% and our cost programme has led to a reduction of 14%. Our headcount has reduced from slightly more than 15,000 to 12,700 and continues to decline. Our loan-to-deposit ratio and all the other metrics that are highly important to the troika have equally declined and we have largely finished with the deleveraging of €20.5 billion of non-core assets. At the same time, we have a core tier 1 ratio of 15.1%, which is material to both now and the future of Basel III calculations. We have reduced our ECB funding by another 20% in the six months to June 2013.
Lending has been a primary focus for a huge portion of the bank. If one looks at the last two years, we have lent €14 billion between 2011 and 2012. This will be the acid test as to whether AIB is delivering into our primary activity, which is supporting the growth of the economy. Against this background, we have lent €3 billion in the first six months of 2013. We have seen an increase in the number of SMEs borrowing but a smaller number - in terms of quantum - of amount borrowed. This signifies some health a little bit, in that there are more people looking to grow but they are borrowing against cash flows and more sensible amounts that businesses can afford perhaps, rather than against collateral, be it property or otherwise.
AIB has a lot of activity around the sectors and is very focused on conducting national surveys, which members will have seen regarding agriculture, among others. The key is to get a national understanding, rather than a small survey understanding, by region of what are the key drivers and to tailor our offerings towards that. We have the largest pipeline of lending we have seen in several years and a lot of discussion is ongoing with SMEs at present. AIB has approved €2.2 billion in lending just to SME and corporate customers thus far this year. AIB's market share in mortgages has been a key focus for the bank and it has moved from 28% to 46% over the past year. If one looks at drawdowns, which are a reflection of the actual spend of mortgages, AIB has 40% of the entire market.
I will turn to the issue of arrears, which I acknowledge will give rise to an extensive discussion. Our strategy remains precisely what it has been before, which is to keep people in their homes and to prioritise mortgage debt. We are acutely aware - and are not just saying this but in practice - of the circumstance of how difficult this is from a human and social perspective. We have exceeded our targets set by the Central Bank and will go into some detail on this, as I believe we will be required to do. We have a wide range of the resolution options, so all the regulatory-approved options are being offered by the bank. The engagement with our customers has increased by 30% in the first half of this year. Moreover, AIB has made 12,500 offers of solutions in addition to our active day-to-day management, which I will discuss, and 4,400 permanent solutions have been implemented. I remind the joint committee that the regulatory targets are for offers and not for resolution. There is an important discussion in this regard, as while the resolution in some simple cases is very straightforward and can be done in a month or two, in other cases with multi-debt connections, it can last six to 12 months as we work through pieces. Consequently, for the avoidance of doubt as I speak to the numbers, when the regulatory targets are published they are about making offers of sustainable solutions. I wish to avoid confusion in this regard. While we also will speak to solutions already executed, that is to be clear. We have dedicated a significant amount of resources and this has not changed. In fact, it has been increased. While it is a time-consuming process, we have endeavoured to be as aggressive as we can in terms of getting to satisfactory solutions for the customers and will give the joint committee some details of that.
In respect of strategic default, there has been a lot of talk about it and what is meant by it. We talked about our portfolio and raised this issue. It is never going to be popular but I wish to provide some substance to the commentary we made. If one considers our portfolio, 80% of it is paying normal amounts on the full mortgage. Consequently, one is talking about the 20% that is not doing so. It is of that 20% that we think that up to 20% or more could be making decisions not to prioritise the mortgage payment. In other words, in that context, one is really talking about 4% of the book, that is, 20% of those who are in arrears.
As to where we have come up with those numbers, if one considers the overall portfolio, I will provide members with some examples. Under the mortgage arrears resolution process, MARP, programme, everyone is required to submit a standard financial statement which goes through all of the income and expenditures of a person when he or she submits it. Within the past year, 25% of those indicate that the customer is able to afford their mortgage. Therefore, one in four of the customers who have provided a statement back to us shows that from their net disposable income - here I want to be clear that we define net disposable income as the income after reasonable living standards, which in our case are defined as 20% above the ISI guidelines, that is, one takes the reasonable living standards that have been published, adds 20% and then judges affordability - they were still able to afford their mortgage. I can go into that in more detail. That is a case where it seems to us, where one has the reasonable living standards nationally defined plus 20% and one is not making one's mortgage payment, that is a decision one has consciously made.
One in four of our buy to lets have paid zero in six months. If one looks at that population who have paid zero, they have net disposable income calculations but it is based on an income that was allocated in rent through that property. Therefore, an individual borrowed from us for an investment property or a buy to let, and he or she has a tenant who is paying rent, and for the vast majority that is the case, and in those circumstances, the landlord is making zero payments and diverting the rent. For us, that is a conscious decision not to pay or prioritise one's mortgage payment.
The last item to mention is that in excess of 2,000 customers, in all of the discussions we have had with them, have evidenced deposits which are significantly in excess of their arrears. We look at it and say that where a person has cash on deposit - non-current accounts in the financial system - and it is in excess of the arrears, we view that as a conscious decision not to pay or prioritise one's mortgage payment. I hope we will have more discussion on that.
What we are really saying is we are not trying to interpret. We are not speculating or extrapolating. We are saying clearly that if the customer tells us, based on the reasonable living standards plus 20%, that he or she can still pay and afford his or her mortgage, we believe that if the customer has not, he or she has made a conscious decision not to. If one has diverted rental income against the borrowings for that property and one is paying zero, that is a conscious decision, and if one has cash deposits in excess of one's arrears, one has also made a conscious decision. We are not trying to be clever. We are not trying to incite any discussion. We are trying to be clear that there are a significant number of people in these arrears situations who may have chosen. There may be human dimensions to that psychology; we are not arguing that. As we look at the portfolio, they have made a decision not to prioritise their mortgage payment. As such, we view that as a decision made consciously and, therefore, a strategic default.
While the debate on arrears is mostly about mortgages, we have spent a vast amount of time on SMEs. There is not enough debate in that area. SMEs are a significant driver of the re-basing of this economy and, ultimately, its growth. We are prioritising SME arrears and have been doing so for 18 months or longer. At the end of June 2013, close to 90% of SME arrears customers were engaged with the bank and have either a short-term or a longer-term solution in place. Usually, the short-term solution is put in place to allow a re-basing of their cashflows and to reduce stress while we spend the next period negotiating a longer-term solution with them.
In summary, we believe we are focused on the issue of arrears resolution. We are meeting and exceeding our targets. The statistic we will discuss in more detail is that we should have made 20% of offers in the second quarter and we have offered 27%. We will discuss this in more details presently. We also are lending. We are the dominant player in mortgages and the largest lender in SMEs, and I expect the trends to grow and the momentum to continue in 2013 and 2014.
I thank the committee for providing us the opportunity to explain this. There is much discussion about these topics and a transparent and detailed discussion will help us try to communicate better and will, it is to be hoped, address many of the thoughts and concerns of the committee.
Only if we are engaged in a discussion that is transparent can there be a mutual understanding that is beneficial to everybody. We recognise and acknowledge our critical role in economic recovery, which is why we are driving as hard on lending as we are on arrears. As a new team, we are bringing the bank back from a pretty low position and hope it will be understood we are making as much progress as we reasonably can and contributing to resolving the issues of arrears and lending in the economy, as we should be. Obviously, we still recognise that the debt owed to the State by AIB cannot be overestimated. The longer we go on with resolution, the easier it is to forget, but as a team, we do not forget and are reminded daily by the position in which the bank still finds itself as it tries to recover its profitability. I want to impress on everybody that our team is determined that we will resolve the issue of lending in support of the economy and arrears and, in particular, manage to deliver a profitable and sustainable institution that will be able to start returning taxpayer funds invested in the bailout. In our minds, no other outcome is permissible.
2:25 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Duffy. I will begin by referring to the Central Bank's report of 23 August which indicates that the banks are moving away from short-term, temporary treatments to offering more long-term, sustainable solutions. In its report the Central Bank gives two sets of figures on pages 4 and 5. One is a pie chart, while the other is a list of figures. It states that at the time the number of split mortgages seemed to be 0.4% and that interest-only mortgages still seemed to be 26.8%, which in many cases is very much a deferment process. It might be a long-term solution in some cases that reduces payments for less interest only accounts for just under 7%, while reductions in payments for greater than interest only accounts account for about another 22%. The figure for arrears capitalisation is 17.2%, while the figure for term extensions for other people is just under 20%. The total figure for residential mortgage loan accounts outstanding classified in that amount to arrears is €367 million. What percentage of that sum is AIB's outstanding figure? How much does AIB have outstanding on its book at this time? How does it break down with AIB's terms for resolutions? How many split mortgages are with AIB? How many times have people been moved from a purchase to a rental option? In how many cases has there been a level of write-down of debt? I am not asking Mr. Duffy to go through the particulars of a given circumstance, but on a case by case basis, is AIB now engaging in debt write-down for people who will not be able to resolve the debt and stay in their homes without a write-down?
Mr. David Duffy:
I will work back up the list and engage my colleagues in some of the answers.
The question around whether AIB is willing to engage in write-downs is a very simple one and the answer is "Yes". If one looks at our disclosed accounts across the corporate, commercial and mortgage book, we have a declared amount of €475 million which has been written down in this process. What do we mean by this? All of what we look at is based on affordability. In a circumstance where an individual, a corporate or somebody in a multi-debt connection can work through the MARP process, everything is dictated from regulatory perspective and it is clear that regardless of the circumstances or any future modelling, there is a lack of affordability and it cannot and will not be paid, however hopeful anybody might be, we try to define an amount that is affordable and the rest becomes a write-off. In answer to the question, that is how we do it. That is the quantum that has been addressed in the first six months of this year.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Does that involve somebody not having to go through the insolvency process before AIB will consider that level of debt write-down?
Mr. David Duffy:
Absolutely. I do not wish to be facetious, but I would say to Mr. Lorcan O'Connor that our objective is to make him redundant - not personally but in terms of his process. Lest anyone is confused, there is no doubt that entering into any situation where there is foreclosure or insolvency is a poor economic and practical outcome for both the bank and the customer.
Our objective is to avoid those circumstances wherever possible and to deal with each case individually according to the principle of affordability. In those circumstances, if it is not affordable we have made a number of what we term debt compromises. That is the honest and transparent answer to the question.
2:30 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
In those circumstances have people remained in their homes or were the debts written down after repossession took place?
Mr. David Duffy:
It is a mixture of all of the above but the primary aims are to keep people in their homes and for SMEs to protect jobs. They blend because sometimes the SME has a home connection and other buy-to-let properties. We are 100% informed by trying to keep people in their homes and jobs intact in viable businesses.
With regard to the numbers quoted and the statistics, I can give a breakdown of the total level of activity and speak to some of the elements of the individual quantum of offers. It is somewhat difficult to reconcile the number quoted from the Central Bank. My colleague, Mr. Brendan Byrne, might be able to confirm that our outstanding arrears number is in the region of €430 million to €450 million. It is bigger than the aforementioned number but our arrears figure refers to the total of our book not just those in the MARP process. The quantum of exposure for AIB is between €430 million and €450 million in totality. As a reference point, that has not materially increased over the past 12 months.
I will provide a short commentary that can give substance to much of the discussion and questions. We have three areas. MARP is in the second quarter of this year. It is an isolated period of activity informed by a regulatory target for making offers. I will deal with this issue first before addressing two major areas of activity in which we are also engaged. In agreement with the regulator, we translated the June target of 20% in our book into 6,200 offers. We have made 8,600 offers over that period across all of the areas. Of the figures for the quarter, 153 were split mortgages and 439 were voluntary disposals where customers asked us to take that route. We had five trade downs, as well as capitalisations of arrears. People sometimes ask if that is real but a large number of individuals were temporarily in arrears and in such circumstances they have the affordability but we capitalised and extended the arrears provided they paid the nominal sum for six months. If, for example, somebody is able to pay €300 per month continuously for six months we would then capitalise his or her arrears. This is a very popular choice among those who are in temporary arrears or a small quantum of arrears.
We have also offered a number of term extensions. In some cases, we have resolved the issues through cash payments. We have been able to take 448 customers out of arrears in the quarter through careful management of cash flows. We have capital plus interest circumstances in ten cases where the individuals concerned agreed to pay capital plus interest, as well as an additional sum to clear arrears. We also have a number of legal cases where a significant amount in the first quarter is defined as being in excess of 5,000. These involved letters sent to individuals advising them that unless they engage with us they will be subject to the full legal route and all of its outcomes. In the start-up of this process, that was a higher number. It does not mean that 5,000 people are heading towards repossession. In our case, that portfolio was, on average, 955 days past due. In other words, they were nearly three years in arrears and had not engaged with us despite repeated attempts limited to the CCMA.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
In regard to the three years of arrears, is the figure based on three years in days or three years in terms of the sum of money somebody would accrue after three years in arrears?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
It is days not the sum of money.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Somebody could accumulate those arrears over six years.
Mr. David Duffy:
That is correct. It is an extensive period of time but I want to be clear on the point.
As part of the MARP process, where there is no engagement and there is that extensive arrears period, we must communicate with our letter which is to say the person must engage or it will become a legal process. That is the volume when we go through the whole portfolio; we have gone through 100% of the portfolio. We are encouraged though because it is serving its purpose well in that a significant number of the early recipients of the letters have engaged with the bank, made payments and sought to reach a solution that works for both parties.
2:35 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We are running out of time and I need to ask more questions. Mr. Duffy can go into the finer detail of some of these matters later.
As the bank moves towards that resolution process, two difficulties will arise the first of which is what becomes a sustainable solution as opposed to a sustainable mortgage. The perception is that a sustainable solution is a mortgage issue that can be resolved before the person hits retirement age. In its resolution processes is there any recognition by AIB that if somebody can meet only the interest on his or her mortgage debt and perhaps a small proportion of the capital, that can be a sustainable solution into the future? This is particularly relevant now that we are seeing modest house price inflation. In that situation, with modest inflation, the loan is more or less secured indefinitely.
Mr. David Duffy:
Yes, this is a difficult one for us because the Central Bank's guidance is that it does not see interest-only payments as a sustainable solution. That is because in the early days of this process interest-only payments were the shortest, quickest effective route to reduce cashflow requirements for a customer; therefore, there was a huge volume and we have been guided to move away from it. There are circumstances where in a positive equity case with something that could be resolved over a period of time - perhaps not the full distance to retirement - we would make the case to the Regulator that that would be a sustainable solution in our place.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Therefore, there are situations where interest-only payments can be examined as a long-term, sustainable solution on a case by case basis on the basis that there are a number of factors in place.
Mr. David Duffy:
To be very precise, we think there are justifiable cases like that. We are not yet agreed with the regulator, but we are making the case. There has been communication with the Central Bank Governor and he is due to respond. We will react very quickly if the response is more flexible.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
That answers my next question. The other issue is that there has been some communication with the Insolvency Service of Ireland and AIB. This follows an earlier discussion I had with Mr. Duffy and the Central Bank. As people are in resolution processes, it means their income is very structured for the foreseeable future. This means they have so much disposable income to deal with their utilities, pay for groceries, children's clothes etc. and so much money that must service their debt as part of the resolution process. However, life is not like that and unexpected financial emergencies arise, for example, a bereavement where a cost to bury someone might arise, a person's car could clap out and need to be replaced at a cost of a couple of thousand euro. That requires a debt break at some level for a determined period of time. The Insolvency Service of Ireland is examining this as part of a programme. How does Mr. Duffy see this being structured? Let us say I am in a resolution process, my debt commitment is €1,000 per month and that it is costing me €3,000 to replace a car. I need three months of a debt break, but I do not have the cash up front to buy the car. How do I get my hands on €3,000 cash as part of a resolution process other than by going to an off-street or some other type of lender? That damages my credit rating because I cannot get the money because I am out of the market and in a resolution process.
Mr. David Duffy:
That is a fair question and there are two elements to the answer. The first is the question of whether we are practical and see the need to be flexible in the case of unforeseen events. The answer to that question is "Yes." Second, we are trying to turn a customer with that difficulty back into a functioning member of the economic and financial system and, by definition, a contributor to the economy. There will be circumstances where somebody is restructured and he or she is doing well but something comes up that may not be an emergency such as a growth opportunity in the business, where a new contract is won and there is a need to hire more people or a need for working capital. In these circumstances-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I am talking about someone on a fixed income. How does he or she deal with that type of financial emergency?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
How?
2:45 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
In terms of the criteria set down in the insolvency legislation, in what circumstances will people obtain that level of access? I refer in this regard not to businesses needing additional cashflow but residential customers on fixed incomes.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
That would be done as part of the in-house resolution process rather than with another lender?
Mr. David Duffy:
Yes. The second point is important. If one wants to have a restructured population of this size functioning properly in the economy, the policy of the bank must be, and is stated as such, that it will provide future credit to those individuals so that they are not in restructured prison. To allow them function properly in the economy, the bank will have to be able to provide that capacity in terms of additional credit. We will do that. This will always be on the logic of affordability and other things. Where a person returns to employment or wishes to do something from an investment perspective, the bank will provide that credit.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I welcome Mr. Duffy and his colleagues from Allied Irish Banks. There are many areas I would like to cover and I will try to get through as many as I can in the time allocated to me.
I would like first to deal with the numbers in relation to the mortgage arrears resolution targets, some of which Mr. Duffy alluded to in his engagement with the Chairman. Perhaps Mr. Duffy would take us through them again. He mentioned that there were approximately 8,600 offers under the formal resolution programme in the second quarter to the end of June this year. Perhaps he could elaborate on the components of that figure?
Mr. David Duffy:
That figure is for only one quarter. I will give the full figure and then return to that quarter. The total number of sustainable solution offers made by AIB since the beginning of the year is 12,500. I have to refer specifically to a quarter for MARP reasons, which is the reason I gave the lower number. In a total year, we offered 1,600 split mortgages----
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The figures given earlier by Mr. Duffy were for the second quarter.
Mr. David Duffy:
Yes. In the second quarter we offered 153 additional split mortgages. To date, we have offered 1,600. What is interesting about split mortgages is that when we offered the first batch of 1,400, 50% were interested and 50% were not. Of the 50% interested, a significant number did not think it was the best solution. In some cases, they were right and in other cases we proceeded with the split mortgage. It is an attractive product and includes no interest on the warehoused portion. That is the level of volume we have done there.
On capitalisation of arrears, 917 were offered in the quarter concerned and a total of 2,570 have been offered in the six months to date. On term extensions, 153 were offered in this quarter and a total of 1,680 have been offered to date. I have a list which I could go through, although I am not sure what figures are of most interest to the Deputy.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
In the second quarter, 8,600 offers were made.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Am I correct in saying the that figure is made up of 153 split mortgages, 439 voluntary surrenders, 448 cash payments, ten capital plus interest plus arrears and more than 5,000 cases in respect of which legal letters have been issued?
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I will come back to that. On the split mortgages, Mr. Duffy said that in the year to date some 1,600 offers had been made. Why are we not seeing those in the official Central Bank statistics to the end of June? Is that because of a trial period issue? How many split mortgages were implemented up to the end of June?
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The Central Bank figures are cumulative figures. They are the position at the end of June, at which the total number of restructured mortgages which were split mortgages was 309. Mr. Duffy says the bank made approximately 1,600 offers.
How does he reconcile those figures?
2:50 pm
Mr. Brendan O'Connor:
The Central Bank reports completed split mortgages, so there will always be a lag. They take between six and 12 months to complete, as valuations must be carried out, legal documentation must be drawn up and so forth. There will always be a lag between offers and completions. When we offered mortgages in the first quarter, which was prior to the implementation of MARP, we sent out 1,428 offers. We sent them to people on the basis of their payment history. We did not have standard financial statements, SFSs, so we went through their payment history. We looked at what they were paying on a monthly basis and, based on the premise that they were paying what they could afford to pay, they would qualify for a split mortgage. We sent out 1,428 of those letters. Approximately 50% responded, 50% did not respond and we were not able to make contact with them by telephone. When those came back we examined the SFSs. We took the net income and adjusted it for reasonable living expenses which, in our case at that time, were significantly higher than the 20% above the Insolvency Service of Ireland. When we adjusted them for reasonable living expenses, the vast majority could be solved without a split mortgage. Term extensions would have included quite a few, as would capitalisations. In the case of the vast majority, even though the payment history would suggest that they were eligible for a split mortgage, the SFS supplied by the customer would have shown that the solution was something other than the split mortgage.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The main reason is a time lag, so they will come through in the official numbers.
Mr. Brendan O'Connor:
To be clear, of the 1,428 offers that were sent out, probably 20 to 30 will ultimately complete as a documented split mortgage. Of the 1,428, most of those who replied have been resolved by capitalisation and term extensions - the simpler or what we would call the less advanced forbearance. A split mortgage is an advanced forbearance product.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The witnesses have thrown a great many numbers at us in the last ten minutes. I welcome the fact that they are prepared to give them, but we should have had them before this meeting commenced. We are taking down notes, looking at numbers and trying to frame questions. That is not acceptable. We should have had all of that information in advance of the meeting. The witness gave us an extensive presentation in advance, but it was very clear that the primary purpose of the meeting was to go through mortgage arrears resolution targets. We should have had all of that information, but we did not. In my opinion it takes from the meeting, to be frank.
Of the 8,600 offers made under the MARP in the second quarter, the witnesses are saying that more than 5,000 of those were in the form of a threatening legal letter. Was that a standard letter? Was it a letter seeking voluntary surrender and stating that if the person did not do so, the bank would initiate legal proceedings? What was that letter?
Mr. David Duffy:
It was seeking engagement. It was a regulatory letter as well, so Brendan O'Connor can outline exactly what the purpose of it was. However, it was to seek or request engagement such that we did not have to go down that route. As I said, a significant number of the earlier letters are coming back with that exact engagement and we are working out sustainable solutions.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The point must be made that of the numbers the witnesses have given us, approximately 60% of the so-called sustainable solutions the bank offered in the second quarter under the Central Bank targets programme were threatening legal letters. That is the bottom line.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
They are.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
So it is 40% in the year to date. However, 60% of the bank's solutions in the second quarter were threatening legal letters. That is the bottom line. Mr. Duffy can say there is an issue there because of the Dunne judgment and the bank was not advancing files to that point because of the legal-----
Mr. David Duffy:
The Deputy is quite right, and I am not trying to argue any of the semantics with this. I am being very honest. The 40% of the total activity we have done this year which is letters which suggest that the person engage with us is very logical. It is because the person is 955 days past due - three years - and there is no contact despite repeated attempts.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
What was the bank doing up to now with those files?
Mr. David Duffy:
We were trying to contact them. We were working through what the regulator said we could and could not do. Ms Justice Dunne made it impossible to do anything else. For me, it is a principle. One lends and one is supposed to get that money back. If there is a reason one cannot, one sits down and discusses it. However, where one has a population that is that length of time overdue and who will not engage, one does not have a choice. It is not by choice.
As I said, this is not an economic solution we want to go to. If it went to the full legal process, that would be bad for everybody. We have had to go out to try to identify these homes. In excess of 500 of them did not have an owner-occupier, but had been rented, and that income which had not been given to us for three years was being diverted. I understand the statistical relevance of what the Deputy is saying, but I am not sure there is a better suggestion when faced with somebody who will not make contact or respond and whose payments are overdue by three years.
3:00 pm
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
This puts the issue of a sustainable solution and the definition of it into context. AIB's interpretation or application of that in quarter 2 was, in six out of ten cases, a threatening legal letter. That was its sustainable solution.
Mr. David Duffy:
As long as the view is also taken - if the Deputy is going to make statements of a more negative connotation like that - of the fact that we have put 12,000 solutions on the table. We are working around the clock on that. Yes, I have no choice where somebody will not contact us or respond to anything. I do not have a choice. Where any customer has engaged, we have negotiated 8,000 plus effective solutions. In addition - I apologise if we did not provide enough of this information in advance, but it took a lot of time to put it together - 16,000 new people came into arrears this year. Separate from that, we have dealt with 14,000 people and taken them out of arrears.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I have only a couple of minutes left and will move on to the issue of strategic defaulters. Mr. Duffy has given his justification or rationale for his comment that these could be in the region of 20%. His comment that one quarter of holders of buy-to-let accounts made no repayments whatsoever in the past six months begs a question. Why is it that up to recently AIB had only appointed a handful of rent receivers? How many rent receivers has AIB appointed at this stage?
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
How many?
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Therefore, the bank is sitting on in excess of 1,000 buy-to-let properties where no payment has been made in six months. Many of these, presumably, are rented out and the landlord is receiving the rent, but AIB has just appointed a few dozen rent receivers. What is the justification for that.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Does Mr. O'Connor accept that what AIB has been doing in this area so far has not been good enough? It has not been active enough in that area. Bank of Ireland had appointed over 1,100 rent receivers over the same period. The Minister for Finance, Deputy Noonan, responded to me in mid July that the figure for AIB was in low single digit figures. That is not good enough.
Mr. David Duffy:
We would agree it is not good enough. We have focused our energy on the 14,000 people we took out of arrears and on the solutions for those who are in distress. While it is important to address the case of those taking rental income from a property, they were not on our priority list. Those in real distress were the priority.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I have a question for Mr. Duffy regarding the residents of Priory Hall. Some of these residents are AIB customers and I understand AIB has been involved in the conciliation process under Mr. Justice Finnegan. I understand that in most cases the mortgages have been subject to a moratorium, but interest is still accruing on many of them. As a first step, the residents want these mortgages to be frozen, pending a long-term solution. How has AIB approached the Priory Hall issue in terms of its customers?
Mr. David Duffy:
We have 27 customers in total and of these, 18 are in principal homes and the others are in buy-to-lets. These customers are on moratoriums and one is in a MARP programme. What we have done is straightforward. We are very sympathetic to these customers because this is not an issue that is typical of the circumstances we are dealing with here. This relates to circumstances that are unique where through nobody's particular fault, they have been tipped over into the circumstances in which they find themselves. We have made a decision on this. While we were involved in the process, we have stepped aside from it. We will remain engaged in whatever is left of it, but we have approached every one of our customers on an individual basis and are working towards a solution for each individual outside of the broad engagement, as it is taking too long and I do not believe it will conclude satisfactorily soon.
We have made contact with them and we have spoken directly to the great majority. We are playing telephone tag with some and trying to chase them but we will negotiate an individual solution with them up to and including debt write-down if the circumstance warrants it.
3:10 pm
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I know others will take up Mr. Duffy on that issue.
Last year, Mr. Duffy indicated that he was going to write to former executives of the bank who are now retired, those who served between 2005 and 2008. Over 30 letters were issued asking them whether they would consider forgoing some of their pension voluntarily. I do not expect any names but I believe it is in the public interest that some information would be given on the nature of the responses that Mr. Duffy received. Is Mr. Duffy satisfied with those responses?
Mr. David Duffy:
Let us define what we did. We wrote to those people giving all the commentary. We did so without judging whether a person did or did not do something - I was not here and we cannot say that. So we took the view that it was up to the individual on receipt of the letter to determine what the outcome would be for them as an individual. Therefore, it is difficult for me to be satisfied or unsatisfied within that part.
We received quite a few responses. In each case the response was that the person would engage if it was completely confidential. I could not therefore disclose information. I am not being in any way coy about this. One individual said he was happy to say what he did and say it out there, and we published that. With the remaining responses the condition of engagement was confidentiality but we had a number of responses in excess of the one that was publicly communicated. We are happy that there was a significant level of engagement. However, I am absolutely bound by the confidentiality of the conditions of engagement with those individuals.
Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Is Mr. Duffy prepared to give a response, even on an aggregate basis?
Mr. David Duffy:
I believe that the more we go down the path of providing something, the more it provides a target for everyone to discuss. I honestly believe that people were written to. They made their own decision based on their moral principles. Some were not willing to engage, some could not because of circumstances beyond their control and some did proactive things in terms of the benefit to the State. I feel comfortable that it was a good process but it would be disingenuous of me to row back on what I committed to with the individuals.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Senator Paul Coghlan, Deputy Regina Doherty and Deputy Kieran O'Donnell are next. You have 15 minutes between you.
Paul Coghlan (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I welcome Mr. Duffy and his colleagues.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
There is no need to be welcoming. You should ask a question because you will run out of time.
Paul Coghlan (Fine Gael)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Duffy for his comprehensive overview. It is impressive compared to where they were when they started this process of restructuring, even if it sounds like the political party campaigning slogan: "A lot done, more to do." I wish to ask Mr. Duffy about the tracker policy. Is Allied Irish Banks refusing to allow trackers to transfer when perhaps a customer might move home? I am given to understand that others allow it. In the interests of a level playing pitch, is there Central Bank guidance on the matter? Is AIB referring people, perhaps needlessly in some cases, to its leasing division when a term loan might be preferable and more suited? My third question is on bankruptcy. Has AIB had many bankrupts? How does the bank decide whether it will be all duck or no dinner? How does the bank decide that a debt compromise is not on? How many have AIB had and how does it decide?
Mr. David Duffy:
Senator Coghlan asked about the tracker policy. I will defer to Mr Brendan O'Connor who is working with the Central Bank on this issue. On the question of leasing versus term loan, I do not believe we are pushing people to leasing. We are trying to bring about what is an affordable, sustainable and the lowest economic cost option for the individual. It depends on the circumstances but if there were circumstances where Senator Coghlan came across someone who felt that, the Senator knows me well enough and knows he can share that with me directly. He has my contact details and I would be happy to satisfy that.
Paul Coghlan (Fine Gael)
Link to this: Individually | In context | Oireachtas source
On that point, I thank Mr. Duffy for his work on the case I referred to him, which was solved.
Mr. David Duffy:
The question of how many bankruptcies we have was put to me. It is something we seek to avoid in all circumstances. The only circumstance where we really end up in bankruptcy is where we have been unable to resolve a situation. Someone may make a decision to leave the country and seek to be bankrupt elsewhere and we would be forced into it. However, we have not as a matter of policy actually originated bankruptcies in this country.
Mr. O'Connor will answer the question on tracker mortgages for the Senator.
3:20 pm
Regina Doherty (Meath East, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I thank our guests for attending. What Mr. Duffy just outlined in the context of the process AIB is undergoing sounded both wonderful and caring. It would, however, be remiss not to point out that it does not reflect what is happening in practice, particularly in light of the evidence presented to me by my constituents. The picture painted by those constituents is very different from that put forward by Mr. Duffy. The reality on the ground and AIB's vision of what is happening appear to be poles apart.
I was bamboozled by the references to "quarters", "annual figures", "the Central Bank", etc. Mr. Duffy indicated that 4,400 permanent solutions have been agreed to date this year. Is he in a position to provide a breakdown of this figure into various categories such as split mortgages, capitalisation and so on? Will he indicate the exact nature of those 4,400 permanent solutions? Where losses have been incurred, have these been restructured with the clients involved or have they been taken on board by the bank?
Mr. David Duffy:
I will ask Mr. O'Connor to go through the particulars in that regard because we have the numbers sought. On losses and to be clear, we take them as a bank. On the issue of translation regarding the position on the ground, we are spending a great deal of time travelling the country in respect of this matter in order to try to make sure that it is not happening. However, we will do things wrong and we will have customers who have bad experiences. To be honest, if the Deputy comes across evidence in respect of this matter in her constituency, I really would appreciate it if she would contact me directly. We will do things well and we will do things badly or there will be instances of our just getting it wrong. We have no shame in admitting that. If, therefore, any members see this happening in their constituencies, I will take the matter on directly and handle it. If Deputy Regina Doherty has evidence, I will follow up on it directly. Mr. O'Connor will now provide a breakdown of the 4,500 permanent offers.
Regina Doherty (Meath East, Fine Gael)
Link to this: Individually | In context | Oireachtas source
In the context of those who were either capitalised or given extensions, I presume the solutions involved are long-term and sustainable and that they will not need to be revisited in 12 months.
Mr. David Duffy:
That is correct. We have a very disciplined approach with the regulator on that and it would want to ensure that we are demonstrating that in the assessment. As I mentioned, there must be evidence of a level of affordability for the previous six months for the actual payment that is determined to be affordable in this solution. We also look at the long-term position and the total income and expenditure from the SFS. We make a very broad judgment over a long term. We are not just seeking to solve an interim problem.
Regina Doherty (Meath East, Fine Gael)
Link to this: Individually | In context | Oireachtas source
What is the problem with regard to split mortgages? This was sold as a very attractive long-term sustainable option for people whose family homes are genuinely in negative equity and who are in arrears in respect of their repayments. What is the difficulty with regard to uptake?
Mr. Brendan O'Connor:
On split mortgages, we do not consider them for negative equity so it is for customers who are in arrears. They are assessed on the basis of affordability. As Mr. Duffy mentioned earlier, we consider somebody's net income and then we adjust it for reasonable living expenses in order to come up with a net disposable income. Our reasonable living expenses are approximately 20% higher than those of the ISI. We do not assess in terms of negative equity, it is done purely on the basis of affordability. We start with the most simple or standard forbearance products. To the extent that capitalisation, a term extension, etc., might resolve the issue, one never gets to a split mortgage. We determine that somebody qualifies for a split if he or she does not meet those options in terms of capitalisation or term extension. One of our criteria relates to whether a customer can afford to pay 80% of the open-market value of the property in a mortgage, regardless of the size of the mortgage he or she currently holds. If, therefore, somebody has a property on which the debt is €500,000 and which is worth €200,000 on the open market at present, we assess his or her ability to pay a mortgage of €160,000. That is what we assess it on.
We do not offer a split mortgage per se. A split mortgage is part of the waterfall where one goes through the other solutions and one sees if it is affordable. We estimate - at this stage it is only an estimate until the book runs through, based on the information we have from the SFS that customers have given us - that about 10% to 12% of the customers in arrears will ultimately end up on a split. In AIB’s case that would be somewhere between 1,500 and 2,000 split mortgages. That is what we think it is going to end up at, there or thereabouts, based on the information on affordability that we have.
One might assume that a split mortgage offered to someone would be immediately taken up, but in a lot of cases it is not. At the moment it is around 50:50 between those who take up the offer of a split mortgage and those who do not. Some people do not wish to carry warehouse debt even though it carries 0% out to retirement. One of the issues that arises is what happens on retirement for a person who has a mortgage. We have submitted a new split product to deal with the issue because we learn as we go along in terms of the reaction to the Central Bank. We have changed our split product. Instead of reviewing someone’s income every three years we have said we would do it every five years. We have said we would split any uplift in income 50:50 with customers so that if they can get an uplift in income they may keep some of it. We have said that we will split any out of course money they may get in the form of an inheritance or windfall. Ultimately, what we have said is that when it reaches retirement, which was probably the main concern for many people, we would look at a person’s situation in retirement and affordability based on the criteria we would use to give a new mortgage rather than the affordability to pay down existing debt. We said we would be prepared to give people with a split mortgage a lifetime interest in the property and our recovery would come ultimately from the sale of the property or the estate. That would give people the certainty that when they reached retirement age they could stay in their home. We have submitted that option and we are awaiting approval from the Central Bank. I do not envisage any issue with getting approval from the Central Bank but a period of time is required before the option goes through. That may make a split mortgage more attractive. As it stands, not every offer of a split mortgage that we make is taken up, even though intuitively one would think it would be the case that it would be accepted. Less than half of such offers are accepted at present.
3:30 pm
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I have just a couple of points to make. I agree with Deputy McGrath, that we should have been provided with the figures in advance of the meeting. Most people at the meeting are discerning. AIB should have provided us with the figures. That is not good enough.
No reference was made in the presentation to the fact that the taxpayer has given the bank €20 billion to date and it has not seen a penny of it in return. In that context we need to speak in plain language. Reference was made to write-downs. I am not talking about provisions, I am talking about write-downs for individual mortgage holders. Could the witnesses provide the number of mortgages that have been written down in the past 12 months and the value of them? Could they also indicate how many write-downs date to the second quarter?
In terms of credit, reference was made to €14 billion being given out in loans. Are they new loans, restructured loans or a combination of the two? How much of the total is new lending and how much is the restructuring of existing lending? Could the witnesses provide a figure for the level of credit that was put into the real economy by AIB back in 2008 and how much AIB credit is now in the real economy? What has happened is that the credit of SMEs has been pulled back, loans are being repaid and overdraft facilities are being contracted. Ultimately, that means less credit in the economy. I accept that the bank might be providing credit in other areas.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We are out of time. Could Deputy O'Donnell conclude on those points?
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Could the witnesses just deal with those points, namely, the number of write-downs in respect of home loans, split between buy-to-let mortgages and other home loans and the value of the figure? Could they also outline the level of credit that has ultimately been withdrawn from the economy? Is the €14 billion new lending or restructured lending?
3:40 pm
Mr. David Duffy:
A few issues arise, but I will make one comment on the issue of not mentioning the €20 billion. I said at the end of my statement that we did not underestimate the investment by the State and the State's support of AIB in trying to get to where we needed to get. The entire team is working around the clock to make it an investable bank, which means that we will try to get to some point where we can give that money back. To be clear, it is at the forefront of our minds.
On the other issues, in terms of the definition of the numbers for the mortgages and write-downs, Mr. O'Grady might mention the first six months, go back to last year and split them to the degree that is possible, as we have disclosed some of them in our accounts.
Mr. Myles O'Grady:
Mr. Duffy has mentioned that in the year to date the bank has written off €475 million of loans. Of that number, €38 million relates to residential mortgages. That level reflects a point in time cycle; therefore, one would expect that perhaps the work we have done in the past few years has been more focused on the corporate commercial side and now we are moving into-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Of that €38 million, can Mr. O'Grady give me the split in terms of whether they are repossessions of homes or sustainable solutions that have been put in place in order that people can remain in their homes? Can Mr. O'Grady give me numbers?
Mr. Myles O'Grady:
I do not have that split, but what I can say is that €38 million is a number that represents where the bank is of the view that it is not possible to secure cash flows from the customer. That would be linked with the various forbearance solutions Mr. O'Connor would be overseeing. The corresponding figure for last year, for the full year, was €55 million written off on mortgages. For six months this year it is €38 million. Therefore, the Chairman can see that we are beginning to-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The devil is always in the detail.
Mr. David Duffy:
We will provide written clarity around exactly what that is in terms of homes versus repossessions, etc. I can give the Chairman guidance in that the majority involves reduced liability for a person who stays in his or her home, but I will provide a factual answer, as the Chairman said-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
And the numbers. On the figure of €14 billion, will Mr. Duffy tell me about the level of credit?
Mr. Bernard Byrne:
In terms of headline numbers, the new money aspects would be associated with personal lending, mortgage lending, small and medium enterprises, SMEs, and corporates and approximately over that time period trying to come up with something rather than that €14 billion. It is probably in the region of €5.5 billion. On the SME side, the one people track much more closely, our total number for last year, 2012, was €828 million.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
That is new lending.
Mr. Bernard Byrne:
That is brand new lending. We did not have the clients beforehand or they did not have the facility beforehand and it is a complete increase in the size of facility, not an extension of it. That figure is €828 million. Currently, for this year, we are running at about €508 million. We are significantly ahead of where we were last year; therefore, we see that increase.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Can Mr. Byrne give me a headline figure in terms of AIB's balance sheet in 2008 versus its balance sheet now? In terms of AIB, how much has credit contracted in the real economy?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
What about credit to the SME sector?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Byrne.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I welcome our guests to the committee. On the figures, I am a little frustrated. I said to Deputy McGrath earlier that the presentation was very detailed, but the subject of this meeting is not in the information the delegates are giving us. There have been numerous speakers, but what we are looking for concerns the last quarter. There was a regulatory requirement on AIB to offer long-term sustainable solutions by the end of June this year. We are now into the fifth speaker and we still do not have a full breakdown of the offers it has made. What we have been able to assess so far is that 8,600 offers of long-term solutions have been made. Some 5,000 of these - I presume the figure of 5,000 is accurate; it seems to be a round figure - involve repossession letters. The rest that have been announced so far make up 2,100, which leaves a hole of 1,500. None of us at this committee, one hour into the meeting, has a clue as to the type of offers that have been made. It will eat into my time, but will Mr. Duffy take a few minutes to explain-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I had to use five minutes of my time to try to find out and get an answer to the question-----
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
Yes. In terms of what we know about the figures for the first quarter, they were 143 splits; capital arrears, 917; term extensions, 153; voluntary surrender, 439, mortgage to rent, 33; trade downs, five; cash flow problems AIB has dealt with, 444; capital interest and additional, ten; and repossessions, 5,000.
Where are the gaps in respect of the aforementioned 1,500 or what figures have I read out are inaccurate?
3:50 pm
Mr. David Duffy:
There is the category of mortgage deemed affordable, that is, if there is discussion with someone after going through his or her income and expense statement and the mortgage is deemed affordable. That figure was 564. As I believe I got all of those numbers, the balance is the total of those who received any kind of letter relating to the legal process, which is 5,894. This should add up to 8,600 and, for the Chair's purposes, we will provide that reconciliation as a matter of record in order that the joint committee has it to avoid confusion. Let me be clear again: this characterisation as repossession in those cases is materially incorrect. As I explained, 955 days of refusing to contact at any level is three years with no contact or engagement. One is forced into the process by the regulatory situation. As I said, we have seen exactly what we expected with regard to all of the early letters that went out, namely, a practical level of engagement and other sustainable solutions being put in place. Consequently, it is misrepresenting it to characterise it as repossession orders.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
That is fair enough, but members have not seen the letters. Consequently, I can only make suggestions because Mr. Duffy claims these 5,894 letters make up part of the long-term sustainable solutions. I put it to him that under the regulatory regime announced and imposed on his bank, it must be a long-term solution. However, a letter to a customer asking him or her to engage is not a long-term solution. Unfortunately, a letter stating the bank will repossess a house is a long-term solution, regardless of whether members in opposition agree with it. Either the bank is offering the customer a long-term solution or it is stating it intends to repossess, but it cannot issue 5,894 letters to customers and then claim it has reached the Central Bank's targets. While the Central Bank has not verified the figures AIB has presented today, it will not or should not verify them unless long-term solutions were offered.
Mr. David Duffy:
Let us be clear again on that issue. The letters are informing the person that there will be an ultimate repossession if he or she does not engage. Consequently, the letter is going to involve an engagement. The output is very simple. It will be an engagement where we come up with a sustainable solution we would like to have and avoid the repossession. As stated previously, there is a bad answer for everyone. In the event that the person does not engage and has the previous three years' record of behaviour, it will become a repossession. Either outcome for the customer will be a sustainable solution.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
In response to Mr. Duffy, AIB has offered 8,600 long-term solutions to customers. Many people across the State were holding their breath in the hope these targets eventually would lead to something positive for those who were tearing their hair out night after night and who genuinely could not meet their mortgage repayments. The targets were supposed to be a wake-up call for the banks to tell them to get their act together. Members have heard this from the Financial Regulator and people involved in that sector in the past. It was about the banks getting their act together. Under that system, AIB was to issue 8,200 long-term offers.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I am sorry, 6,200 long-term offers. Excluding what I will call the engage or repossess letters, there have been 2,700 offers. Of these, 439 have been voluntary surrenders, which brings down the figure to 2,300 genuine engagements for people who can stay in their houses and who now know there is an offer from AIB. The bank has not exceeded the targets. It has not even reached or come halfway close to the targets. I put it to Mr. Duffy that after waiting this length of time, AIB has failed dramatically tens of thousands of customers who are in mortgage arrears in coming up with long-term sustainable solutions and that this window-dressing concerning the legal letters pertains to trying to reach targets. What members expected but hoped would not materialise was that if targets were set, the banks would reach them. The head of the Central Bank stated precisely the same thing to the finance committee. His concern was that if targets were set for the banks, they would reach them. I believe this is an absolutely blatant and appalling way and it is disgraceful that AIB has issued 6,000 letters and is trying to pretend this constitutes reaching the targets in some way, shape or form. I do not suggest those who have not paid or engaged for the past three years should be left off the hook, but Mr. Duffy should not pretend this constitutes offering long-term reasonable solutions.
4:00 pm
Mr. David Duffy:
Deputy Pearse Doherty made many statements with which I fundamentally disagree and if it requires us to have the discussion outside this meeting, we will do it, and in detail. I would tell him that he is patently ignoring the fact that there are 14,000 customers who were in arrears this year who we took out of arrears. He is patently ignoring the fact, for statements like this, that there are an additional 4,000 customers who were taken out of arrears outside this quarter. If we just want to play statistical negatives with one quarter, it is fine and we can do that. I care about the substance of the solution we provide for this group of customers.
There are 14,000 customers who came into arrears this year who we have taken out of arrears. We have done 12,500 in our total, of which 8,600 is what the Deputy was looking at, and we went through another 4,455 solutions for him where we explained what was involved. Therefore, I would put to the Deputy quite the opposite. There is a target. There is a definition of those targets. We are meeting those targets. In addition, just because the regulator did not have a target in the first quarter does not mean we should ignore the fact that 14,000 customers have had a great deal of assurance about their circumstance and 4,500 other solutions have been put in place. I respect what the Deputy states in terms of the quarter but I would argue that was a natural consequence of the regulatory target. It is not going to be the majority of cases. It represents 40% of the reality of what we have done this year. In terms of the customer out there, I would like customers to understand that the great majority of this - 60% of this plus - involves good solutions for the customer and as we roll forward, we will not have to deal with 5,000 legacy cases that have not paid for three years. There is a more balanced and broader picture which, to be fair to the customer out there, ought to be articulated, but I am happy to engage further.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
The focus here is on the quarter. That is what the announcement was. There are targets set down for the banks.
I ask Mr. Duffy to dispute this. Let us deal with the facts. The target by the Central Bank for the past quarter was 6,200 sustainable offers. Of those offers made to the bank that do not or may not involve the customer losing their home, there are 2,267. Is that fact?
Mr. David Duffy:
I am not disputing that. I am saying clearly that what the regulator asked us to define and to do has been fully, 100% observed, but I am not sitting there looking at a quarter. We have been working since last year on this. My argument is simply that if Deputy Pearse Doherty wants to say that we should define the bank's performance by an anomalous quarter, he is entitled to that view. I would merely tell the Deputy that when I speak to the regulator I speak to that quarter as required, but when I speak to the customer I speak to the 14,000 who are no longer in arrears who came into arrears this year, and to the rest. We can agree if the Deputy wants a precise, narrow definition for one quarter but that does not reflect the substance of what we are delivering for customers in distress.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
Mr. Duffy presented figures to the committee previously and I will dive into these again. In the year to date, on split mortgages, there were 1,600 offers. He may correct me if I am wrong, as there are so many figures. Seventeen of them have been completed or taken up. Would Mr. Duffy explain that again? It does not make sense. There is a significant appetite and much support for split mortgages. There is serious concern about what happens to the residual debt on retirement age and that such should not be pursued, but customers want to see offers of a split mortgage. With 17 being taken up, obviously the bank has withdrawn some of those offers during the course of the engagement with the customer.
Mr. David Duffy:
To remind the Deputy of a headline, let us take that number offered in good faith based on their standard financial statement to be submitted. In that case, only 700 responded. It is not a question of us taking anything away. Some 700 customers decided not to accept that offer no matter how attractive it is. It is not just a question of what the bank is doing; it is a question of what the customer is doing. It has to be agreed between both. I would refer the Deputy to the 700 and ask Mr. Brendan O'Connor to provide clarity on that.
Mr. Brendan O'Connor:
To be clear on it, the 17 are completed and documented and they are booked on the systems of the bank. There will always be a lag but, materially, I would expect, out of the 153 offers, somewhere around 70 and 80 to come out of that.
In many cases, as I explained previously, the split product is not as attractive as one might think. I can anecdotally tell the committee that three of the ten cases this afternoon in mortgage appeals committee are customers who are appealing their split mortgage. They do not want the split mortgage solution which we have offered to them and documented based on their standard financial statement, SFS.
There will definitely be a lag in terms of the completion and documentation rates. This is a lengthy process to go through. Of the 1,428 we have put out, approximately half came back. We did it on the basis of affordability. We took it on good faith that what was being paid was what the customer could afford to pay. When the cases came back in, it was clear that in some cases they could afford to pay more. After the allowance from their net disposable income, many of them were resolved with term extensions and capitalisations.
4:10 pm
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
How many of the offers of split mortgage were withdrawn by AIB?
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
How many of the offers of split mortgages-----
Mr. Brendan O'Connor:
We have not withdrawn an offer of a split mortgage where we have written to somebody and told them that there is a split mortgage for them. Of the ones that were put out, the offer we made was that the person had paid us "X" and when they sent in their SFS or their financial statement, we would assess whether or not that was it. Of those-----
Mr. David Duffy:
In respect of what the Deputy is asking for, during this quarter, we expect that of the 153 that were offered, at least 70 or 80 will close out as real with no withdrawing so one could call it at least 50% for broad numbers. We would expect that to go based on our discussions. The first quarter was before all this regulatory target stuff so we, in good faith, tried to offer 1,400 of these products and that was depending on one's statement of income and expenses. What Mr. O'Connor is referring to is, in that discussion, only half came back and, based on their information, there were different solutions, not just withdrawal of a split mortgage but the offer of better solutions for their circumstances.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I will move on because I am conscious of the time. Option K in the code of conduct has not been referred to. Option K is reducing the principal sum to a specific amount - a debt write-down. It is an option but Mr. Duffy did not mention it in his presentation. He did mention it as a result of questions. In respect of the figures he provided for quarter two, it did not appear. Did option K arise in figure of 8,600 offers? Were any debt write-downs offered and how many customers were involved?
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
Are we are talking about just a handful?
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
When does Mr. O'Connor expect the Central Bank to verify these figures? The Central Bank is to verify these figures which are just figures from the bank in respect of the offers.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I have a number of other questions.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We can bring Deputy Doherty in later.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
Let me just deal with the strategic defaulters. In respect of strategic defaulters, I note Mr. Duffy's explanation of how he defines them. He talks about people who have savings in a non-current account that would be in excess of their arrears. If I was in arrears for 90 days or more, my child was 16 years of age and about to go to college and I had to pay college fees and was making partial payments on my loan but was, say, €8,000 in arrears and had €9,000 to make sure Michael was able to pay his college fees, would I be a strategic defaulter under Mr. Duffy's definition because I have more money in a non-current account than I owe in arrears?
Mr. David Duffy:
What I would say very clearly is that if somebody decides that they want to pay something else, they have made a decision not to pay their mortgage. The mortgage is a loan to a person secured against their asset. It is the prioritised asset. If a person decides to pay anything else, they have made a decision not to pay their mortgage. I am not here to be judge and jury of what somebody else decides to pay but in a restructuring, we would look at all income and expenses and there would be a negotiated arrangement around it. Where we have a situation where there is clearly surplus cash beyond the arrears, we know that a person has made a decision. Perhaps, as the Deputy says, they want to keep it for "X" or "Y". It is not our judgment or issue.
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Could we get a copy? We were talking about figures. The delegation must have a printout of that.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
That will be dealt with at the end of the first round of questions.
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
We should be provided with it.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
I thank the delegation for joining us today. I will take a different tack on this.
The numbers were comprehensive, but the level of detail was not sufficient to engage with today. The delegates have heard that comment from all sources and I concur with it.
How many of the bank's former customers, whether limited companies or individuals, were moved across to NAMA and what amount of write-down did they get in monetary terms?
4:20 pm
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
Give me an estimate.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
After what haircut?
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
The customer became liable to NAMA for the amount for which the latter was on the line.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
Certain people have come back out of NAMA with profitable businesses. Some are now in a position to tender for State projects. I want to know the full extent of what the banks are being repaid either by NAMA or the individuals concerned for the haircuts they were given.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I ask the Deputy to restate his question.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
Companies have been removed from the NAMA process because they have returned to a profitable position. These companies are trading and some of them are tendering for State contracts. We were told by NAMA that it was going to pursue them not only for the amount they owed to NAMA but also the entirety of the loan, that is, the amount owed to NAMA, plus the 58% average haircut to which Mr. Byrne alluded. How much money has the bank received by NAMA or these customers?
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
The reason I am here -----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Deputy is not to speak again or he will be asked to leave the room.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
The Chair does not want the issue to be explained.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
No, the Deputy will get his chance.
Mr. Myles O'Grady:
I will try to answer Deputy Spring's question. The agreement with NAMA was to transfer the loans off the legal books of AIB to NAMA. This was done with an average haircut of 55%. After that point, management of the loans became the responsibility of NAMA. The haircut taken by AIB reflected a fair value of the loans at a point in time and there is no agreed mechanism with NAMA for a flow back of value to AIB in the event that NAMA outperforms a recovery of the loans to the point where it receives more than the 55% haircut.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
In regard to the profitability enjoyed by the individuals in question after they leave NAMA, they do not necessarily pay back the entire amount of the loan when they remove themselves from NAMA.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
I contrast the treatment meted out to sustainable developers with that of sustainable mortgage holders. The sustainable developers have been allowed to go into NAMA and, in many cases, have managed to trade their way to a profitable position once again. However, the individuals are being told they will remain on the line for an eternity. It is a completely unfair way to treat people and the current directors of AIB are beholden to address this issue. The previous Government put NAMA in place and allowed the developers to trade themselves out of it in a very favourable fashion by putting the taxpayers and people of the State on the line, but we are not able to develop a system which doles out sustainability and affordability to the people of my generation who have been hamstrung and mentally and financially pressurised. I cannot believe there is one treatment for developers and another for the mortgage holders of this country.
Insufficient education is being provided. The delegates include people from the Insolvency Service of Ireland. I am dealing with people in my clinics as a politician and a former banker. They are asking me for assistance in resolving their own issues. There is no knowledge among customers of what is acceptable from the banks.
Every individual I deal with has a different skills set and meets a different response from the banks. That is unfair. When one asks an individual to go to a bank and take out a loan, the loan is given by an institution licensed by the State because we respect its capacity to do right by the citizens and the State. In this case I welcome that next Monday the personal insolvency legislation will be enacted. Despite what some of the journalists said today, that it is a humiliation to go down the personal insolvency route, it is the greatest form of liberation my generation will see. The first thing we need to do is walk in, throw the keys on the table and say: "Okay, you have a problem; you need to solve it for me." That is the first bit of advice I will give anyone who walks into my office. The bank has a generation of people in negative equity in unaffordable, unsustainable loans, because they are there for 25, 35 and, in some cases, 40 years. In 2006, the average mortgage was 37.5 years.
It is imperative for the economy and the welfare of this generation that the bank starts educating people. The idea that the bank and customer keep their agreement private is also inappropriate. If the developer gets one type of treatment and a write-off, will the bank explain that to people? I welcome what Mr. Duffy described as a fair level of write-down or affordability, with an index plus 20%. I know educated, hard-working people for whom the majority of their disposable or net income is going to paying off banks. They do not have a clue about these matters. It is not my fault or that of the banks but of society, and the level of communication is inappropriate. This is a form of liberation and the bank will have to play ball with it. The State has identified €9 billion in the stress tests for write-down by the banks. What will AIB do to educate its customers and ensure the level of personal insolvency trustees is of a sufficient standard to ensure everyone gets the same level of representation or as close to it as possible?
4:30 pm
Mr. David Duffy:
I will ask Mr. Brendan O'Connor to comment, but I take all of that on board. I cannot judge what NAMA is doing so I cannot do a direct comparison, but, the principle and philosophy Deputy Spring expressed there are concerns associated with so we will examine that. I am operating on the basis of a bank that has a certain amount of capital, a regulatory environment which has instructed me what to do about that and a principle of affordability. That is the best I can do. In that circumstance we have an absolute sense of the stress on this. My strategic default argument is not just to entertain or annoy people because that is getting in the way of fixing those in real distress.
Regarding Deputy Spring's point on education, I agree. We have been trying to figure this out. Regarding previous comments by Deputy Pearse Doherty, if there is a gap here, we will fix it. Regarding the expertise these people should have in an insolvency or restructuring solution, we are happy to ensure that is of the highest standard and we are working closely with the insolvency agency for the personal insolvency practitioners, etc. to ensure that is the case. There are many issues here.
Ireland is trying to implement a process no other country in the world has put in. In the UK, if you are not paying your mortgage - "Out." There is no split mortgage or any other offer. We are trying to deal with very complex situations. I will take on board everything the Deputy has said. If we are going to have to educate better and be smarter about ensuring the person has the right advice, we will do that and that is part of the offering we have.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
While I appreciate that, I would also like to hear from the bank that this is not a humiliating process for those involved. I was infuriated when I read in some of the newspapers this morning that my generation, through no fault of their own, will be humiliated into this process. It is nothing more than a mechanism to get people back to work and to be able to function in a normal pathway of life, and I would like to hear how AIB intends to accommodate that.
Mr. David Duffy:
I have said that our discussions with Mr. Lorcan O'Connor are to prevent that exact possibility. I referred to this at the beginning. If Mr. O'Connor were sitting here he would say our job is to ensure he is not relevant. I hope he does not mind my saying this. There is no debate about whether it is good or bad. There is an affordable solution, up to and including debt compromise, which aims to ensure the customer does not end up in insolvency. That is our objective. Regardless of the outcome, if it becomes a humiliation, we have all screwed up significantly.
If we treat people badly, the long-term future of Allied Irish Banks will never be stable. We are motivated by same and will be judged by how we execute in that regard. We are determined to prove that we can.
4:40 pm
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
How can we ensure equality of standards among personal insolvency practitioners, PIPs, when we do not know what type of service customers are being given?
Mr. David Duffy:
If I am understanding the Deputy's question correctly, the PIPs will look at the insolvency circumstance economics and what the bank is offering and then negotiate. This is from where we will get more effective solutions, which, in turn, will drive consistency among the newly created profession of personal insolvency practitioner and how he or she approaches solutions. We may get to consistency through execution.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
I believe the bank will need to set out a firm set of guidelines on the standards expected. As a former banker, I know that in the case of a bank official involved in negotiations looking at margins and making calls the banker will have the upper hand. I am of the view that the legislation should provide for the individual to have the upper hand. The last thing the banks want is for my generation to throw back their keys en masse, leaving the banks to sort out the mess themselves.
Mr. David Duffy:
I agree. If everybody throws back the keys, we can kiss AIB goodbye. The bank is not capitalised for this. Allied Irish Banks is a taxpayer funded bank. Our objective is not to be a banker versus the public or an upper hand versus the lower hand, rather it is to solve these problems on an affordability and fairness basis, while at the same time recovering the bank such that there is no taxpayer funding.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
Mr. Duffy would have to agree that traditionally the banks rather than individuals have had the upper hand.
Mr. David Duffy:
I agree. I grew up in small towns in this country where that dynamic prevailed. The bank now has a new board and a new team. We are doing the best we can to make this a fair and equitable process and to come up with solutions. We have 2,000 staff who are working around the clock and at weekends to try to get this right. We will screw up: we will get it wrong. If we do not deal with these customers, resolve the issue and prove that we have sufficient capital, there will be no AIB. We are of the same motivation. I understand the Deputy's point that we need to provide proof that we have the right guidelines and that there is consistency and equitable treatment of people.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
I apologise, but as I have only two minutes remaining, I must move on. For me, there are two issues for the Government, namely, joblessness and personal insolvency. That is the reason I am adamant we have this resolved.
Has there has been an internal investigation into whether the previous directors of AIB acted negligently during their period of stewardship? Also, is Mr. Duffy aware of the fact that the loans of many of AIB's small business customers have been sold to debt collectors? In some cases, guarantees have been given by people now in their eighties whose only asset is their home. Despite this, they are being pursued for the debts of small businesses. Is Mr. Duffy aware of this?
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
I will take up the matter with the delegates after the meeting. An individual who visited my office in the past week is being pursued by somebody other than AIB in respect of a small overdraft.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
Do they negotiate on the bank's behalf or does the bank negotiate the outcome?
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
I can give an example. A person's father is being put on the line in respect of a guarantee. His only asset is his home, which is what the collectors are going after.
Perhaps Mr. Duffy will respond to my earlier questions.
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
If not, why not?
4:50 pm
Arthur Spring (Kerry North-West Limerick, Labour)
Link to this: Individually | In context | Oireachtas source
Any institution which has gone onto the rocks and been saved by the people should internally have carried out an investigation to find out why such a mess was made, who was responsible and whether they should be culpable, rather than, if they made a mistake, getting handsome and rather brilliant pensions relative to anybody else in society. However, I thank the witness for engaging.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Before I call Deputy Higgins, I wish to clarify the matter of the information sought for this meeting. I am putting this point of clarity to this meeting and also because I am sure the communications units of the other banks are probably watching these proceedings. I am anxious to convey a clear message. When we arranged this series of meetings it was with the intention of the 20% target being reached at the end of June and looking at it in September. At the outset of the deliberations today I spoke specifically about that point, and other members have done so too. The communication that went to the different financial institutions due to appear before the committee this week stated, under my instruction, that the committee wished to carry out a review with the covered institutions with specific consideration being given to how the various banks are dealing with a series of issues, one of which is mortgage arrears and the target that by the end of June 2013 banks should have proposed sustainable mortgage solutions for 20% of their distressed borrowers. That 20% can be 20% that was arrived at for the last four or five years up to the end of June or it can be 20% of the distressed mortgage book that was worked on during the first two quarters of this year. That is not the issue. The issue is that these banks were instructed to meet the 20% target by 30 June this year. If Mr. Duffy does not have it to hand this afternoon, I am asking him for it as soon as possible because the committee will also be inviting the regulator and the Governor of the Central Bank to appear before it in the next couple of weeks as part of this module. We want to see where AIB is with its 20% in specific numbers and terms, that is, how many people, how many solutions for people and so forth. My message to the other banks that are watching the proceedings this afternoon is that when their representatives appear before the committee tomorrow and on Thursday, we will be expecting to get the same information from them.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Thank you. I call Deputy Higgins.
Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source
In the information Mr. Duffy gave us, the total in impaired loans in the owner-occupied mortgage sector amounts to €4.892 billion and in the buy-to-let sector it amounts to €3.567 billion. What are the numbers of mortgage holders in each category?
Mr. Brendan O'Connor:
I do not have the split down of the balance sheet the Deputy has in terms of the total impairment. Not all loans that are impaired are in arrears. There can be a loan that is impaired because of the valuation on the property, but it is not necessarily in arrears. They are not numbers that align.
Mr. Myles O'Grady:
I have some information. Of the total mortgage portfolio for owner-occupier and buy-to-let portfolios by number of accounts - we use account as a proxy for customers, if that is okay - 11.6% of total accounts are in arrears greater than 90 days. As a benchmark, that would compare to 13.9% for the industry. If one looks at the industry excluding AIB, that would compare to 14.9%. Those numbers I quoted-----
Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source
That is not really the information I am seeking. On the point of impaired loans, it is roughly 75% of buy-to-let-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Deputy Higgins, I must step out for a moment.
Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source
The number of buy-to-let individuals must be much smaller than the number of owner-occupiers. It points to an extraordinary level of lending for speculative purposes when these loans were being given out. However, I will move on.
During the housing bubble, the orgy of speculation and profiteering indulged in by banks, bondholders and developers, with the connivance of establishment politicians, left a whole tranche of young working people with massive, negative equity mortgages that are wholly unsustainable. That is the background. In view of the massive State assistance AIB has received, has the bank written down to today's values the capital loaned during the bubble for individual house owners and, accordingly, calibrated downwards the monthly payments?
5:00 pm
Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source
In a situation where Mr. O'Grady's bank is a State-owned bank in receipt of €20 billion of taxpayers' funds and a generation of people were blackmailed into paying extraordinary speculative prices simply to have a home, and they were the victims of speculators rather than speculators, it is extraordinary that AIB has not considered a general write-down to today's value and a downward calibration of the monthly payments. Mr. Duffy said at the beginning that one of his prime aims was to support the economy. The key disasters in the economy are austerity,which has cut demand in our shops and for services, leading to massive unemployment, and the amount of money for which people are in hock to the banks. Mr. Duffy could support the economy by allowing the release into it of huge sums of money from ordinary people if he were to take this more radical approach to restructuring the bank debts of owner-occupiers.
Mr. David Duffy:
We might have covered this before. What the Deputy is referring to, and he must forgive me if my interpretation is wrong, is solving for negative equity. This bank is not capitalised, by some distance, for solving for negative equity. Under the regulatory regime of calculating the capital the bank needed etc., it was given capital by the State on the grounds that it needed to deal with arrears and write-downs of some elements of unaffordable levels of debt. The bank is not capitalised for negative equity and would not be a sustainable bank in those circumstances. I agree with the Deputy's principle but it is impossible to execute.
Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source
Mr. O'Connor mentioned a number of times how unattractive the split mortgages so-called solution was to many people. Is it any wonder? People put in bondage ten years ago by the outrage going on in the economy are kept in bondage with unsustainable debt all their lives and Mr. Duffy wants to keep them with this so-called solution into their retirement and then he will be at their gravesides with his hand out to take the house from them. How can this be categorised as a solution?
Mr. David Duffy:
We can look at it two ways. This is a taxpayer-funded bank and these are taxpayers' funds. I can eliminate all of the taxpayers' funds by trying to adopt a process whereby I write down everything to today's value. Then, there are no taxpayers' funds. This is a transfer of wealth from one group of taxpayers to another. I am not sure I can do that. If we want a sustainable bank that is more than half the credit for this country, I cannot wipe out the entire capital base by trying to solve that problem. It is regrettable.
Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source
That is the solution to this awful problem and suffering. AIB has loaned mortgages to 27 people in Priory Hall. Have the banks taken any responsibility for the situation of these people in the sense of the huge sums of money the banks lent to developers like this who were flouting regulations? Has the bank done a behind-the-scenes assessment of many other complexes where people have mortgages with AIB and other banks that have not been outed as such but are serious fire traps and will come to the surface in future?
I put it to Mr. Duffy that the suffering inflicted for the past two years on the poor people of Priory Hall is completely unacceptable. Allied Irish Banks, the State and the local authority should provide a much more radical solution that would immediately resolve the issues involved. They should provide investment to resolve the fire issues and allow people to quickly return to their homes and then go after those responsible. Is that not the way the matter should be dealt with?
5:05 pm
Mr. David Duffy:
I cannot control all the circumstances of the different parties and their inputs. There are legal processes and Supreme Court judgments involved. I have made a very simple decision. We are sympathetic and empathetic and will resolve the issue for our customers directly in the next few weeks. The solution will be sustainable and will work for them. That is what the engagement has been for the past week. I respect the fact that all of those statements may be true. I control what I can control, that is, the 27 people in question and we will solve their problems.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Duffy for coming before us. I agree with previous speakers that we could have done with detailed facts and figures for the mortgage resolutions that have been completed. I hope we can have this information to ensure we are not placed at a disadvantage.
I will not labour the point made by Deputy Higgins, other than to add that a write-down to current market levels would not only be an advantage for those who are in distress but also for those who are pinned to the wall in meeting their payments. We must not forget the latter group. Those who are in trouble and cannot pay their mortgages and the tens of thousands who are just about managing to make payments on enormous debts are all victims. This is strangling the economy and visible on every high street.
Mr. Duffy correctly spoke about the need to stimulate small and medium enterprises. What we are seeing is small and medium enterprises being crushed and companies going out of business daily because nobody has any bloody money to spend. People are pinned to the wall in trying to pay off unsustainable mortgages. Ultimately, we will have to come to that solution and I fail to understand the reason the banks and the Government do not recognise this. Mr. Duffy has stated AIB does not have the money to write down the negative equity on the mortgages it holds. What would it cost the bank to do so? If we had that figure, we could at least examine such an option as a possible solution.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
It would be useful if we had figures. In that context, how much will Allied Irish Banks pay out to bondholders this year?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
Does Mr. Duffy have a rough idea?
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
The euro system is where AIB gets it.
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I ask Deputy Mathews not to interrupt.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
It is the euro system which-----
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I will ask Deputy Mathews to leave the meeting if he continues to interrupt.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
I do not have specific details in respect of AIB. It would be useful to know how much money all the banks are paying to bondholders. In that context, it is worth noting that all of the bondholders of the banks we bailed out are getting paid and making a profit.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
On the overall picture, the figures provided for mortgage resolutions were percentages of mortgage accounts. We heard a figure of 11.6%. Can we have numbers? I am trying to make rough calculations on the basis of the information provided. If, as I believe I heard Mr. Duffy state, AIB made 12,500 offers of solutions and this amounts to 27% of the relevant mortgages, can we conclude that approximately 50,000 AIB mortgage accounts are in distress?
5:15 pm
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
Could it be more than 50,000 cases therefore?
Mr. Brendan O'Connor:
Yes. Of AIB total arrears, the number of principal dwelling home, PDH, arrears is 38,000 and the number of buy-to-let arrears comes to approximately 12,000. Each mortgage or property typically has 1.25 accounts per property. Therefore, 50,000 accounts, amounts to approximately 40,000 properties. This is pretty constant across the industry and includes top-up mortgages, etc. Therefore, the target for March, at 6,200, would have derived from the MARP target which says we have 30,000 accounts that are in greater than 90 days arrears. This comes to approximately 24,000 properties and the target is set against those. The target is constructed based on what was 90 days past due on the last day of March 2013. It is 20% of the accounts that were in arrears on the last day of March 2013. That is how it is constructed.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
It is very difficult for me to compute these figures as Mr. O'Connor provides them here off the top of his head. I appreciate him answering the question, but it would be very helpful to receive these numbers and figures.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
The numbers should be provided to us as a matter of course.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
Based on what Mr. O'Connor has said regarding the 8,600 offers AIB made in the second quarter, 5,000 of those customers have received threatening letters. Can we expect a similar ratio for all the other accounts that have not been dealt with yet, which could be based on what Mr. O'Connor has said amount to from 30,000 to 50,000 accounts? Can we expect a 60% ratio among these? Can we expect that 60% of these people will receive threatening letters?
Mr. Brendan O'Connor:
No, I would not expect that. The base population is approximately 30,000 and if offers have been sent out to 6,000, that leaves about 24,000. To be clear on the letters we sent out, they give an opportunity to come out of a legal process and into a different sustainable solution. That is critical. We do not send the letters except in situations where somebody has not engaged with us, has not paid us anything in three months and we cannot contact him or her. I do not expect the proportions to be the same, but less.
Mr. David Duffy:
We are catching up on the book in this process and it was the bottom end of the book, those longest overdue, who ended up in that letter situation. Therefore, we would expect the percentage of that in the total portfolio to continue to decline. It must be remembered that with regard to those letters, a good portion of those who received those sent out earlier have already come back to engage in the process and are already removed from that total. Therefore, the number will decline as an absolute quantum and will not be linear.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
Okay. It would be terrifying if it was not to decline. It is at a terrifying level.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
Of the 5,000 in question, Mr. Duffy has said that many of those have returned and sought engagement. How many?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
Some 15%, but based on that quarter's group unless that improves we could be looking at 4,000 repossessions.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
There have been 439 voluntary disposals. Was the rest of these customers' debt written off or are they still lumbering under debt after returning their house?
Mr. Brendan O'Connor:
Some of those voluntary disposals relate to a solution we have offered where the house is not affordable and cannot under any circumstance be made affordable. I gave an example of this in the pack we supplied to the committee. Where there is a residual debt and where that residual debt is not affordable, we will take a write-down. These are offers and we will take a write-down where the residual debt cannot be paid.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
Link to this: Individually | In context | Oireachtas source
My last question relates to split mortgages. Is it not obvious that the reason the bank is getting a low take up on split mortgages is because people do not see them as a solution? I heard of two such cases this week. For example, people who were working took out a mortgage for a former council house, for which they paid €400,000 and have had a split mortgage offered to them.
The €200,000 has been parked. They will pay more than €200,000 for the next 20 years as well as interest on that amount, which would probably take it up close to €300,000, and at the end of 20 years they will still owe €200,000. That person told me that he has no choice but to accept it and that in 20 years' time he will owe €200,000 and will probably have to sell the house. Why would people want go into a process like that?
5:25 pm
Mr. David Duffy:
As Mr. O'Connor described earlier, that is why we have a new idea. We are trying to put something out there that would work better for the customer and that is now with the regulator. We all recognise the realities as we go through this process. We are trying to make it a better offer.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Before I bring in Senator Thomas Byrne on the second round of questions, which will be ten minute slots, I wish to make two statements. The communications unit is reporting to me that there is a good deal of telecommunications interference in the room and that many speakers who are talking are not being picked up because their mobile telephones, laptops or iPads are creating distortions in the room. I remind members to have them switched off. Many people are watching us this evening and what is being discussed is of great importance. It would be an awful tragedy if much of that commentary was lost because a mobile telephone was turned on. I echo the same statement to the people in the public gallery because the same interference is coming from the public gallery. I remind everyone to have their telephones turned to flight mode or turned off completely.
I wish to clarify something dealt with during the first round of questions. The approach to the split mortgage seems to be at variance between different financial institutions. Under the AIB modelling Mr. Duffy referred to a split mortgage that allows a payment that is greater than the insolvency payment. The couple in question have approximately €200 per month more than they would have if they went into an insolvency arrangement. That arrangement has them paying back approximately €770 or €780 per month for the next 35 years, which brings them up to retirement age. It means that the sum paid in repayments on the split mortgage is in excess of the outstanding sum before the split minus interest. There are two questions people need to know. What happens the €96,000 when somebody hits retirement? In that case approximately €100,000 is split. The person becomes activated again on the year of retirement. What actually happens with that?
The other question relates to a common practice. As part of the resolution process on a split mortgage, is the household income inclusive of mortgage protection and house insurance? I assume that is the case but I seek confirmation. Having examined the figures it seems if people took the insolvency route the finances would be a little tighter by €200 per week but after six years they would be out of the process, whereas the AIB model would have them tied in for nearly 35 years. The insolvency option looks far more attractive than the AIB split mortgage option based on the modelling provided today.
Mr. Brendan O'Connor:
I will talk to the model case study we have given the committee. Under our split mortgage solution, on retirement we would assess the affordability of the person to see what he or she could pay. We would guarantee to give someone a lifetime interest in the house and, at that stage, that which cannot be paid would go on a further moratorium or split. It would be rolled up and we would recover it from the estate. It would roll up. We have stated that under our new model we would not go after anything more than the collateral value of the house. By definition there would be no residual debt on that. That is what practically happens in retirement.
Our reasonable living expenses guidelines are approximately 20% in excess of those of the Insolvency Service of Ireland. We do not get into the business and never want to get into the business of determining what people spend their money on. We have put on a premium to allow for that. We also add a premium in cases where people have child care. We will do it for certain medical expenses where there are particular recurring medical expenses, but we do not get into going down through people's expenditure in line-item detail. We have no wish to be the judge and jury of what people spend their money on. We have an absolute level that is based on the ISI model plus 20%.
The Chairman's last observation was whether they would be better in personal insolvency and perhaps the answer is they might be.
I suspect that if this runs through the ISI guidelines - where the reasonable living expenses will be lower - there will be more money available to pay the mortgage because the net disposable income will be higher and potentially some of their unsecured debt will be written down. We will write down unsecured debt as part of our own process. Where a customer has unsecured debt with AIB and where we are putting in place a solution, we will consider that also. I do not know the specifics in terms of their debt outside of this. However, I would think that, with insolvency and with this situation, they would not qualify for personal insolvency. They would still have the mortgage with personal insolvency.
5:35 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
To take Mr. O'Connor's example - he wrote the specifics into the bank's modelling - let us consider circumstances where there is no unsecured debt outside of the specifics, where there are no outstanding debts with any other creditor, for example, a credit union, a credit card company or a different bank in respect of a car loan, and where the only entity with which the couple involved is engaging in arriving at a resolution is AIB. If such a couple approached me, I would state they would be obliged to choose an option. Either they could make structured repayments over 35 years - albeit with some level of change involved - or endure six years of hardship after which they would be out the gap. It has been suggested that where this has happened, customers have been caught between the devil and the deep blue sea. If a client is offered a split mortgage or some other solution and if he or she chooses to apply for a personal insolvency arrangement and endure six years of hardship rather than entering a structured programme that would take him or her up to retirement age, would the bank - as it is capable of doing - veto such an arrangement? In the context of the model with which we have been presented, a person in the circumstances to which I refer really is insolvent and he or she would quality for a personal insolvency arrangement. Would the bank veto the latter?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I will refine the question. Let us consider the position of someone who is insolvent but who could be taken out of insolvency by the putting in place of a split mortgage. If that person was to refuse the split mortgage and choose to pursue the insolvency route, would the bank veto any arrangement arrived at?
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The big issue which has arisen during these proceedings is the fact that 60% of the sustainable solutions have involved legal letters. I am grateful that this matter has been clarified. The position in this regard is disappointing. We will look forward to our next meeting with the bank in order to discover whether it is changing. Many solutions have been offered but very few have actually been put in place. That certainly tallies with what I have heard during regular meetings with the people involved. There is much talk and many offers but not a great deal is happening.
The notion of debt for equity was first raised in this very room in 2009 by the then chief executive of the EBS, Mr. Fergus Murphy. Mr. Murphy submitted a paper to the then Joint Committee on Social and Family Affairs which was compiling a report on the issue of mortgage arrears. Debt for equity was suggested as a possible solution at that point and probably before then. However, there was always the difficulty of getting it onto the banks' balance sheets. Has AIB done any work in trying to offer debt for equity as a proper sustainable solution? It would probably be a better solution than that which involves split mortgages. Mr. Murphy was very helpful to the then Joint Committee on Social and Family Affairs in 2009 and I would certainly recommend him to AIB in the context of the knowledge he possesses of these issues.
The Minister for the Environment, Community and Local Government stated earlier today that he had been unable to become involved in the issue relating to Priory Hall as a result of ongoing court proceedings. Did these proceedings have any bearing on AIB's decision to opt out? Was the bank wary of taking any positive action in the light of the ongoing court proceedings?
Could AIB offer a commitment not to repossess family homes? It was said that it is the bank's policy to keep people in their homes and that it wants to help people, but will the bank give a commitment that people will be kept in their family homes?
Interest rates are not the focus of the discussion today, but information on them was provided as part of the submission to the committee. Page 6 of the presentation to the committee concerns me greatly. It shows in graphic detail an uncompetitive market. What would one say to me if I were to send the document to the Competition Authority or the competition section of the European Commission? Does an issue arise in terms of competition law, given that market rates are coalescing? The market average, including AIB's rate, is 4.53%. As AIB has grown bigger and achieved a dominant position in the mortgage market of 46%, one could ask if it is using the dominant position in conjunction with another dominant entity of which we know to keep the interest rates at an unnatural high. The question is whether anti-competitive practices are going on in the banking market. The figures are very interesting. There is a common average and a commonality in increasing the standard variable rate while the European Central Bank rate goes down. There is a similar interest rate in the United Kingdom at central bank level, yet the standard variable rate averages out at 0.5% below Irish standard variable rates. My question is whether there is a competition issue and if I should send page 6 to the Competition Authority or the European Commission.
Two other issues arise. Has any progress been made on the Mercer report in terms of cutting costs in the bank? There are many people who are paying their mortgage but are struggling. They are in full compliance and do not appear on any lists of borrowers in trouble but many of them are deeply in trouble because they are putting off going to doctors and they are not putting food on the table. They might be in trouble with other loans but are paying their mortgage because they are proud of their home and they want to do that. They might be working. They might be in very good jobs with very high mortgages. What is on offer for those people who are not in arrears and who might not be likely to go into arrears soon but whose mortgage is a daily struggle? Will they be offered a split mortgage or a debt-for-equity arrangement to ease the burden on them and, ultimately, to prevent arrears?
5:45 pm
Mr. David Duffy:
I will ask Mr. O'Connor to cover the questions on debt-for-equity arrangements and early arrears and I will answer the other questions in reverse order for convenience.
On the Mercer report, we have written to the Minister outlining that the solutions we took and put in place are going to meet the 10% reduction target. Those are in addition to and separate from the salary reductions and other reductions we made last year. We believe that, incrementally, we have added a 10% reduction, as requested. The solutions comprise the negotiations around the pension plans, the working hours and the cancellation of all entitlement to increments in the bank.
On the competition issue, I would be happy for Senator Byrne to send the statement to whoever he would like. There has been no such conversation or attempt on any level in regard to competition. The rates are and have been at historic lows, not historic highs. I am willing to stand-----
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I would hope there would not be conversations between the banks, but the other side of competition law is the dominant position AIB has achieved in the mortgage market. Is the lack of competition in the market and the fact that AIB is getting bigger all the time in terms of drawdowns impacting on AIB's ability to charge a higher standard variable rate?
Mr. David Duffy:
None of the rate setting has been about that; it is about cost of funding. It has absolutely nothing to do with the ECB funding either. It is absolutely not correlated. It is the cost of funding we, as a bank, have. It is not connected to the ECB and it is not comparable with other countries. It is a cost of funding issue. It is nothing to do with the Directorate General for Competition or a dominant position, and it is from an historic low, not from an historic high. If Senator Byrne recalls, rates were at 3% and they were materially loss-making for the bank. We are about breaking even to marginally profitable on that rate. To reassure the Senator, that is the criteria – sustainable profitability, not any other. I am willing to be challenged by anybody in any domain on that subject.
With regard to the commitment not to repossess, we cannot make that commitment. If there is no threat of repossession, then one could ask what would happen. We are saying that we will do everything in our power to avoid that. We will work with the insolvency agency to avoid it and with individuals to try to come up with an affordability principle, and if it is not affordable, we will do a write-off. We are doing everything we can to avoid that circumstance but I cannot and will not give a blanket commitment.
5:55 pm
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Does Mr. Duffy have any idea of the number of repossessions he will be expecting next year now that the Government has allowed them again and the Dunne judgment has been reversed?
Mr. David Duffy:
I do not think it is a massive number. I cannot even extrapolate it yet when we have big portions of the book that we do not know. To give the Senator an example, regarding that 5,000 with three days past due, we will discover a lot about that book over the next six months and what we have seen so far has been encouraging.
To be clear I would make a second point, and it is only fair to point it out. The Senator asked us what we were offering. We can only offer if somebody submits a standard financial statement, SFS. The members will understand that is part of the mortgage arrears resolution process, MARP. Half of our customers have not submitted one. What we are offering and delivering is against half our customers. Half the customers have not submitted a statement.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Is that half of the people the bank wrote to-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
-----or the complete book of arrears?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
People have not provided a financial statement.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Regarding the 5,000 people who got these letters as part of their sustainable solutions, what is so different about these letters than previous correspondence that Mr. Duffy says the bank sent out that has now encouraged a proportion of them to respond to it at this stage? Have they been getting letters all along or have they not been getting any letters?
Mr. David Duffy:
They have been getting communications but what is different is that they believe there is a possible consequence now. There was no consequence before, and I think that is the difference. To come back to my point, if half of our people in arrears have not provided a SFS, that is half of the people to whom I cannot provide an offer. We are out pounding down the doors trying to get people to look at the MARP stuff, look at what they are required to do, come to us and engage so that we can engage in a solution. The principle I am trying to articulate is not blame. It is that unless the two of us can work together they will never get a solution and we cannot offer one. It is a challenge not just of execution; it is a challenge of education and communication as well.
With regard to Priory Hall and the court actions, I am not even sure I fully know what all the court actions are but they have nothing to do with the issue. I think there are court actions involving Dublin City Council but as far as I understand it, Dublin City Council is paying for these people-----
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
That is the court issue, yes.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
AIB could step in to help the borrowers Mr. Duffy says are helping, and it is hoped there will be a solution next week. I will be delighted to hear it if it happens, but Mr. Duffy is saying the court action had nothing to do with it and AIB simply stepped in because it was in its interest.
Mr. David Duffy:
Whether they have to pay one versus the other is not our issue because we are not charging them. I do not care what the court does in that respect because that is not about us charging them because we are not charging them. The issue is whether we can solve the problem of people in their homes. That is the principle and we have said we will do that. We would have called all the people - I am sure they will get in touch with some TD somewhere - and said that we will engage with them over the next few weeks in a final and sustainable solution for their situation of having a home.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
The issue, therefore, is more than just the amount of money owing and the method of repayment. It is about a home.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It is about people's homes.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Will Mr. Duffy be telling AIB's borrowers in Priory Hall that it will give them a home?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We may need extra time on that because I am aware a number of Deputies have received communication on the Priory Hall issue. To step out of Senator Byrne's time for a minute, Mr. Duffy might elaborate on that if he wishes.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I welcome what the Chairman is saying.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
He might give us some more statistics on that.
Mr. Brendan O'Connor:
I am going to deal with individual borrowers, and we have a number of individual borrowers. We have 18 family homes in there and we will engage individually with each of those 18 about resolving the issue for them, which currently is that they are not in a family home. I cannot get into any more detail on it but the issue for them is that they are not in their own family home.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I am not criticising what Mr. Duffy is saying but I certainly welcome what he is saying in regard to Priory Hall anyway.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Senator can come back to that. We have to finish up shortly.
Joe Higgins (Dublin West, Socialist Party)
Link to this: Individually | In context | Oireachtas source
A different home, not in Priory Hall.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
Can I follow up briefly on what Deputy Higgins said?
I am aware of some other buildings where this is either happening or about to happen, particularly with the pyrite issue. Is the bank aware of this or is it doing anything about it?
6:05 pm
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
I am aware of one.
Thomas Byrne (Fianna Fail)
Link to this: Individually | In context | Oireachtas source
It is not there yet but it is getting there.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Senator is out of time. I gave him plenty of time.
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
The general perception is the banks are not very helpful to people with distressed mortgages. This reflects the frustration members are encountering and I am sure the witnesses are picking up on that frustration at this meeting. Members have heard repeatedly that everything is moving too slowly. In the conversation on this issue in recent years, people have heard about moral hazard and moving on from that, that people will strategically default on their mortgages and that this is one reason the banks are moving so slowly. I believe this is one reason so many people are not engaging with the banks. They do not believe banks are particularly helpful, and while this does not apply to Mr. Duffy, the bolshie performance of some chief executive officers of other banks when appearing before the joint committee adds to the perception that the banks have no interest in helping out mortgage holders who are in distress.
Mr. Duffy mentioned a figure today of write-downs by his bank thus far of €38 million, but I note one bankrupt developer owes his wife more than that. We are not moving on this issue and given the joint committee has been talking about this issue for two or three years, I would have expected that when all the chief executive officers appeared before it, the cumulative figure under discussion would be close to €1 billion. However, it is nowhere near that. When one considers the actual total number of distressed mortgages and the amount people owe, one really should be talking about the writing off by AIB and the other banks of hundreds of millions of euro or at least €1 billion by this point and the banks should be indicating that a certain additional amount was in the pipeline. However, when such small figures are being cited, it is frustrating for members and the perception among the public is the banks have no interest in doing anything about this crisis. Instead, they intend to drag it on and ascertain whether they can work their way through it. From a political perspective, Mr. Duffy is in a more difficult position, in that AIB's shareholders are also the taxpayers. As its customers are the same taxpayers, therefore they will lose either way. If the bank gives out too much, they will lose and if the bank does not give out enough, they also will be the ones who will pay.
Consequently, there is a need for the banks to move quickly on the cases with which they are dealing. Last year, I believe Mr. Duffy stated there was a structural problem in this regard and that AIB did not have sufficient staff members who were trained to deal with these matters quickly enough. Twelve months later, it appears as though the same problem persists with his bank and the other banks. I believe there is a need to move on this issue quickly because this is what is adding to the poor public perception of banks, namely, their level of respect for their customers, in particular those who are in distress. I seek to ascertain Mr. Duffy's thoughts on this subject and on the future direction in this regard.
Mr. David Duffy:
In response to Deputy Twomey, there are a few issues. First, one year ago we did not have the capability but we do now. It is a team that is much stronger, better trained and, one hopes, much better at delivery of solutions. To that point, the 14,000 who fell into arrears this year, who have been managed well and who have moved out of arrears reflect an indication of that capacity and we are trying to move at volume and support issues. We could have had a much higher arrears number were we not good at taking people out of early arrears situations. That is the first point.
The second point to which I would draw the Deputy's attention is the mortgage number may be small. In addition to our own capacity and ability, we were in a position in which there was a significant impediment to communication. The code of conduct on mortgage arrears, CCMA, really was very difficult, as was the ruling by Miss Justice Dunne. That said, one might ask what could be done if one did not operate in that world. The number in our accounts is €475 million and other than €38 million, the majority of that went to corporates and commercials. This is because in that space, we are under no such impediment. We can go ahead and negotiate and execute a deal and have done so. As I stated, 90% of the population is in an early or a longer-term structured deal. Consequently, in the corporate and SME sector, where we are dealing with that world and are not under any of these artificial constraints, we have been much more effective at execution. Consequently, I ask the Deputy, what is a motivation? People talk about whether a bank should or could or does not wish to do this but it is very simple. If the taxpayer is to get money back from AIB, the bank must prove it can solve these situations and has adequate capital.
If we do not do that soon, that will be a massive dilution of the value back to the taxpayer. Therefore, we are motivated to do it, in the exact same way as lending. If we do not lend, we will not have a revenue pool that can sustain the bank and generate capital for the future. We absolutely have to deliver on this. All I am saying to the committee today is that we are maybe not satisfying the committee by providing enough detail upfront and speaking about one quarter, but I honestly believe that the institution and all of its resources have done far more than that. Perhaps it is our fault that we are not getting that across, and that as the committee looks at the next 12 months and six months, we will get significant volumes of this work completed. That will lead, I would estimate, to a much higher number of write-offs as we go through this process because it is a commitment that we have made that where it is unaffordable, we will write it off. I would hope that we are not judged too severely in a short window and that we will demonstrate by our actions that there is a significant amount of progress happening in this space.
6:15 pm
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
That is the point that must get out there - Mr. Duffy must get it out there and we will try to get it out there - because there is no engagement because customers simply feel that there is nothing happening. There are many excuses and they merely do not feel that there is anything happening.
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Is Mr. Duffy saying that when all of this is sorted out, if he came back to this committee in 12 months' time he would be talking about the write-downs in the hundreds of millions of euro?
Mr. Brendan O'Connor:
It will probably be significantly more than hundreds of millions of euro. The last piece of the jigsaw is personal insolvency because one of the big issues we face is trying to resolve multi-debt situations and there is not the protocol that is established in most other countries as to how that is dealt with. It is the last piece of the jigsaw in terms of getting norms established for how unsecured debt gets written down, etc. That is the last piece of the jigsaw. While, from a capital perspective, hundreds of millions of euro would be better, I suspect it will be significantly higher than that.
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Duffy and his management team for their time today. Before we get into the mortgage crisis figures which is the purpose of the meeting, I want to recognise that there has been significant progress in AIB. Some of the figures Mr. Duffy presented on loan-to-debt ratios and operating costs of the bank are all moving in the right direction. While there are various matters with which I will take issue here, at a macro level Mr. Duffy and his management team seem to be turning the bank around and that must be recognised. I recognise that.
The focus of today's meeting is the arrears targets. As the Chairman stated earlier, it was to look at how the banks are doing versus the targets that have been set by the Government. I believe the targets are a genuine attempt by the Government to solve the mortgage crisis. I happen to believe that the targets try to solve the wrong issue. The symptom is arrears. The problem is not arrears. The problem is that Irish households have too much debt relative to their incomes. I have stated consistently that targeting arrears as solving the mortgage crisis will not work. First, it is trying to solve the wrong problem. Second, I was not convinced that the banks would engage in it in the spirit that, I believe, the Government and the Central Bank wanted, which was long-term sustainable solutions.
I want to go back over the figures that have been presented. I take Mr. Duffy's point that this is a single quarter and, as he stated to Deputy Pearse Doherty, maybe this is an unusual quarter, but the purpose of this meeting was to see how the banks have been doing in Q2 against the Government targets. If we go through them, 8,600 offers have been made. Of those, 5,900 are legal letters seeking engagement. While I accept that those letters have to be written, I do not think anyone would seriously suggest that a letter stating the customer must engage with the bank counts as an offer of a long-term restructuring of the customer's mortgage and I imagine that when the Central Bank audit is done, the Central Bank will conclude the same. I appreciate those letters have to be written but I see no justification for suggesting that any of those letters are, in fact, an offer of a long-term sustainable restructuring to a mortgage. Therefore, I would take those 5,900 out.
A further 1,000 are cashflow help and mortgage deemed affordable. In other words, there was no restructuring. Either the bank helped them find extra money to pay it or it determined that they had the money to pay this, were choosing not to do so and needed to start paying it. A further 1,100 are capitalisation of arrears and term extensions, both of which increase the profits to the bank and increase the payments from the lender. They are not a long-term restructuring. They are saying "You, borrower, have €2,000 in arrears. We deem you able to pay that if we roll it into the €150,000 you owe. Therefore, that is the long-term restructuring." Perhaps that is the case in some cases but based on the anecdotal evidence I am seeing on the ground, in many cases, those kinds of offers are not really long-term restructuring of unsustainable debt. It is worth noting that both the capitalisation of arrears and term extensions lead to increased payments over the lifetime of the loan from the borrower.
That leaves us with just 600 offers which are split between the voluntary surrender. I was delighted to hear Mr. Duffy say that in the case of voluntary surrender, AIB is taking the hit. My understanding is that if a borrower owes €200,000, the house is sold for €100,000 and it does not look like the couple could pay any more, AIB is saying that they no longer owe it the remaining €100,000 and that it is making a provision in its books, will never come back after them for that money and is legally surrendering the money. I am delighted to hear that.
We then have about 143 split mortgages. We can disagree on this but as I see it, the long-term sustainable offers that have been made do not number 8,600 but 600. We can argue the toss on the cashflow help and the capitalisation of arrears but what is unambiguous is the nearly 6,000 which are legal letters. I would much prefer AIB to have come here today and say that it has not hit the targets and is doing its best to hit them but is not going to pretend that the 6,000 legal letters are long-term sustainable offers. That would have been a preferable position for AIB to have taken today.
Voluntary surrender is good. The delegation might confirm to me that my understanding is correct but I am delighted to hear that the bank lets the couple or borrower walk away from the difference, which leaves us with the split mortgage. Mr. O'Connor said that the split mortgage is less attractive than one may think. Of course, it is. Ultimately, the split mortgage does not work for the economy. Mr. Duffy said that one of the core strategies of AIB is to return economic growth to the country. Here is why it does not work. The marginal tax rate is 52%. Let us talk about a couple with a split mortgage. Again, I recognise the 0% being charged on the shelved portion, which is very welcome and very different to what Bank of Ireland is doing, which is a disgrace. I recognise that 0%. I thought it was 1% and am delighted to see it is 0%. Here is the problem. I calculate that there are about 650,000 men, women and children in Ireland living in houses - residential, owner-occupied or buy-to-let - in arrears or restructured not in arrears. It is a huge problem and, as we know, it is rising. The marginal tax rate is 52% so there is 48% of any additional income left. Let us say Mr. O'Connor gets a split mortgage and his partner may be out of work to raise kids. One of the parents may be out of work and decides to return to work, retrain, work overtime or get a master's degree and get a new job. They decide that they or the couple are going to better themselves. Here is what the split mortgage does. It says that the Government will take 52% of any additional income coming into the household for the rest of their lives. Of the 48% left, AIB will take 24% so they are left with 24%. It is an effective tax rate of 76% and I have yet to find an economist on Earth who would say that a 76% marginal tax rate is not a massive dampener on economic activity. That is my concern and one of the reasons people are not taking up the split mortgage.
The other problem is that AIB has set the baseline for a reasonable standard of living not against what a person earns but against what the insolvency service has said, plus 20%.
That 20% is good but let us be clear that the service's guidelines allow for a punitive level of living during bankruptcy. It took the Vincentian approach, which was minimalist to begin with, and took things like holidays out of it. One cannot have a holiday. One raises one's children until they leave the house. According to the guidelines one will never be able to bring one's children on holiday or take a holiday oneself. They were always meant as a short-term punitive standard of living. Unfortunately, what is deemed sustainable by AIB and the other banks is to say it does not matter if a household is on two average industrial wages, which would amount to approximately €70,000 or if it comprises two doctors earning €200,000. Everyone is going to this highly punitive standard of living plus 20% and if somebody earns more than that over his or her lifetime, he or she will be allowed 24% of the amount. If that is the best we can come up with, an entire generation of Irish people who should be bettering their financial circumstances and creating jobs and entrepreneurship will be stuck in a debt trap.
After a long preamble, I will now ask the following question. The Blackrock stress test made €2.5 billion of public money available to AIB to deal with residential mortgages. I understand that the write-downs to date comprise approximately €100 million, which is approximately 4% of the aforementioned figure. On the basis that Irish people have made €2.5 billion available to deal with residential mortgages, why is only €100 million being used to write down mortgages in distress?
6:30 pm
Mr. Brendan O'Connor:
I understand the analogy around the 76% effective tax rate. We try to keep people in their homes. That is the principle of the MARP targets. If people can afford to stay in their home, we ask whether there is an affordability level at which they can remain. To do that we have to examine their net income and we need a consistent and reasonable living standard to work from because we do not have the ability to make a call in every circumstance. I take the Deputy's point.
On capitalisations and term extensions, they are sustainable solutions. I do not take the Deputy's point in that regard to the extent that we model them over the life of the mortgage and the mortgage is sustainable to its original term or a term extension of a number of years. The mortgage itself is sustainable and the capital and interest will be paid down to zero over its lifetime.
On the legal cases that we put in, we are not required to offer sustainable restructuring to everybody under MARP. We are required to offer sustainable solutions. To the extent that we cannot engage with someone or 50% of people will not provide an SFS, the solution will be a legal one. It is not a sustainable solution anybody wants but it is ultimately what the solution will involve.
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
Nobody is saying that but I want to be clear. Is Mr. O'Connor continuing to maintain the position that a letter demanding that the customer must engage or the bank will be forced to take legal action counts as the spirit of what the Government was trying to achieve?
Mr. Brendan O'Connor:
In terms of the letter that goes out, it advises that the individual concerned is entering a legal solution. He or she has not engaged and there are, as I noted, nearly three years of arrears on average. The individual made no payments and we have not had contact. The only way one can exit that legal solution is by engaging with us to come up with another solution. One cannot move from a legal solution into something that is unsustainable. To the extent that somebody moves out of that, he or she will go into a different category.
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
I understand the logic for why the letters have to be written. I want a "Yes" or "No" answer. Is Mr. O'Connor going to maintain to this committee that writing a letter to somebody stating that he or she must engage with the bank or it will be forced to take legal action is what the Government intended as a long-term solution? Is he going to maintain that the legal offer counts?
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
I am very disappointed with that.
6:35 pm
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
Of the €2.5 billion made available to deal with residential mortgages, why has so little - less than €100 million - been drawn down?
Mr. David Duffy:
As I explained earlier to Deputy Twomey, it is partly because we had to build a capability, deal with justice done, deal with the CCMA, code of conduct on mortgage arrears, and get our volume of discussion and negotiation with each customer done to assess where they were. We would expect this to be significantly ahead of a few hundred million euro in the next six months or so when we return to the committee. It is unfortunate that these letters had to go out in this quarter as it causes such angst, but that is the process of how we were able to get to them. They will convert to solutions or a legal solution. If we get through all of these, the write-offs will happen. If half of that book turns out to be repossessions, there will be another chunk of write-offs associated with it. We will see significant amounts of capital being erased, which is money belonging to the taxpayers of Deputy Donnelly and his colleagues.
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
What is the total amount for which the bank has made provision to write off, meaning legally surrender any hold on?
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
The bank must have an estimate or a provision in its books.
Mr. Myles O'Grady:
Deputy Donnelly is correct that the bank was capitalised under the prudential capital assessment review to be able to deal with such issues. If we take the position in June 2013 as a snapshot, our capital base is well ahead of the minimum regulatory requirements and that is in order that we are able to deal with these issues as they arise. The bank has disclosed and reported total provisions of €16.7 billion on its balance sheet. That includes approximately €3 billion relating to mortgages.
Stephen Donnelly (Wicklow, Independent)
Link to this: Individually | In context | Oireachtas source
Is that for residential mortgages or buy-to-let properties?
Mr. Myles O'Grady:
The figure for owner-occupied properties would be €1.4 billion and for buy-to-let properties, €1.5 billion. There is a balancing amount which is a general provision that is not unique to each portfolio. We have done this based on our view of cashflows and that is from where the write-off will come as it comes out of the process that Mr. Brendan O'Connor is taking those customers through.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source
I have two main topics. I will come to Priory Hall later, but my main question is on variable interest rates versus tracker mortgages. Last April-May the ECB reduced its interest rates, but this was not passed on to customers with variable interest rate mortgages. Then there was a 0.4% increase for AIB customers with variable rate mortgages and a 0.25% increase for those in EBS. I said in the Dáil at the time that there seemed to be a syndication between what the ECB did and what AIB did with its variable interest rate mortgages. The point has already been made that outside the distressed loans category there are quite a number of mortgage holders who are feeding their mortgages possibly before they are feeding their children. They are struggling to pay their mortgages and succeeding, but an interest rate increase could tip them over the edge and then the bank will have to deal with that issue. Every time this happens there is a conversation about passing on interest rate cuts to variable rate customers and it does not happen. The last time there was an increase. It has been suggested to me that the accumulated wisdom among the delegates is that a 5.5% interest rate for variable rate mortgage holders is the most sustainable for the bank to continue in the future and that the current rate is unsustainable. I would like to get AIB's response to this. Is what has been suggested to me wrong?
Does Mr. Duffy believe rates can remain at the current level? What does he foresee happening in the future in regard to variable interest rate mortgages and how does he react to the charge that AIB is forcing variable interest rate mortgage holders to pay for tracker mortgage holders remaining as they are?
6:40 pm
Mr. David Duffy:
Mr. Bernard Byrne who has been working on this will comment later. First, variable rate mortgages and tracker rate mortgages are not related. They do not fund each other, which Mr. Byrne will explain. Second, they do not have any association with the ECB rate. That is not an issue of correlation. What it comes down to is the cost of funding the bank, namely, what it costs to fund to lend and the marginal rates of recovery on that. That is what drives much of this. Mr. Byrne will comment on the specifics of the rates. I will then come back and respond to the Deputy's final comment on rates.
Mr. Bernard Byrne:
The cost of funding the mortgage book is based on the funding cost for the bank. For a long time now, the ECB has not been a funding cost for the bank. The predominant cost of funding for the bank has been the deposit cost to it and what it has been doing in the wholesale marketplace in terms of ancillary funding in that regard. The ECB has been a decreasing portion of the bank's funding. The ECB funding was always associated with the proportion of our distressed book which it was funding as we were trying to deleverage that programme. The ECB provides the bank with funding to fund its deleveraging of assets. As those assets are sold the ECB is paid off. That is the logic. The ECB as a movement in the marketplace, which has decreased to a low rate, is not the basis on which the bank can fund itself today, tomorrow or in the next few weeks. The deposit base of the bank is funding it. That is our core funding cost. Incrementally on top of that we have the cost of our wholesale funding transactions, which are more expensive. On top of this is the added operational costs associated with running a mortgage book plus a margin.
When we last appeared before the committee ten months ago we talked about where rates were going and their probably reaching levels of below 5% and that that may not be where it stops. We have no intention at this point of increasing rates. However, I cannot guarantee in terms of where funding costs go that the rates being spoken about will not reappear. Looking at the UK and European marketplace rates at various points in time, it is evident that long term rates do move between 4.5% to 5.5% or 6% with very low base rates. Obviously, if base rates go above that and funding costs in general rise different things happen. The current rates are where we are trying to get to in terms of establishing a viable bank that can generate profitability from the loan book, which is the standard variable rate book, with no cross-subsidisation factored in, considered or thought about in relation to the tracker book.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source
Has Mr. Byrne calculated within that the damage an interest rate increase of that nature would do to impaired loans or distressed mortgages?
Mr. Bernard Byrne:
Yes. This is a difficult issue. The point the Deputy makes is a valid one. Under regulatory obligation, each time AIB increases interest rates it must consider the impact of that increase on its book. We have a regulatory obligation to do that. Another thing we have to do is get to the point where we generate our own capital. If as a bank we do not generate our own capital by making profits then every year we will need more capital from somebody to fund the bank. We have a dual obligation. We need a mortgage book that is profitable and generates sufficient return to generate capital for the bank. That is what we are trying to do. The standard variable rate pricing has been picked. It is based on a bottom up calculation of our funding cost, operating costs plus a margin to get us to the point where we can generate profitability out of the standard variable rate book as a stand-alone book rather than by way of cross-subsidisation between trackers. There is no cross-subsidisation and no calculation of cross-subsidisation between our tracker book and standard variable rate.
Mr. David Duffy:
We do not propose to increase rates by a percentage. In fact, we do not propose to increase them at all. We are cognisant of the consequences and economics. We do not live in a vacuum. Long-term average rates which would give a margin that would allow a bank to return to profitability and create capital would have to be higher than they currently are. That will happen only if the cost of funding changes. As things stand, we are comfortable with our cost of funding and where mortgages stand. There is no 5.5% or perceived wisdom of a number. It is a variable factor based on the cost of funding. If the cost of funding increases, rates increase.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source
I look forward to quoting that next year, when I hope Mr. Duffy will have been proved right and I will have been proved wrong.
With regard to Priory Hall, I reiterate that so many families are clinging to every word that is being said by people in the banks, so I will give the witnesses the opportunity to say what they want to about Priory Hall as carefully as they can. When the residents hear about "new homes" or a "final solution", they want to know what the terms mean.
We all know how difficult the position is and I agree with others that there are a number of other issues coming down the tracks for this and other banks because of the mad sellotape-type construction of the past 15 years. The period of "a number of weeks" has been mentioned, along with "positive solutions" and "new homes". These words will be pored over, read and clung to by people in a desperate position, so I would give two minutes to the witnesses to allow them say what they want. That would be very much appreciated by everybody.
6:50 pm
Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source
Before giving the witness the chance to answer, I make the point that the families have said this bank has been more positive in dealing with this issue than any other. That is not saying much but it is saying something.
Mr. David Duffy:
I will take whatever small amount I can get. This is a very serious issue but I do not want to over-egg what we are doing. We are only dealing with 18 from a total of 189 homes; we are dealing with 27 properties but 18 principal dwellings. I must be careful about people misinterpreting what I am saying. We are talking about 18 homes that have AIB mortgage holders and where the mortgage is within the control of AIB.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
Link to this: Individually | In context | Oireachtas source
Does that include EBS?
Mr. David Duffy:
Yes, my apologies, I am referring to the AIB group. Within that context we have been very specific and we have already contacted those customers. It is not that they will be reading about it in the news today. We have been unsuccessful in contacting four of the 18 and we have had to leave voicemails as we tried to contact them over time. As I referred to before, we have made decisions not on the grounds of legal cases or anything else other than frustration. We understand this is a particular unique situation. I am not 100% convinced it will always be a read through to the next pyrite issue, for example, and we must consider each case on its own merits. This has gone on for a long time and it is nobody's fault but with the best will in the world, it has become a circle. We are in a position where at least Dublin City Council is paying for current accommodation and there is a moratorium on the other. If anything is to change in our view, there must be a long-term solution put in place along the principles we have discussed.
We have made contact and indicated we want to put a long-term, permanent solution in place with those affected, and we have said that we will engage with them in the next couple of weeks on ideas of how that will work. We have asked if they will be happy to take our call, sit down with us and go through the process. In all cases, bar one, everybody has been happy to do that. We are in a very public universe so we are deadly serious, and we will try to make this work. With each individual there will probably be solutions for different circumstances. I cannot view it today but we will sit down with the objective - if that is the best way to describe it - of getting those people into a home and out of current temporary circumstances.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I know Deputy Doherty has a radio interview shortly so I will allow him in now for five minutes.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I will try to be as brief as possible. I welcome the information on Priory Hall, and I hope we will get engagement to see when the process will conclude. Going back to the issue of strategic defaulters, there was mention of a figure of 20% of those in arrears who could pay their mortgage, going on AIB's expenditure guidelines. Will those guidelines be published so that people can judge for themselves?
Mr. Brendan O'Connor:
Fundamentally, I do not have an issue with that but it is not as binding as the Deputy may think. The process takes into account whether there are kids in national school, etc. It is not a straight number that can be picked out and it is no different from the Insolvency Service of Ireland, ISI, in that there are a number of scenarios. Fundamentally, I do not have a problem publishing the guidelines.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I understand. We have the ISI guidelines and would appreciate the AIB guidelines.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
The Mercer report was referred to earlier. Over 1,200 staff in AIB earn in excess of €100,000. Have any of them received a reduction in basic salary? I am not talking about pensions or increments but will base salaries be reduced as a result of the Mercer proposals?
7:00 pm
Mr. David Duffy:
With regard to the Mercer proposals, we are not making a reduction in salaries as we have done that already, unlike many others. We took it last year. Myself, the senior executives and many senior people throughout the bank took the salary cuts. There were, in particular, many increments. People were entitled to automatic salary increases across the spectrum of the bank, but those have been cancelled and there will be no more. That is just a legacy of time, but we had to take that risk out. We have closed the defined benefit plan, unlike most others. That will generate significant reductions in benefits to the employees. If one says one's real income is one's salary and one's pension, as all the members here will understand, that has been materially reduced in pension terms as a result of the defined benefit plan being moved to a defined contribution plan. In addition, we have required people to work additional hours every week for no increase in pay. It is the combination of those three factors that creates the equivalent of 10%.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I really appreciate Mr. Duffy's answer. Many people expected that the 1,200 employees of AIB would receive a salary reduction, but I note the bank has reduced remuneration costs largely through redundancies and also through the measures Mr. Duffy outlined.
I have another brief question on the banking inquiry. Have the tapes in respect of the trading room been preserved in AIB and are there other tapes? Was it only the trading room that was recorded at the time around the bank guarantee or were other lines in AIB recorded? Are the tapes preserved and will Mr. Duffy make them available to a banking inquiry?
Mr. David Duffy:
I cannot tell the Deputy exactly what is and is not recorded in the bank beyond the trading floors in historical terms, but anything that we had was secured well before the Minister's request and has been saved in the bank. I do not know what is in it but we will be absolutely happy to provide whatever is required for the banking inquiry.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
My final question is about something I will put to the Taoiseach when the Dáil resumes. Mr. Duffy's name has been mentioned in the public media with regard to other banks such as Danske Bank and the meeting he held with a senior Government Minister. I have engaged with Mr. Duffy in respect of constituents and I have met with him at committee meetings and in private session. I welcome the openness and frankness which AIB has shown, which some other banks have shown but others have not in the past. What protection does AIB put in place, particularly for a CEO, so that a senior person with Government responsibilities for banking cannot approach the CEO with regard to his or her own financial affairs?
Mr. David Duffy:
That is a very fair question. Am I going to meet with a lot of politicians and business people of all kinds, from large corporations to SMEs? Tonight our entire executive will leave here, drive down to Waterford and will meet with our staff and a bunch of customers all day tomorrow in Waterford. Yes, I will meet with them all the time in the public domain, as I said. We have made it very simple. I do not make credit decisions. If anybody comes in and raises his or her own issue, it is referred to our internal credit groups, which I do not sit on and in which I do not make decisions. It must be at arm's length from me. I will state it publicly and I can always be audited on that. I will not give anybody, small, large or indifferent, any inclusion or favouritism in any discussion around his or her own particular issue, regardless of whether it is a negative or positive situation. I will not do that and I cannot be seen to do that. The only way to assure oneself of that is to maintain an independent decision making group under the chief risk officer.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
I appreciate that. Despite the fact that Mr. Duffy does not have a decision function, is it appropriate to facilitate a meeting between the CEO of a State bank and a Minister in the Government with regard to the personal difficulties of that Minister and the potential risk of bankruptcy and expulsion from the Dáil as a result?
Mr. David Duffy:
It is not that there is facilitation of meetings. In the normal course of business related to a Minister's duties or a corporate executive's duties - it does not matter and it is not just Ministers - in many circumstances we meet on an ongoing basis, as part of the normal commercial environment or in the facilitation or execution of policy, and in those circumstances somebody might bring something up. That is why I have the protection, but we do not offer advantage to one group and facilitate a meeting for them to discuss their debts.
Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source
That is what happened in this case, that it was a side issue.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Deputy, I would have asked you to ask that as your first question if it is your priority question.
I do not want to cut the Deputy short, but he had the option of putting the questions in sequence and we are now out of time.
7:10 pm
Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source
I welcome our visitors. I will take up Deputy Pearse Doherty's point. The €100,000 a year people seem to have been very well protected. The 16% reduction in staff costs was accomplished by a 15.3% reduction in staff numbers. The problem of high pay, to which Deputy Pearse Doherty referred, was not addressed during the year. Page 9 of the presentation shows total impaired loans in the owner-occupier sector are up by €1 billion, or 25%. It might have moderated in the past few months, as 60% of the increase took place in the previous six months, but having €1 billion added over the year does not indicate much progress.
There has been a sharp deterioration in the in buy-to-let sector and three quarters of it occurred this year. It has caused concern in the Seanad that, when buy-to-let people get into difficulty, the solution of the bank is to seek vacant possession in order that those who have paid rent to the landlords face eviction. We have asked the Ministers for Justice and Equality and the Environment, Community and Local Government, Deputies Alan Shatter and Phil Hogan, to examine the issue. I would like the bank to confirm that it is not its policy that where the landlord goes bankrupt, the tenant, for whom it is the principal private residence, faces eviction and that it does not insist on vacant possession in these cases. I note with concern that this problem is rising rapidly.
The case studies presented indicate a banking system that was completely irresponsible in its lending. The case mentioned on page 18 refers to someone with an income of €46,000 and debt of €356,000. Are people who engaged in that lending still in the bank? The case mentioned on page 16 involves someone with an income of €38,000 and debt of €331,000. Who was in charge of the ship when it was steering so steadily towards the rocks with this irresponsible lending? That is what the case studies indicate to me. When the Oireachtas gets around to the investigation, I hope the people who lent recklessly will be brought to book. I hope they are all gone from the bank because that explains the situation in which we find ourselves.
The final concern is that, in the era of massive lending, the banking system became fixated on property. In the period 1998 to 2008 under 2% of the increase in lending by Irish banks was in manufacturing and agriculture. The banks went on a property splurge that the two Houses are trying to deal with. Have we any indication that the banking industry will ever know anything about industry and SMEs or is this the local auctioneer, bank manager and property solicitor taking a slight break and hoping the property market starts off again? The Central Bank will have to control the voracious property lending that got the country into so much trouble in the decade before the system blew up in 2008. Do we have people who know anything about entrepreneurship, SMEs or what Irish industry is doing? Most people outside see AIB as purely a property bank, with the others. That is what wrecked the country. AIB did not have anything else in which people were invited to invest.
Mr. David Duffy:
Which questions should I tackle? On the question of high pay not being addressed, we do not see the percentage of pay as an issue but the absolute cost of pay in the bank and resources. We have been trying to address both and, as we continue to work, members will see the benefits of it.
Perhaps then the committee might have a more positive view of what we are achieving. I will come back to the reference on page 9 to buy-to-let properties and the absolute levels.
With regard to the case studies, the representation of irresponsible lending and the question of whether the people are still in the bank, all I can tell the committee is that AIB is represented by a new board and a new executive. A very significant number of senior people in the bank who were there are gone through early retirement and all kinds of mechanisms. I now know as matter of fact who did what and whether they are all gone because I was not here. More important is the policy we have in place on lending and the skills sets we should have. It is one which I am confident will lead to prudent risk-taking and appropriate investment in the right sectors of growth in the economy. I firmly believe that is the case and the team is experienced enough and has been through many of these ups and downs before. They understand what sensible risk-taking is and the appropriate sectoral skills we require to do that. We have invested heavily in them and are investing heavily in the sectoral reports on the economy. We are putting together the whole package of education, skills and risk-taking. I hope we will be able to demonstrate that we are doing a sensible job in terms of investing in the economy. However, I cannot give more assurance around the individual specifics in the names of people in the company. No one will be allowed to engage in the kind of lending to which the committee referred given the construct we have.
A question was asked about the absolute level of increase in arrears. Perhaps Mr. O'Connor might comment on this before I do. There is a reference to a €1 billion increase on page 9.
7:15 pm
Mr. Myles O'Grady:
It is true to say the impaired loans have increased in absolute terms. If we trend back over a period, we see the pace of increase is slowing. That is an important point to make because it suggests we will quite soon get to a point where the absolute level of impaired loans will be known. That is the quantum the bank must deal with. I take comfort from the fact that the pace of increase is slowing.
Mr. David Duffy:
To be honest, we were expecting the trend on buy-to-let properties to increase faster because people will prioritise everything else. Where there is an investment property as opposed to a home there are likely to be more arrears in that category and, therefore, it rose. Whatever about its origination – I see and understand the sentiment of the committee - probably we see this flattening out and plateauing this year and buy-to-let properties will naturally have a higher arrears rate than principal homes.
Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source
Is it policy to seek vacant possession?
Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source
Senator Hayden and Threshold were most concerned that this was the policy and that people who had paid their rent to a bankrupt landlord faced eviction. I am pleased to hear that reassurance.
There is a problem with the kind of lending book described. I appreciate that the present management team is trying to deal with it and thank the chief executive for his remarks, but it comes after the ICI debacle in the 1980s, the offshore accounts, not declaring for DIRT and the pensions in the Caribbean. This is the fourth time around for AIB to prove finally it is an organisation in which the public should have confidence. The record is a disaster. That is why taxpayers in this country are absolutely ground down by having to pay for the inefficiencies of the banking system. I hope what Mr. Duffy said about never repeating that irresponsible pattern of lending in the case studies holds. I will be bringing it up with the Chairman when we are back again that people in the bank must pay a penalty for that kind of conduct. Some of the loans described were grossly irresponsible and I am pleased to hear it will not happen again. I thank the Chairman and our visitors.
Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Duffy and his team for what has been a very useful meeting. His answers have been blunt and to the point, which is very much appreciated. One of the things that has struck me and that will strike many taxpayers coming from this meeting is what Mr. Duffy has put on the public record, that is, 50% of people in arrears are refusing or failing to fill in financial statements. Taxpayers throughout the country will welcome the fact that AIB is making efforts to make the people concerned engage in the process. How long is a bank meant to wait before a person engages? Is it four years, five years or six years?
If the banks fail to engage, they do not help anybody. I would like to echo some of the comments made by my colleagues throughout this meeting by asking Mr. Duffy to consider why they are not engaging. I meet a significant number of people in my office who are really fearful and intimidated. I believe Mr. Duffy when he says his bank has a new approach, a new team, a new structure and a new attitude to its dealings. These people do not get that, however. Perhaps they do not know it. I welcome the sending of the legal letter. It has to be sent because the issue has to be dealt with. I am interested in what the bank does after that. I refer to how it gets its message out, for example.
Mr. Duffy mentioned that representatives of the bank are going to travel to Waterford to meet customers there. All of that sounds very positive, but it is not what I experience in my constituency office when I meet grown men who have always wanted to provide for their families and been able to do so, but simply cannot pay their mortgages at present. When they receive a letter from the bank, they consider it as a threat to take their home. That is the fear that exists. I would like Mr. Duffy to take that message from me when he leaves this meeting. In many cases - there may be exceptions - these people are genuinely fearful of engaging with the banks. They are intimidated. They do not know how to sit down and pen a letter to a bank. I think that is the biggest issue we have to overcome collectively. Obviously, we have a job to do in that regard.
I would like to ask a couple of questions. I am happy to group them together. Fitch and Standard & Poor's have suggested that Bank of Ireland and AIB could require further capital. In their view, both banks will require further capital. Will Mr. Duffy give me his view, from an AIB perspective, on the possibility that further capital might be required? The last time he appeared before this committee, he mentioned that the chairman of his bank had requested voluntary contributions from pension entitlements from former senior bank executives. I wonder how that played out in the end. Did the former senior bank executives agree to make voluntary contributions from their very hefty and, in some cases, overly generous pensions? Perhaps Mr. Duffy will respond to those questions first. I will come back in if that is okay.
7:25 pm
Mr. David Duffy:
I will begin by speaking about the second matter raised by the Deputy. I went through it earlier for the rest of his colleagues. The letters were sent to the senior executives in the bank. Every one of them responded. One person responded publicly. The other individuals engaged on the basis that whatever they chose to do would be treated confidentially. As I said to Deputy Donnelly, I cannot disclose anything further in this regard for that reason. The process did happen. There was a positive set of interactions subsequently.
The Deputy also referred to Fitch and Standard & Poor's. We have to be very careful about what we mean in this context. Do we need more capital right now? Will we need more capital in three years' time or after Basel III? What does it mean? If we need more capital, how will we get it? It depends on the timing. Where we are is very clear. We see ourselves as the best capitalised bank in terms of the major players in this country. We have a very heavy load of provisions. We hope they will help us to work through all of the arrears and other structural issues in terms of negative influences on capital. We have a plan to return to profitability. On that basis, we have modelled out to Basel III. We think we have a reasonable amount of capital today. We hope we have sufficient capital for Basel III in 2018. It will not be within our control. If the regulators or the Europeans under European supervision set different criteria or incremental capital hurdles, we may not have sufficient capital. Based on what we know today and the actions we are taking today, we think we are well capitalised.
Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I would like to return to an issue that was pursued by Senator Barrett. I refer to the voluntary sale for loss case study that is outlined on page 18. I echo the Senator's comments in this regard. It could be a question of needing to educate the bank's customers. Indeed, public representatives may need to be educated as well. If people in these circumstances sell their homes and AIB takes the hit, where will they live next? How will they be able to get a mortgage? Can the bank guarantee they will get a mortgage? I would like someone to explain how this works. We are talking about a man and a woman of 35 and 34 years of age with an eight year old child. When AIB gave them the money at the time, it accepted that they would be able to pay it back. These are relatively young people. AIB is basically telling them that the only option available to them is to sell their home and get out. Where do they go next? I think that is the bit people are confused about.
Mr. Brendan O'Connor:
To be clear, this was requested by the couple in question. They are separated and are living separately. The idea of a house for the family is not relevant to this case study. We included that example to highlight the complexity of some of the cases we are dealing with.
In this case, the solution would be to rent.
I take the point on total mortgage debt. I also happen to know some of the details of the particular case. The mortgage was originated on the basis of a significantly greater gross annual salary. The person in question was employed in the construction industry at the time. While I am not refuting the core principle, the salary when the mortgage was originated was not quite at the multiples that may appear from this case study. In this case, the best option presumably would be to rent in the locale. Allowing for rent in the locale in question, I suspect this option is doable, while social housing is another option. A mortgage is not, however, an option in terms of sustaining a mortgage across two households.
7:35 pm
Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I wish to address a number of other issues, including multiple debts, an issue to which Mr. O'Connor referred. I was speaking to a constituent this week who had a monthly mortgage repayment of €1,200 to a bank other than Allied Irish Banks. The person in question was seeking to reduce this repayment to €900 per month for 18 months to facilitate clearing some smaller, shorter term loans which were approaching the end of their terms. My constituent proposed that, at the end of the 18-month period, the repayment would increase to €1,200 or possibly even a higher monthly amount. While I accept that repaying one's mortgage should be one's priority, people do not live in a vacuum. My constituent has a range of loans. The bank rejected the application to have the mortgage repayment reduced for 18 months. When making assessments, what consideration do banks give to debts other than the mortgage?
Mr. Brendan O'Connor:
We seek to have the mortgage prioritised. If we are to prioritise keeping someone in his or her home, we will seek a priority payment on the mortgage. We do not only consider the issue in the context of other debts. There are other expenses also. The issue of educational expenses was raised. In a case such as the one raised by the Deputy we would provide for forbearance for a couple of years if the person was putting children through college and had to pay a registration fee of €3,000 per annum or whatever it might be. I am not trying to deflect the Deputy's question, but as we work on a case by case basis, I cannot answer without the full details. To the extent that there is forbearance, it obviously makes sense for us if it is our debt, although it depends on the nature of the debt. In a case such as the one the Deputy describes it may well be that the person would be better off entering into a personal insolvency arrangement to have the unsecured debts receive a haircut on the basis that they are not sustainable. I am not trying to deflect the Deputy's question, but I cannot answer without specific details. However, on the basis of the information presented, I do not consider the request made by the Deputy's constituent to be unreasonable.
Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source
In answering a question on the increase in the interest rate, Mr. Byrne referred to the need to carry out a regulatory impact assessment of the effects of an increase on the bank. How many of those currently in mortgage arrears are in arrears as a result of an interest rate increase?
Mr. Bernard Byrne:
While I cannot provide a figure off the top of my head, we make such a calculation. This involves examining different deciles of customers in terms of their income relative to their mortgage payment at a specific point in time. To make a general observation, when one finds someone who is very close to reaching the limit - interest rate increases tend to have a modest overall impact in terms of overall income - the person is likely to be in a difficult position in any case, either an arrears position or a pre-arrears position. The customer tends to be at the tipping point, in other words, very close to the line. We look at these cases based on our understanding of the income of the people in question. The calculation tends to produce a relatively modest number, one that is lower than one might expect.
Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source
This issue is raised with Deputies.
I ask Mr. Duffy to comment on a specific issue which has been covered on the airwaves in recent days and on which Allied Irish Banks released a short statement. I refer to a specific case involving bankruptcy proceedings. I will not name the individual in question. An assertion was made in the media that Allied Irish Banks, a taxpayer owned bank, was offered close to 80 cent in the euro but was not willing to-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Deputy is sailing close to the wind. Under Standing Orders, Deputies must not refer to specific individuals.
Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source
The chief executive of AIB has issued a statement on the matter.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We must be mindful.
Simon Harris (Wicklow, Fine Gael)
Link to this: Individually | In context | Oireachtas source
It has been asserted that AIB did not accept a reasonable offer. I ask Mr. Duffy to comment in general terms on the accusation that the bank refused to accept an offer of 80 cent in the euro.
Mr. David Duffy:
I cannot comment on individual cases because one gets into a "He said, she said" type of discussion.
Nothing I have heard in the current markets regarding a number of cases represents the full facts. I stand by our previous statements, absolutely and strongly, despite anything that has been said. I will address the matter appropriately with the individual in question.
7:45 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We will now move on to the final round of questions which will be followed by brief supplementary questions as I want to bring the meeting to an end at 6 p.m. We will take questions from Deputy Peter Mathews who will be followed by Deputy Shane Ross. They have five minutes which includes the time for AIB representatives to respond. If they want to spend their five minutes talking, that is fine, but I will then just move on to the next speaker.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
I say "Well done" to the four delegates, Brendan, Bernard, David and Myles, for taking up the cudgels as they have done in the past two or three years. Some of them have done so only recently, including Mr. Duffy.
The Irish banking sector is a very messy place to be in. We are talking about the overview of the financial sector. In September 2009 I first exercised myself on this issue here and looked at the six Irish owned banks and their balance sheets, loans and deposit ratios. At the time Irish Nationwide Building Society was at a figure of 154%, AIB at 155%, Bank of Ireland at 161%, the EBS at 167%, Anglo Irish Bank at 195% and Irish Life and Permanent at 300%. This tells the story of how the mess occurred. There was a five-year turbo-charged trajectory of credit, coming from bond investors, as well as interbank money from abroad supplementing thin capital bases and two small depositor bases, for the size of loans being made. Over a five to six year period these loans and this money created a turbo-charged overpricing of all assets - business and household. Now the banking industry is stating - now that it has all burst and the tide has gone out - it is entitled to collect all of the loans it made, 100%, for assets that have disappeared.
Let us take, for example, the AIB situation. There is nothing personal in this, as I admire the delegates for doing battle on this issue. However, the board of AIB and the boards and senior managements of all the other banks deserve to be caned for their ignorance or downright recklessness in causing a lost generation of financial galley slaves. What has happened is wrong. Deputy Higgins spoke the truth when he said the losses of the banking system should have been brought to the bond investors and the euro system that had refinanced the bonds because Anglo Irish Bank had received €24 billion in three tranches of pro-note support and money to pay off bondholders. AIB also got euro system ECB money and Central Bank money, as did Bank of Ireland.
I have a few quick questions because my time is limited. AIB tells us the provisions on its gross loans are €16.7 billion, including specific and general provisions. What are the total loans in the group for which these provisions have been made?
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Perhaps €95 billion. Therefore, AIB is at a provisioning rate of approximately €17 billion over €95 billion and approaching approximately 19% provisions against its gross loans. Its sister organisation for peer review purposes, the other so-called pillar bank, is at 6.8% provisions against a total loan book of €105 billion. We are asking about the overall position because we are considering the overview of the financial sector. Is the financial sector in Ireland - the conduit for the economic effort of households and businesses to generate incomes, money, profit and trade -----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Deputy has just one minute left.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
That is unreasonable. Please allow me another two minutes.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Deputy can continue, but he will not leave any time for the bank to respond because I will move on.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
These questions must be answered, whether at this time or outside.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Deputy is engaging in commentary. I would like to hear his questions.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Please, I have been fired from this committee. I am asking the questions that matter for the future of the people. The economy is very sick and households are distressed and hopelessly in debt.
Three weeks after its publication on 25 August 2011 a paper on the real effects of debt by Cecchetti, Mohanty and Zampolli was dismissed by the Minister for Finance as "kindergarten economics". That is precisely where we stand. Household debt and business debt are crushing the economy.
How much of the €95 billion to which reference has been made is for the corporate and SME sectors? If the amount involved is in the region of €30 billion - I am probably being generous in referring to such a figure - the write-off of €475 million is a very hefty percentage. I do not know what Bank of Ireland is doing, but it has a problem. The sector needs more capital and it must come - I will get down on my knees and plead with the Minister and the Taoiseach to be courageous and take this route - from the euro system. Creditors always buy in when a business needs to be refinanced in a proper manner.
The banks are obviously operating under personal, professional and capital strain. I do not believe ours is the best capitalised banking system. If there is negative equity of €200,000 in a house that is now worth only €200,000 and if the loan involved is €400,000, that loan should be written down by 66%. The amount that the banking sector-----
7:50 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
The Deputy's time is exhausted.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
These papers which have been ignored and inform the banks on what they should do are four years old.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Will the Deputy respect the Chair and acknowledge what is actually taking place at this meeting?
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
The Department of Finance, the Government and the Cabinet need to be brave and raise this matter in Europe.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Duffy for his efforts. I know it is tough. I have been in that place and have carried out loan recoveries. That is why I know what I am talking about.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
I wish to pursue further a matter on which a previous speaker touched. The chairman of AIB received a letter from the Minister for Finance approximately two months ago in which he was asked to preserve tapes, records, documents and anything else which might be relevant to the banking inquiry. The letter was specific in that it did not just refer to the period prior to the bank guarantee but also to the period after its introduction. What did AIB do when it received that letter?
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
What does that mean? What the Minister said was-----
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
In the letter he did not specifically request any document.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Correct.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
What does that mean to Mr. Duffy?
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
What materials are relevant? What was kept and what has not been kept?
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
However, it is Mr. Duffy's responsibility. The Minister's letter was quite specific and referred to all relevant documents. What I am seeking to establish is what are the relevant documents.
Mr. Myles O'Grady:
One of example of relevant documents would be the minutes of all the relevant committees that were in place for the relevant period. By that I mean the board, the executive that was in place at the time and the various credit committees that made decisions on credit. All of these records are in place and have been retained. They would represent most of the material documents.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
What about conversations between key people at the time?
8:00 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I have a copy of the Minister's letter. He is quite specific. He does not talk about documentation but he refers to such records to be preserved within the institution whether comprising documents, audio recordings or other formats in order to be available to the anticipated inquiry. It moves beyond just documents and minutes.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
That is right. It is very broad. I want to know specifically what Mr. Duffy has kept. Has he kept the tapes of the conversations between key people at the time?
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Mr. Duffy is happy that has been done. How does he decide what is relevant and what is not?
Mr. David Duffy:
Based on the team's input, all conversations from the trading floor are taped and those are the ones that are kept. I have not made any decisions historically, obviously, because I was not here, but all of those recordings which were of trading floor conversations or other conversations were kept.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
The tapes were kept for all the trading teams but what about the people who were not trading, such as the equivalents in the Anglo tapes? Were they kept as well? I refer to people in key executive roles.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Should we know?
Mr. David Duffy:
I am sure we can find out. When it comes to an inquiry we will be able to provide full disclosure of all of those elements. The question is being asked of a team that was not here and does not know who was recorded and on what basis at the time. Any recordings that existed, which may include senior executives, were kept.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Were any recordings not kept?
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Every recording has been kept so nothing has been destroyed or discarded or shredded.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Okay, it is very reassuring if Mr. Duffy can give me that assurance. There must be some doubt that some documents were not kept but if they were and if Mr. Duffy can assure us that they were - even though he was not there at the time - because he has taken the measures to ensure that is okay, that is fine.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Was that done before the Minister wrote to Mr. Duffy?
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
Could Mr. Duffy explain something to me about mortgage arrears? He said that 20% of those in arrears were what he calls strategic defaulters. He went on to say that his definition of strategic defaulters – he can correct me if I am wrong – is people who do not prioritise their mortgages. Is that right?
Mr. David Duffy:
It is a mixture. As I read out the last time, if 25% of the people who wrote to us explaining their income and expenses in a statement, who according to our criteria of them being able to afford to pay their mortgage at levels above the ISI, were not paying it, we believe they have made a decision not to pay. Similarly, if they have been borrowing money for a buy-to-let property and there is income on it and they have paid zero in the past six months, we believe that represents a conscious decision not to pay, despite them having the income against that asset. If we see people within the system who have cash amounts on deposit accounts, not current accounts, in excess of their arrears we believe there is a capacity to pay but they have made a decision not to pay.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
That is what I want to ask Mr. Duffy about. If a person is in excessive arrears then Mr. Duffy considers he or she to be a strategic defaulter, but if a person is below the arrears, does he consider him or her as a strategic defaulter?
Mr. David Duffy:
We do not have an exact amount by every single customer. We just know that within a population of 2,000, which we reference in our document, all of them have in excess of their arrears in deposit structures. We are not trying to be clever. We are just saying where we observe behaviours where there is clearly in our opinion not an interpretation but a fact of ability to pay and a conscious decision seems to have been made not to prioritise the mortgage payment that is a questionable outcome for us.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
I presume Mr. Duffy understands that there are a lot of circumstances where people have made a conscious decision not to pay their mortgage arrears because, as several speakers have said, they cannot pay them. They have money for other things. They have to pay their property taxes and next year they will have to pay water tax. They have to pay for their own medical expenses. They say, quite rightly, "I will not pay my mortgage arrears this month". What is Mr. Duffy going to do about that? When the necessities for them to live and to have a healthy life and a reasonable lifestyle make them make the decision not to pay their mortgage arrears, does the bank then move in and say they are strategic defaulters and treat them differently?
Mr. David Duffy:
We are just being very clear. We are not going to argue about what someone is paying or not paying. We lend for a mortgage against collateral. We are not debating all the other payments.
If somebody writes to us outlining their income and expenses and, after all the payments the Deputy refers to are made, adds up those income and expenses and then outlines the amount of income left to allow them pay their mortgage, and they have not, I regard that as a decision they have made not to pay their mortgage. It is not about putting food on the table. It is after we have made allowance for all the living standards at 20% above the ISI.
8:10 pm
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
A mortgage is a different type of debt.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We will be concluding shortly.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
It is a different type of spending. It is a different type of discretionary expenditure. Where people are paying medical fees or for other necessities such as putting food on the table or petrol in the car, these are essentials. The debt they have got, their mortgage, is a two-way business. It is the borrower's fault as well as the lender's fault. Is there not a very good case, therefore, for those people to go bottom of the pile and not, as Mr. Duffy said, be prioritised?
Mr. David Duffy:
If we start to believe in a system that mortgages should be deprioritised then the ability of the sovereign to raise funds and everything else which is collateralised on mortgages will be problematic, but let us leave that aside for a moment. If we are in a position where someone borrows at 4% on mortgages and at 10%, 12% or whatever the rate is on unsecured, and they are treated equally, there is a real problem with the risk we are associating with that. It is completely impractical.
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
That is not the point I was making. The point I was making-----
Shane Ross (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
The point I was making specifically is that the bank's guys lent recklessly to the guys it is now persecuting for the money. That is where Mr. Duffy should take the responsibility and not talk about prioritising the bank's particular debt above others. He should take some of the responsibility for it and accept the fact that the bank should be bottom of the queue and not top of the queue because it is his bank that engaged in the reckless lending as well as the guy who recklessly borrowed. That is the point I am making.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I will move now to wrap up this. I am due to be on the "Six One News". Therefore, I will have to leave the meeting at 6.
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
The Chairman had better put his other hat on.
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
If the Chairman stays here, I will go on instead of him.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
It might be like the wedding feast at Cana. The best might be coming now. I will be like Columbo and ask one more question before I go. If we run out of time I will ask Deputy Twomey to continue chairing the meeting until we can get it concluded. I want to touch on the issue of new mortgage lending because what we are all trying to achieve here is normalisation in the housing market, not recovery in terms of going into another housing boom. By normalisation I mean the type of prudent lending practices we had in the past where the ratio of people's incomes were reflective of the type of loans they got, where deposits were required and we had mortgage schedules that were somewhat realistic in that half way through, people who had children going to university did not have another cost coming in the door, so to speak. What is the general summary of Mr. Duffy's strategy with regard to growing the bank's mortgage lending for new customers?
Mr. Bernard Byrne:
On the overall objective, and we stated this on the previous occasion, AIB grew its position in the market from approximately 25% 18 months ago, by fixing many things in its own process, to get up towards approximately 40% about which we are talking now. Our objective is to grow our share of our book associated with mortgages as we go forward and for reasons we have talked about earlier, the book will continue to delever - pay down - unless we lend more on the mortgage. The book was somewhere between €20 billion and €40 billion per annum at its peak. Currently, if it is down €2.5 billion or €3 billion, all that happens is that the balance sheet keeps shrinking. That is not in anyone's interest and therefore we want to lend more to the mortgage market, but we want to do it responsibly, and that is based on affordability. The key criterion now is based on affordability. It is not a multiple of salary. It is the income a person has available to service his or her mortgage and that mortgage payment can then afford.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
I know in 2009 the Central Bank issued guidelines that came down to what were the old meat-and-two-veg-type approach, so to speak, namely, three times one's income, loan to value ratios of 90%, and rooms for rent, overtime and so on were not to be included. Is that the type of lending practice we will see in AIB as it starts growing its residential mortgage book?
Mr. Bernard Byrne:
I am not commenting on all the components the Chairman referred to but it is about what is one's maintainable income.
To be clear, as there is some confusion in this regard, it does not mean one has a contract stating one is employed for the next ten years and that is what one will earn. It pertains to one's demonstrated pattern of earnings. Consequently, contract people also can be included within that, once they have a demonstrated pattern of earnings. As for what that allows one to afford in terms of one's monthly repayment, under Central Bank guidelines we must stress it by 2% and the other thing is the loan-to-value side. At present, we have an offering for first-time buyers of up to 92%, and that tiers down across various cohorts below that. That is at the peak of where it will be and certainly, as the market starts to recover, one would expect some of that to reduce.
8:20 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
In terms of the schedules, are 35 year mortgages still being seen or is the bank's target now to get down to more-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
How far has it done so?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
We are back to 25 year terms. As the bank is restructuring itself and everyone present is in agreement that they seek a recovered and sustainable banking sector, I note Mr. Duffy's presentation mentioned AIB's reduced reliance on ECB funding by 20% in the six months to June. In real money, how much is that? What is that 20% worth?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
All right. The final point pertains to strategic default and what a borrower does about repaying the unsecured share of his or her debt. There has been much talk about what the veto actually means and this must be cleared up once and for all. Let us take a scenario of someone who owes €250,000 on a property that now is worth €150,000. The person concerned enters a restructuring process with the bank, the property is dealt with at its real value and gets written down by €100,000. My understanding is the aforementioned €100,000 that has been written down becomes unsecured debt. While it still remains as debt, it is now is unsecured debt as opposed to being secured against the property. Am I right in this case?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Is the aforementioned €100,000 making up the 100% figure or does the secured aspect, that is, the €150,000, as well as the €100,000, make up the 100%-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
----- in addition to whatever else is unsecured in this case?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
At the same percentage?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
If one takes the same example, someone has €100,000 of unsecured debt because of a €100,000 write-down. Let us assume there is a 65% veto or something that approximates that figure. The person in question owes €15,000 to the credit union, €10,000 to another bank through a car loan and also might have something else outstanding on a credit card. All of this is less than the 65% or whatever of what actually is outstanding because €100,000 is quite a significant sum of money. It would be most unlikely that someone would be unsecured to that sum. AIB, as part of the resolution process, states it is will give a 100% haircut on that €100,000 because it has the veto and actually can do that. Does that mean the credit union, the credit card and the other bank would take that hit because AIB was now engaging a veto against them?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
This is in a case of a write-down, because the bank has control of the other unsecured debt.
Mr. Brendan O'Connor:
Regarding the amount, the €100,000, that will write down, assuming that the principal secured property has an open market value put down on it, we will get the same haircut. If we vote for this agreement, it is likely to come out whereby all of the unsecured will be treated the same.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay, then. Perhaps to go through this once more-----
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay, let us say it is 50 cent, so the bank is writing off €50,000 of the €100,000. Does that mean that all the other unsecured debtors then are in for a 50% haircut as well?
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay. In essence, the veto is a capability to tie in under-secured debtors to engage in a resolution process that involves debt write-down.
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay, because there is a lot of confusion as to what the veto actually is. It is actually an opportunity for other unsecured debt to be pulled in and written down for a distressed borrower.
8:30 pm
Ciarán Lynch (Cork South Central, Labour)
Link to this: Individually | In context | Oireachtas source
Okay. I thank Mr. O'Connor and Mr. Duffy. I will ask Deputy Twomey to take the Chair. Before I depart, there are a couple of points. First, I certainly appreciate the AIB representatives coming before the committee this afternoon. As discussed, we look forward to getting the detailed breakdown of the 20% from them. I certainly appreciate the news that has been brought to the committee on the Priory Hall update this evening. As we move through the percentages, on to the 35% and the 50% figures, the committee, as Mr. Duffy will be aware, will be engaging with him along the way as well. I thank Mr. Duffy once more for coming in. I need to depart and Deputy Twomey will see the meeting through to its conclusion.
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I have a quick question to wrap up. Mr. Duffy spoke about the tracker and variable rate mortgages. I am glad to note AIB made €162 million of operating profit before provisions, etc. What percentage did the tracker mortgages contribute to that profit because AIB's deposit-to-loan ratio is not too far off 100%? How is AIB able to fund the tracker mortgages to make a profit?
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
Effectively, it is a weighted cost, including ECB funding, that is bringing it down. Returning to Mr. Duffy's point, am I correct in saying that under the insolvency procedure, when it is secured debt, a personal insolvency practitioner is appointed and 65% of the creditors must agree to the arrangement? With the unsecured debt, I thought there was some provision that 50% of the unsecured creditors also had to agree. If there were a situation where, for example, one had both secured debt and unsecured debt and let us assume they are totally separate where the secured debt is with the bank and the unsecured debt is with the credit union, which typically will happen at the end, do the unsecured creditors have to agree to the measure as well?
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
It is a slightly different point.
Mr. David Duffy:
It is a slight variation. One matter that we sometimes lose sight of is that of the unsecured debt, two thirds is among banks and one third is among others, and credit unions would fall into that. For every unsecured solution that is negative, it is €2 for the bank as a hit and €1 for the others. It is not an attempt to protect and then kill the unsecured.
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
The only issue that will arise is with the credit unions. That is the point.
Kieran O'Donnell (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source
On a final point, it has been reported in the media that where a person enters into a personal insolvency arrangement and the house is sold for a higher value than the arrangements in place, within a 20 year period the banks would look to regain some of the said proceeds of the house. What view is AIB taking on that?
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
To conclude quickly on that point that I was making about the banking sector as a sector with responsibility for the exponential bubble in asset prices which left this legacy of debt that Deputies Spring and Higgins stated is wrong, not only for an economy but also for people and households, I have come across households with suicides, break-ups and children being traumatised by hearing the rows about finance.
I would tell them to be encouraged and know they have support to make the case and insist that our leaders - our Government and Department of Finance - articulate the case. The sector should have been operating to the principles of 90% loans to deposit. That is called fractional reserving - reserving 10% liquidity on the loan side of the balance sheet. It did not do that for six years and now we have this wreckage. It is a tsunami and it is wrong that the people are in this hopelessness. It is just wrong and I will do everything and strain everything I can since I started the analysis of the overall banking sector.
I would love to see an update of the six balance sheets. EBS has now merged with AIB and Irish Life and Permanent is gone as well, but there is still the core of the balance sheets that were there four years ago that could be looked at and examined to see the funding on these. By the funding, I include the euro system. AIB says it has €15 billion or €16 billion from the ECB. It has some from the Central Bank. These guys should have been told before the promissory note was swapped into a series of 40-year bonds. That promissory note was created in three tranches. Mr. Honohan was a co-author of it with the euro system so there was never going to be a chance that our establishment and institutions would press the case hard with advocacy for a write-down on a euro system asset and for us, a euro system liability. However, if the two remaining pillar banks got €30 billion in a euro system creditor buy-in, our economy would be like a swamp drained. We would have a fertile country in which families and businesses could begin to work again meaningfully and not be depressed. I know I am speaking the truth.
Some people here did not even understand what happens with the transfer of loans into NAMA. NAMA in turn is selling some of those loans, some of which contain miscalculated interest about which I also know. That means that those loans are contaminated because they have rolled up capitalised interest. Buyers on a third-party basis for the third time will be buying loans with embedded toxic, miscalculated interest. That is like getting a diamond necklace containing three stolen diamonds. The law is not yet up to speed on this and reckless lending. The High Court does not even recognise reckless lending. I know that from Bill Prasifka who said that one of the problems he faces in dealing with complaints is that the law does not recognise it. That is a technicality. I showed the committee. Subtracting 155% from 90% results in 65% over a six year period of over-indulgence and splashing money that came from bond investors. A figure of 65% as a proportion of 90%, which is the base rate of prudential lending, is two thirds so the argument is very valid. I think Mr. O'Connor has previously heard that two thirds of the debt outstanding on the collapsed asset prices is not financially, morally or logically collectible.
8:35 pm
Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source
I think I heard 92% loan to value. After what we heard, I think, 80% should be the absolute maximum if we do not want to go down this road all over again.
Peter Mathews (Dublin South, Independent)
Link to this: Individually | In context | Oireachtas source
I was talking about the loan-to-deposit ratio.
Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source
I heard the figure of 92% from our visitors. We introduced the Mortgage Credit (Loans and Bonds) Bill in November 2012 in the Seanad. The success of Denmark is based on 80%. The figure of €90,000, €100,000 or €110,000 or whatever was given to a previous Minister to buy in a place in the K Club is irresponsible banking. I would ask that the figure of 80% not be exceeded in the interests of prudent banking lest we end up here in ten years' time doing the same again.
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I have one question. I may have misunderstood Mr. O'Connor when I made that contribution earlier on. He said that he expects that there would be significant write-downs in the order of hundreds of millions of euro coming from the bank in the next 12 months because he feels all the things are in place to start making significant write-downs and to start dealing properly with mortgage arrears. I said that could run into hundreds of millions of euro and Mr. Duffy agreed with me.
8:40 pm
Mr. Bernard Byrne:
There is tiered rating for smaller loans up to €300,000 in respect of the 92%, with the percentage dropping down as one exceeds that threshold. It is something we consciously decided to leave in place at this point in the cycle in order to allow people to purchase homes as the market recovers. I accept the point that in the longer term one would expect to see those ratios being reduced.
Sean Barrett (Independent)
Link to this: Individually | In context | Oireachtas source
We have to get back to prudence in the housing market. Given all the trouble we have experienced in this country in terms of fivefold increases between 1996 and 2006, nobody should be allowed to bid up house prices again. The 80% ratio has proven in Denmark to be a good way of stopping such activity. Somebody who ran up a debt of €300,000 would be in trouble and would appeal to Deputies and Senators for help. Do not do it on €300,000 either.
Liam Twomey (Wexford, Fine Gael)
Link to this: Individually | In context | Oireachtas source
I thank Mr. Duffy and his team for being available for the entire afternoon. They were very forthright in answering our questions, which is always appreciated by the committee. We look forward to receiving the additional information they have promised to submit. There being no other business, the meeting will now adjourn until 10 a.m. tomorrow.