Oireachtas Joint and Select Committees
Wednesday, 4 September 2013
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Overview of Financial Sector: Discussion with Bank of Ireland
10:00 am
Ciarán Lynch (Cork South Central, Labour)
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We now move on to No. 5 on today's agenda, an overview of the financial sector. I welcome Mr. Richie Boucher, group chief executive of Bank of Ireland. He is accompanied by Mr. Stephen Mason, director, mortgage arrears resolution strategy and Republic of Ireland collections; Mr. Gerry Prizeman, head of small business and agriculture division; and Mr. Pat Farrell, head of group communications and government relations division. The format of the meeting will be that Mr. Boucher will make some opening remarks which will be followed by a question and answer session.
I remind members, delegates and those in the Visitors Gallery that all mobile phones must be switched off. There was much interference at yesterday's meeting. I do not know if it was coming from the members' side, the delegates' side or the Visitors Gallery, but it was creating considerable distortion. If phones are switched on, I will ask either the member or the person in the Visitors Gallery to leave the proceedings because they are interfering with them.
By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to 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 any person or an 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 any official by name or in such a way as to make him or her identifiable.
The critical part of these meetings with the banks in coming days is drilling down into the 20% figure that was set to be reached by 30 June. The committee is trying to establish what range of resolution processes is being offered and what sustainable long-term solutions are being put in place. It is an opportunity for it to ascertain if there is consistency in approaches across the banks or if there are similarities. It also allows us to understand what difficulties might arise in reaching that figure, particularly as it grows towards year end when it has to be 50%. As part of his opening statement, I ask Mr. Boucher to give us strong details in that regard. While there are other aspects of the banking situation that need to be reviewed in terms of how mortgage lending might be developing and how new finances in the SME sector are structured, the elephant in the room is how the banks are meeting the 20% figure. We want to deal with that issue in detail. As part of his opening statement, I ask Mr. Boucher to address it specifically and in detail.
I again welcome Mr. Boucher, Mr. Prizeman, Mr. Mason and Mr. Farrell. I call on Mr. Boucher to make his opening statement.
Mr. Richie Boucher:
I thank the Chairman. We have provided a presentation for the committee. I hope all members have received it as I would like to spend a couple of minutes going through it. I pick up on the request of the Chairman to try to drill down to numbers. Therefore, at certain stages I will obviously slow down and talk about them in more detail.
The purpose of our presentation is in compliance with the committee's invitation which from a Bank of Ireland perspective is to highlight the progress the bank has made in the past four years, particularly since the last meeting we had with the committee in November 2012; to highlight the work we are doing to support our Irish and SME customers; to highlight how we are working with existing and new customers in Ireland to grow our business; and to provide an overview of the strong progress the bank is making towards sustainable profitability within a robust balance sheet. It is also obviously important from our perspective to review the taxpayers' investment in Bank of Ireland, the cash returns the taxpayer has received from the bank and the fact that the taxpayer is in profit in its investment in the bank. Bank of Ireland's overall objective is to have a strong sustainable bank supporting its customers, growing its core franchises and contributing to and benefiting from economic recovery.
In terms of the presentation, I think it would be appropriate to spend some time setting out our strategic objectives. Despite the domestic and international challenges of the past four years, Bank of Ireland has had a clear focus on the future, in particular protecting and maintaining our core franchises, of which the most important strategically is our Irish business. For more than three years we have had in place an Irish Government-sponsored EU restructuring viability plan. This plan required us to set out the reasons the group required restructuring and State aid, and our plans to complete that restructuring and ensure we did not require State aid in the future. The plan is monitored by an independent trustee on behalf of the Commission.
Since we last met the committee, there have been some amendments to the plan which allow us retain our New Ireland business and which require us to further divest certain of our businesses in Great Britain. In Ireland, we are number one or two in all of our businesses. In the UK, we are the chosen financial services partner for the UK Post Office, with contracts extending beyond 2023. We also have a highly profitable acquisition finance business in the United States, continental Europe and Great Britain. We have made significant progress in deleveraging our international businesses, such that total customer loans have reduced from €145 billion to approximately €90 billion, while protecting our capital. At the same time, we have been investing heavily in our businesses, particularly in Ireland, and have reduced our costs by 23%. Our capital position is robust. During the past four years, we have generated equity capital of approximately €9.7 billion, of which approximately 85% has come from the private sector. Taxpayers have invested €4.8 billion in Bank of Ireland. The bank has reimbursed cash of €3.9 billion to the taxpayer. Taxpayers currently hold €1.8 billion in preference shares in the Bank of Ireland and a 15% equity shareholding in the bank. Bank of Ireland currently has an equity market capitalisation of €6.7 billion, excluding the preference shares. Our capital ratios are robust and, at the end of June, our most recent reporting period, stood at 14.2%, which is significantly above the regulatory requirement of 10.5%.
Since we last met the committee we have continued to access the capital and subordinated debt markets through the issuance of €250 million of tier two capital in November 2012 and facilitating the State in the re-financing of the contingent capital instrument of €1 billion, with a profit to the State. The State has invested €1.8 billion in preference shares in the Bank of Ireland. We are in discussions with the State and a range of other parties in relation to the options regarding these preference shares. We have transformed our funding and have achieved the PCAR required loan-to-deposit ratio of 120%, and customer deposits and wholesale funding greater than one year equate to our customer loans. We have led the way in accessing senior debt and bond markets, with a range of issues over the past seven months. The quantum of deposits and other liabilities covered by the exceptional Irish Government guarantees has reduced from €136 billion at the end of September 2008 to approximately €8 billion at the end of June. There will be further reductions in those liabilities as we go forward.
Our monetary authority financing, including and excluding NAMA bonds, which are €4 billion, is approximately €5 billion, which means it is approaching normal levels. We have made strong progress in moving towards profit on a sustainable basis while remaining focused on the protection and strengthening of our businesses. Costs are down 23%. Direct staff costs were down 10% in the first half of 2013 as compared with the first half of 2012 and 8% since the second half of 2012. We have a significant deficit in our pension schemes and are currently in discussions with staff representatives under the auspices of the Labour Relations Commission on this issue. Our impairment charges are elevated but are reducing. We expect them to reduce further. On our medium-term financial targets, which were set at the time of the bank's recapitalisation in 2011, I can confirm that we are on track to achieve all of these financial targets.
Slide 5 illustrates the transformation in respect of funding, in particular since Ireland entered the troika support programme in December 2010. Slide 6 provides further detail on our capital, which is obviously important from our perspective and for the taxpayers' investment. It shows our capital on a Basel II basis and Basel III transitional basis and if Basel III were to happen as of end June. This demonstrates that we have robust capital ratios on a Basel II and Basel III basis. Slide 7 also sets out the capital and funding transactions completed by the bank since it last met the committee and, again, shows that right across the capital structures and debt market structures we are accessing those markets with good demand for Bank of Ireland debt.
Slide 8 illustrates the position in respect of each of our principal trading divisions, including retail Ireland, our corporate and treasury business, which also has significant businesses in Ireland, retail UK division, which is the post office and, as required by the Bank of England, our Northern Ireland businesses and of our Bank of Ireland life business, which is primarily the New Ireland business which we were allowed to retain following amendment to our EU restructuring and viability programme. What is demonstrated in this slide is what each of the divisions is moving towards in operating profit and is making strong progress in that regard, contributing to the group's overall performance.
Slide 9 shows that our impairment charges continue to reduce. This reflects the diversification of our portfolios, the gradual, slow improvement in economic conditions in the main markets in which we operate, a number of steps taken by the bank, and in particular the gradual reduction and relatively swift reduction since 2012 in the number of customers moving into default categories and the stabilisation of collateral values which underpin our loans.
Slide 10 provides further detail on individual portfolios, with particular relevance to Irish retail mortgages, Irish SME advances, defaulted loans, the percentage defaulted loans as a proportion of advances, our impairment provisions and the coverage of our provisions against defaulted loans. Members will note that notwithstanding the gradual improvement in economic conditions, we have kept our provision coverage levels at a relatively high level.
Slide 11 sets out the change in our defaulted volumes in owner-occupier mortgages. Owner-occupier mortgages in our Republic of Ireland businesses stand at €20.6 billion, 93% of which are on a capital and interest repayment basis through amortisation. Some 55% of our owner-occupier mortgages are ECB tracker. From our perception of the market environment, housing prices have continued to stabilise and employment levels have increased modestly in recent quarters. Our provisioning assumptions, which were noted on the previous slide, are based on the assumption that peak to trough fall in house prices in Ireland is 55% plus other charges of approximately 10% for sale discounts, etc. In terms of our overall portfolio, nine out of ten of our accounts are fully performing. Bank of Ireland arrears levels, based on the latest Central Bank of Ireland statistics as of end June 2013, are 53% of the remainder of the industry. Our arrears reflect economic and affordability issues. We continue to monitor our portfolios and do not believe that negative equity is a driver of default. It is primarily a case of customer income issues. Growth in defaulted loans continues to reduce. I am happy to advise the committee that as of end June, early arrears, namely, customers who have fallen into early arrears of fewer than 90 days in the months of June, July and August, have continued to reduce. Further detail is provided on the slide, which I will not spend too much time on now. However, I am happy to elaborate further later with the support of my colleagues.
We have tried to assist the committee by giving a pictorial illustration of what our book looks like by the numbers. As I mentioned, 89% of customers, or 143,000 accounts, are fully performing, and these customers are meeting all their repayments in accordance with their contractual arrangements or where we have granted a forbearance to the customers. Some 2% of customers are in early arrears, and as I mentioned earlier to the committee, the net early arrears figure in June, July and August for owner-occupiers in Bank of Ireland has fallen. Late arrears, which we define as customers who are more than 90 days in arrears, stand at 3%. Of our book, 4% is in a forbearance or overpayment arrangement.
I will display a slide on our forbearance arrangement in a moment but I will first explain our definition of an overpayment. That is where the customer has agreed with us an informal arrangement. The customer would not have completed a standard financial statement, SFS, but has indicated that he or she is €700 or €800 in arrears and because the person is getting overtime, for example, there is a wish to make an overpayment of €200 per month, for instance, on top of existing arrangements for a period to catch up. We are comfortable doing that and as such that is our definition of overpayment. The customer would be meeting the full contractual repayments and catching up outside a formal forbearance structure.
There is 2% of the owner-occupier book in what we call a resolution, which is either a legal process or consensual arrangement with the customer involving disposal of the property. The legal process from our perspective or what we define as a legal process is not a case of us having written to the customer threatening action but where at least a solicitor's letter has issued to the customer. We do not anticipate that all customers in a process where legal matters have commenced will end up in a repossession scenario. We have found that when the first solicitor's letter arrives, engagement begins with customers.
With regard to the buy-to-let book, 57% is on a capital and interest payment basis. The figure was 52% at the end of December, and given the nature of the products we provided, particularly four to five years ago, such as five years of interest-only payments, we anticipate that the contractual arrangements for customers to move to full amortisation of loans will be done within the next 18 months. There has been a reduction in the total portfolio through customer repayments and 81%, or €5.3 billion, of the buy-to-let portfolio is on ECB tracker mortgages. The environment and provisioning assumptions are the same as for the owner-occupier businesses.
I have mentioned in the past to the market that of the portfolio, approximately €2.5 billion or €2.6 billion is made up of cases where a single customer might have multiple properties. The arrears performance of that portfolio is significantly worse than the overall portfolio. We find that where a customer has one buy-to-let property, the arrears performance is not exactly the same but is broadly similar to the arrears performance that we see in the owner-occupier book. It is not a direct correlation but I hope it gives further colour to the discussion. Approximately €2.6 billion of the book is made up of single customers with multiple properties and the default and arrears experience for those is materially worse than the rest of the portfolio. As I mentioned, the average figure is €5.6 billion.
Notwithstanding what I have just said, our arrears levels are 72% against the rest of the industry. I drew the committee's attention to the fact that 57% of customers are in amortisation or moving towards amortisation, and part of that increase in arrears comes from a position where customers were not meeting contracted amortisation. We have sought engagement with those customers to move them towards amortisation where possible.
We have tried to assist the committee by giving a pictorial representation of our performing book and the arrears book. Early arrears in the buy-to-let sector, notwithstanding the fact that customers are moving towards amortisation, have stabilised in the past three months.
10:15 am
Mr. Richie Boucher:
Thank you. Late arrears constitute a significantly higher proportion than the equivalent section of the owner-occupier book, but nevertheless it is 8%. Forbearance and overpayment constitutes 4% of the book, and legal and resolution processes constitute 7% of the book. In the case of buy-to-let mortgages, we have approximately 1,100 to 1,200 rent receivers appointed.
In our accounts at the end of June, we gave approximately 13 or 14 pages of quite densely packed but comprehensive analysis of our mortgage books, particularly focusing on forbearance treatments. To assist the committee, we have tried to bring that information into one concise page, and the rest of the information is also available from accounts. I can give it to the committee if it would be of benefit later. We can provide some further detail of the assessments we have done since June, including SFS assessments since July and the proportion that has move into restructuring, etc. Would that be of assistance?
Ciarán Lynch (Cork South Central, Labour)
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In summary, we want to know if the bank has hit its target and a statistical breakdown of how the target has been met.
Ciarán Lynch (Cork South Central, Labour)
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PDH customers are principal dwelling residents.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will the witness recap the figures?
Mr. Stephen Mason:
The total figure was 11,774 accounts in default at the end of March. We were asked to report the position at the end of June, with 3,103 in the legal or resolution process as defined by Mr. Boucher. There were 3,164 which either had restructuring offered, were in restructuring or had been cured. The total is 53%, as reported at the end of June.
Mr. Boucher asked me to answer a question, and we would have assessed 1,487 cases in July via SFS, making restructuring offers to 1,209 of the customers. In 149 cases, the mortgage was repayable by the customer so we did not make a restructuring offer. That applied to approximately 10% of applicants. In 139 cases assessed we believed the mortgage to be unsustainable.
Across the seven months we assessed 10,689 cases and made restructuring offers to 8,211. We considered 1,381 to be affordable and 1,097 to be unsustainable in the same period.
10:25 am
Michael McGrath (Cork South Central, Fianna Fail)
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Chairman, if possible, could we strip out quarter two as an entity in itself? That is what we would like to do. Is that possible?
Joe Higgins (Dublin West, Socialist Party)
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These are the figures that were supposed to be presented to us in writing today. You made that point yesterday, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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Before you came to the meeting, Deputy Higgins, we had discussed in private session what we were doing. Perhaps you might discuss that with your colleagues sitting beside you. We will proceed as agreed. What you have said is correct, but we have discussed how we are going to deal with this issue. I call Deputy Michael McGrath.
Michael McGrath (Cork South Central, Fianna Fail)
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My point is that for the purposes of making the analysis as meaningful as possible, the bank must report to the Central Bank in respect of quarter two, the period to the end of June. Perhaps we might have details of that report, the number of offers made in quarter two and a breakdown of these offers. That is essentially what we are seeking.
Mr. Richie Boucher:
Chairman, as ours is a public company, I bore in mind the requests of the committee today. I asked my colleagues to produce this information last night and, as a public company, we are required to verify any information. There was a verification process. We are trying to give information which goes beyond the information provided in our accounts at the end of June. If I could give some further colour, of the 1,487, obviously what is of particular interest to the committee is the arrears customers. For the month of July, 995 customers had their SFS assessment where these were arrears accounts and 770 of them were offered forbearance. The total stock of forbearance offers outstanding at the end of June was 963. What I am trying to demonstrate in what we have tried to assist with here is that we must be careful with one month's figures. What we have tried to do is to give the July figure and the figure for the year to date. The pattern is consistent. When the customer is engaged with us, in over 80% of cases we can offer a restructure arrangement. That is both for customers who are not in arrears and those who are in arrears.
Ciarán Lynch (Cork South Central, Labour)
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One of the difficulties we encountered yesterday afternoon was that when we broke down the figures with Allied Irish Banks, there was a point of contention as to what was and was not a resolution. Part of that is that while a communication to a customer to try to bring him or her into a resolution process or even to try to get a financial statement from him or her is helpful, the outcome is not a resolution as it is still in process. That is a legacy issue from yesterday afternoon. What we are trying to establish with Bank of Ireland is not those not being engaged with by the bank and those not in communication but those who are actually at the point of a resolution where a sustainable solution has now been agreed such that there is a future for them, with some level of hope that if they work through this process, they will be free of a burden of debt. That is the figure we are trying to get from Mr. Boucher.
Mr. Richie Boucher:
Absolutely. I reaffirm, as I am required to do as it is a public company, that these are restructures. The figures we have provided do not relate to where we have moved to a legal process. Again, as my colleague mentioned, we have given our definition of a legal process. Our definition of a legal process commencing is not the bank threatening or making telephone calls. It is a different definition.
Ciarán Lynch (Cork South Central, Labour)
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Mr. Boucher is not defining that as resolution either.
Mr. Richie Boucher:
No. In the figures we have provided the hard figures for arrears customers who provided us with SFSs that we assessed during the month of July - they were arrears customers who were owner-occupiers. They are 995 assessments completed and 770 offers made to customers of a restructure, which in our terms is a sustainable restructure. That is the figure. I have also tried to-----
Pearse Doherty (Donegal South West, Sinn Fein)
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We are dealing with three sets of figures. As the figures have not been presented on paper to committee members, it is very difficult to follow this. The requirement under the Central Bank and the Government's proposal was in respect of a target for accounts in arrears over 90 days - Mr. Boucher has given that figure as 11,774 - whereby 20% of them were to have long-term sustainable offers made to them. That is the breakdown we need. Mr. Boucher is talking about the position in July, but the first point of consideration for this committee is the period April, May and June, the quarter in which, under the Central Bank's rules, the bank was obliged to have made offers to 20%. We must concentrate on these figures first and then get clarity on the breakdown.
Mr. Stephen Mason:
We are trying to give more information to be helpful. That was what July and assessments figures were about. To answer the specific question raised by the Deputy, the target was 20% and what we returned was a figure of 53%. I have broken these down into cases that are in the legal or resolution process and cases where we have made restructures or cured the accounts.
Mr. Stephen Mason:
The amount of accounts in default at the end of March was 11,774. What we had to report on was what progress we had made by the end on June on these accounts. A total of 3,103 were in the legal resolution process and in the case of 3,164 accounts we had made restructure offers, they were restructured or cured. Therefore, the figure we returned against the 20% target was 53%. That is the breakdown of it.
Stephen Donnelly (Wicklow, Independent)
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What the committee is seeking is the further breakdown of these figures. With regard to the breakdown of the figure of 3,103 in the legal resolution process, what does that mean? For example, yesterday the AIB representatives said that for them it meant they sent a letter to people who had not made any payment or any contact in three years which stated yet again that they desired the customer to contact them or they would have to initiate legal proceedings. Second, in the case of the figure of 3,164, the committee is looking for the breakdown in terms of, for example, term extensions, interest only payments, debt for equity arrangements and so forth.
Ciarán Lynch (Cork South Central, Labour)
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Mr. Boucher, we are trying to do two things. One is to try to figure out if the bank has hit the target and get a breakdown of how that target has been met and then drill into the approaches to meeting these targets. We are very cognisant that there must be some similarity across the different banks with regard to the approaches they are making, for example, whether there is a similarity with regard to split mortgages and whether people in similar situations with different banks are being responded to in a similar fashion. That is what we are trying to establish; therefore, we must get the figures to ascertain how many split mortgages the bank has established, how many mortgages have been converted to rent and so forth. It is the specific resolutions rather than the macro resolution number that we need. We need that level of detail.
Mr. Richie Boucher:
Absolutely. I will respond to Deputy Donnelly. I did not see the full transcript of the meeting yesterday, but I can reaffirm that in Bank of Ireland's case we do not consider a resolution to be the bank having written to a customer. We have given our definition, which is a legal process. What we have said and what my colleague has just affirmed is that of the stock at the end of March, 27% had been offered a restructure at the end of June which we believe is sustainable. Another 26% are in the legal process, as we have defined it. I reiterate that in the legal process it is not our expectation that the process will go all the way. In fact, I would be extremely disappointed if it did.
With regard to providing further information if it is of assistance, at the end of July - I am trying to give the figures which are as up to date as possible, but we can come back again to the stock - we had 2,881 accounts where we did not have an SFS. The customer had not completed an SFS form. We do not have a detailed analysis of why the customer has not completed an SFS form, but that is the figure from our perspective.
Michael McGrath (Cork South Central, Fianna Fail)
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Is that from the figure of 11,774?
10:35 am
Joe Higgins (Dublin West, Socialist Party)
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The legal process-----
Ciarán Lynch (Cork South Central, Labour)
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As I need to get to questions, I will leave Mr. Boucher finish his presentation. I will take no more interjections.
Stephen Donnelly (Wicklow, Independent)
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There is one specific question to which the committee is looking for an answer. It concerns the breakdown of the 3,164 split mortgages, etc. Can we get the answer to that question before we move on?
Ciarán Lynch (Cork South Central, Labour)
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I am trying to allow Mr. Boucher to finish his presentation, inclusive of that information.
Mr. Richie Boucher:
We will come back to that issue.
On slide 16, because the point is of relevance and interest, we show the challenged SME and corporate loans and the number of customers who have moved to a default scenario. With the indulgence of the committee, I will refer to slide 10 because part of its questions concerned what we were doing with SME customers. Defaulted loans at the end of June amounted to €2.9 billion, which is similar to the amount at the end of December in our Republic of Ireland SME lending book. As customers move in and out of default, I will refer to the December stock of defaulted loans at the end of June, which is a particular focus and for which we have set targets endorsed by the Central Bank. They are not public targets but ones we set for ourselves. It is also important to reiterate that we set our own targets for mortgages. Of the €2.9 billion at the end of June, we had restructured or resolved approximately 50%, while another 20% had offers outstanding. I expect our target which we have shared with the Central Bank is that of the €2.9 billion stock at the end of December, 90% will have been restructured or resolved or we will have offers with the customers. Excluding the €2.9 billion figure, in our accounts at the end of June, we provide information on SME corporate, commercial real estate and land and development loans not in default where we have provided for forbearance. Loans worth €1.3 billion to Irish SME customers at the end of June had been given forbearance without being in default prior to that happening.
With regard to the bank's business as a whole, slide 17 reiterates the size and scale of our business, including the number of consumer business customers, those in our wealth management business, primarily in New Ireland Assurance, and SME and business customers. We have 250 branches and our branch footprint will broadly stay the same. We are investing heavily in our branch footprint. There is some reconfiguration, particularly in city centre branches and we are opening new branches. We have opened two new branches in the past six months and anticipate opening further branches as we look at where populations are moving. We are investing heavily in online banking, e-banking and other solutions for customers. This is I hope of benefit to the committee in respect of take-up. I can give an update on the slide's figures which refer to the first quarter. For the first half, based on Central Bank statistics released in the past week or so, Bank of Ireland accounts for approximately four out of ten new mortgages. In the life market we wrote about 24% of the new business. In terms of SME lending, excluding corporate lending and restructuring, Bank of Ireland accounts for over 50% of new SME lending. When we talk about statistics like this, we exclude restructures. When we say we have made loan offers to customers for new and increased lending, that excludes restructures. We have a figure of €1.9 billion in the first half of June. My colleague, Mr. Gerry Prizeman, is focused on getting to €4 billion. In terms of money drawn down, we have a figure of over 50% market share based on our own figures against the Central Bank of Ireland.
The committee's primary focus is on our Irish business, but, given the taxpayers' investment in Bank of Ireland, it is important that we recognise our other businesses. We have a substantial business in Great Britain. We are the sole financial services provider for the British Post Office which has 11,500 branches. We have access to a bigger branch network than all of the other British banks combined. We have a significant corporate business in Ireland. We have 30% of the market and over 50% of the multinational corporations. We have been working with the Government and have a particular focus on public private partnerships, including the N11 and school bundles. We have brought our expertise, experience, capital and liquidity to that market.
In respect of our key objectives, in summary, we are delivering against all of our key strategic objectives as shown on slide 20. Slide 21 shows our performance in the first half of 2012, the second half of 2012 and the first half of 2013. For all of our key financial metrics, with one or two small exceptions due to specific factors, we are showing strong momentum in our performance against our key objectives.
Slide 22 shows the taxpayers' investment in Bank of Ireland, the cash returned to Bank of Ireland, the preference share stock the State holds in Bank of Ireland and the 15% shareholding. The bank's market capitalisation, as of last night, was at a figure of €6.7 billion. It has been a significant focus of the bank, in particular in the past four years, that where the taxpayers have supported Bank of Ireland, we will reduce the risk to the taxpayer, reward and repay the taxpayer. We also provide significant support for the economy, which is in our commercial interest. We raised capital in the private markets not because we had a problem but because the people who invested in us believed in the future of Ireland and Bank of Ireland.
Ciarán Lynch (Cork South Central, Labour)
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I wish to proceed with members' individual questions. Before doing so, what I really need from Mr. Boucher is some breakdown of the figure of 3,164 in the process. Can the Bank of Ireland team give us a breakdown in terms of the percentage who got term extensions, arrears capitalisation, reduced payments, are on interest-only payments as a long-term solution and have split mortgages? Is that figure available?
Mr. Stephen Mason:
We do not have the breakdown the Chairman is looking for, but the breakdown on page 15 gives the overall sense of the numbers and what the Chairman is looking for, in terms of forbearance offers that have been made and are in place, is not unlike the numbers on page 15. This includes capitalisation of arrears and term extensions.
Ciarán Lynch (Cork South Central, Labour)
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The difficulty the committee has is that we cannot drill down into the bank's behaviour with its customers if we do not have these figures. That is the problem the committee has. We are trying to ensure consistency of approach, not that people will be given a pass to walk away from their obligations.
People have obligations and we want to know how they are meeting them. We want to know, for example, why the type of split mortgage Bank of Ireland operates is different from those of most of the other financial institutions. How many of its people are getting that? Is Mr. Boucher telling the committee he does not have a breakdown of those figures?
10:45 am
Pearse Doherty (Donegal South West, Sinn Fein)
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On a point of order -----
Kieran O'Donnell (Limerick City, Fine Gael)
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I have not come in. Mr. Boucher is required to make returns to the Central Bank in respect of quarter 2. A return would have been made which included the detailed breakdown we seek. He is aware that AIB provided us with a breakdown yesterday. He is also very experienced. I would have thought the return filed with the Central Bank is on his files. To make it straightforward, I ask him to provide us with the figures so we can get on with our work. We are otherwise going to end up batting back and forth. He has the figures.
Kieran O'Donnell (Limerick City, Fine Gael)
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He has the detailed breakdown.
Mr. Richie Boucher:
In terms of loan balances at the end of June, if we leave aside customers who are current and whose loans are not in default, 3,603 accounts were 90 days past due with a balance of €553 million for the owner occupied sector. We also split the buy-to-let sector. Some 1,406 accounts are full interest. These are the actual figures from our accounts. We have set them out in full and give much more detail in the accounts.
Kieran O'Donnell (Limerick City, Fine Gael)
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I ask Mr. Boucher to condense them slowly for us in respect of the 3,164. I suspect he can do that quite easily.
Kieran O'Donnell (Limerick City, Fine Gael)
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I would say he can do that in the next five minutes and then we can get on with our business.
Ciarán Lynch (Cork South Central, Labour)
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Yes, but I will first allow Deputy Doherty to speak.
Pearse Doherty (Donegal South West, Sinn Fein)
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On a point of order, with respect to Mr. Boucher I think he and the bank are playing this committee for fools. These are not the figures that were requested. Slide No. 15 refers to the figures that are in place. They do not deal specifically with the offers the bank made in respect of quarter 2, which are required by the Government and the Central Bank.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Doherty will have an opportunity to ask questions.
Pearse Doherty (Donegal South West, Sinn Fein)
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This is a point of order.
Ciarán Lynch (Cork South Central, Labour)
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It is not a point of order. It is a question.
Pearse Doherty (Donegal South West, Sinn Fein)
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Can the information we require be e-mailed to Mr. Boucher so that it can be circulated to members?
Ciarán Lynch (Cork South Central, Labour)
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Allow me to establish something. On 23 August 2013, Bank of Ireland issued a press release on residential mortgage arrears and repossessions statistics for quarter 2 of 2013 which gave a detailed breakdown on the macro figure across the banks by sum and number. All the banks subject to the process had to provide these figures. This means the bank has the figures. I do not know why Mr. Boucher did not bring them with him this morning.
Kieran O'Donnell (Limerick City, Fine Gael)
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With respect, Chairman, I think Mr. Mason will provide us with that information.
Ciarán Lynch (Cork South Central, Labour)
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With due respect to the Deputy, I am in the Chair.
Kieran O'Donnell (Limerick City, Fine Gael)
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Sorry.
Ciarán Lynch (Cork South Central, Labour)
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We are about to begin the question session. We are not at all satisfied. The elephant in the room is how the banks are resolving this book.
Ciarán Lynch (Cork South Central, Labour)
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There is confusion today.
Ciarán Lynch (Cork South Central, Labour)
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In quarter 2, more than 21,000 people were on interest only arrangements, more than 18,000 were on reduced payments and 14,000 were on reduced payments, less interest only. Some 309 split mortgages were issued. All those figures are available from the Central Bank. We want to know where Bank of Ireland stands in respect of these figures.
Ciarán Lynch (Cork South Central, Labour)
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That was three months ago.
Ciarán Lynch (Cork South Central, Labour)
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I asked about the structures by type.
Mr. Richie Boucher:
For the assistance of the committee, we are focusing in particular on the middle column in slide No. 15. My colleague will speak first about owner occupiers and will describe each category of them. I believe these figures are absolutely consistent with the information provided by the Central Bank. They are the absolute numbers from Bank of Ireland's point of view and have been verified prior to being set out in our accounts.
Mr. Stephen Mason:
In respect of owner occupier customers on full interest payments, 2,171 accounts were current or in early arrears, 1,406 were greater than 90 days in arrears or were impaired. A total of 3,577 owner occupiers were paying full interest. In respect of reduced repayments, we had 1,653 customers in the current or early arrears book and 1,180 in the default or impaired book for a total of 2,833. In respect of term extensions, 3,366 were in place in the current or early arrears book and 659 were in the default and impaired book for a total of 4,025. For capitalisation of arrears, 915 cases were in the current or early arrears book and 94 were in default, for a total of 1,009. The "other" category is composed largely of a combination of the preceding categories. The Chairman asked specifically about split mortgages. The Central Bank reported 337 split mortgages at the end of June, of which we had 226 or 67%.
In respect of buy-to-let customers, 627 accounts were on full interest payments in the current book and 326 were in the default and impaired book for a total of 953. We had 536 arrangements in place for reduced repayments in the current and early arrears book and 209 in the default book for a total of 745. We had 787 term extensions in the current or early arrears book and 139 in the default book for a total of 926. There were 108 capitalisation of arrears in the current book and 50 in the default book for a total of 158. Again, the "other" category is a combination of the preceding categories which might, for example, involve a term extension and a capitalisation. I will not repeat the figures for the total.
Ciarán Lynch (Cork South Central, Labour)
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I will allow the members to try to drill down into these figures. I will raise a couple of issues before calling on Deputies Michael McGrath, O'Donnell and Doherty in sequence.
Bank of Ireland is applying a different type of split mortgage to those offered by most of the other financial institutions. When a mortgage is split by other financial institutions, the interest and capital are warehoused for a specific period. The interest is not warehoused in Bank of Ireland's split mortgage and it remains on the live part of the debt. Why is Bank of Ireland taking that different approach?
Mr. Richie Boucher:
I cannot speak for the other banks but I am not sure that all of them are providing split mortgages. A split mortgage is one of a range of resolutions and the number of them is relatively small. However, Bank of Ireland has provided two thirds of the split mortgages. I can confirm, based on figures received last night, that during the month of July, Bank of Ireland put another 100 split mortgage accounts on the books. The number is increasing, therefore. From our perspective, we have to consider a wide range of options and issues. We have to bear in mind that any forbearance is a cost to the bank. If we do not receive amortisation or we agree to warehouse amortisation, we have to fund that in the market by raising deposits. If we consider Bank of Ireland in its own right and compare our arrears with the industry average, each of the banks has to deal with different issues.
In Bank of Ireland's case, for owner-occupiers, our arrears are 53%. We have to bear in mind the cost of the provision of forbearance. One cannot look at it in isolation. If we do not recover the cost, we will not have the capital to lend into the economy or the income to repay and reward taxpayers. All of these things have to be taken into consideration. The vast bulk of our default customers are on tracker mortgages. We provided this information for the market at the end of August. The average yield or all-in rate associated with our tracker mortgage book - this relates to owner-occupiers - is 155 basis points. Other than in exceptional circumstances, we do not believe a restructure is possible if the customer cannot meet the full interest on the mortgage. We are prepared to bear the cost of warehousing. That is the rationale. I ask the committee to note the level of restructuring we offer. We were able to offer a restructuring option on foot of 80% of the standard financial statements we assessed during July.
10:55 am
Ciarán Lynch (Cork South Central, Labour)
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The approach being taken by each of the banks can be considered on a case by case basis. One can argue that the IBRC and AIB, both of which are splitting it completely, are in a different situation because they are completely owned by the State, whereas the State has a stakeholding of less than 15% in Bank of Ireland. The situation of a customer on a tracker mortgage and a customer on a mortgage with a variable interest rate is entirely different. Would Bank of Ireland consider offering customers on variable interest rates a type of split mortgage that is different from that offered to customers on tracker mortgages?
Ciarán Lynch (Cork South Central, Labour)
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Yes.
Ciarán Lynch (Cork South Central, Labour)
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Customers who are receiving spilt mortgages with Bank of Ireland are paying interest on the warehoused side of these mortgages, regardless of whether they are on tracker or variable rates.
Mr. Richie Boucher:
The most important thing we do when we sit down with the customer is get him or her to complete a standard financial statement. We have to consider a form of restructuring that we believe is sustainable. The customer's repayment profile - the call on the customer's cash as he or she tries to meet his or her mortgage repayments - is a key factor in the sustainability of a restructure. We assess this and also stress the repayment. We make assumptions. The interest rate curve is very flat. The ECB is predicting that official interest rates will remain very flat for a period of time. We review on an ongoing basis whether each of our restructures is sustainable. In the case of a split mortgage, for example, we review at the end of three years whether it is still an appropriate structure for the customer in question. If, for example, interest rates were to move way beyond our current expectations and those of the market, we would have to sit down with the customer and decide whether that was still an appropriate structure for him or her.
Ciarán Lynch (Cork South Central, Labour)
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As this resolution process evolves - the target figure will move to 35% in October, 50% at the end of the year and we hope to 100% next year - the modelling of solutions will evolve alongside it and the financial climate will change also. I put it to Mr. Boucher, on the basis that Bank of Ireland deals with customers on a case by case basis and given that the bank is taking a different approach to split mortgages from some of the other financial institutions, that there is a case for looking at the split mortgage differently in the case of someone who is on a tracker mortgage with a very low interest rate and someone who is on a variable rate mortgage. There is quite a big difference between the repayments in each of these situations. If the bank continues to take a one-size-fits-all approach to split mortgages, without discriminating between those on variable rates and those on tracker rates, it will mean that people who have the same problem will be offered two entirely different solutions.
Mr. Richie Boucher:
The customer will be on the tracker rate or the variable rate, as appropriate, on an ongoing basis. I assure the committee that we will review all our options to ensure we have the best solution that works for our customer. We will review this, but I cannot make a promise. I promise the committee that we will review it and that we will come back. I cannot commit the bank to doing something without making an assessment. I must stress-----
Ciarán Lynch (Cork South Central, Labour)
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The promise that the committee will be making is that Mr. Boucher will be coming back. As the figures start approaching 35% and 50%, representatives of Bank of Ireland and AIB will come before the committee. I ask Mr. Boucher to give consideration to this.
Ciarán Lynch (Cork South Central, Labour)
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Are there split mortgages in the buy-to-let mortgage sector?
Ciarán Lynch (Cork South Central, Labour)
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The bank has introduced split mortgages in the buy-to-let sector.
Ciarán Lynch (Cork South Central, Labour)
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I wish to deal with two other issues in the six or seven minutes that are left before I call Deputy Michael McGrath. Recently, the Insolvency Service of Ireland contacted Bank of Ireland and the other financial institutions with regard to the consultative process for personal insolvency arrangements, etc. The issue of a payment break is being considered as part of that process. The incomes of people in resolution processes are accounted for. A certain amount is used to service debt and a certain amount is used to pay household bills, etc. Payment breaks are designed for people who encounter emergencies such as bereavements. The family car might need to be changed or a child might be making his or her Confirmation. People might need that money immediately, but they do not have it to hand. I would like the representatives of Bank of Ireland to explain how they see payment breaks being managed. I am not sure what is the level of architecture in place. If a person who pays €1,000 a month to Bank of Ireland as part of the resolution process qualifies for an emergency payment of €3,000, how can he or she receive that €3,000 without defaulting on the resolution programme with Bank of Ireland?
Mr. Stephen Mason:
We always ask our customers to talk to us if they find themselves in emergencies. That gives us an opportunity to accommodate them and ensure they do not go into arrears. The Chairman is asking whether we would adjust one of our forbearance options to accommodate someone who encounters an emergency. We would do so as that would be the practical thing to do. When we put forbearance solutions in place for our customers, we make sure they do not come down to the last euro. We ensure our customers have the flexibility they need to deal with small emergencies that arise. If the forbearance arrangements put in place are too minimal in the way they are applied and too tight for customers, it will be very difficult for them to stick to them. We try to make them as flexible as possible. We ask customers to talk to us if they are experiencing difficulties like those mentioned by the Chairman in order that we can put a changed arrangement in place.
Mr. Richie Boucher:
We are actually doing it. There is a particular technical issue involved, but I do not want to bore the committee with it. If a new arrangement in these circumstances is counted as a redefault on the part of the customer, it has different capital implications for the bank. It is something that would be necessary and appropriate for us to re-assess if it became of significant scale. We are offering it. As Mr. Mason said, we do not wish to have it too tight. Obviously, we have to maximise the recovery of our own money. It is not in our interests for a customer to fall back into an arrears category simply because we failed to take account of a particular emergency. As a business person, it is my job to run a commercial operation. It is in our commercial interests to restructure as many customers as we can and provide for flexibility in emergencies. We do this with business customers and corporate clients.
Ciarán Lynch (Cork South Central, Labour)
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The Minister for Finance, Deputy Michael Noonan, wrote to all the banks and financial institutions on 9 July. The Minister made some comments in the letter about the possibility of a banking inquiry taking place. He said it was important to bear in mind that although the guarantee was provided in September 2008, records dating from the years preceding the granting of the guarantee and records dating from after the guarantee might both be of relevance to any inquiry.
In doing so, he asked all the banks to take all necessary steps to ensure that all records within the relevant institution, whether comprising documents, audio recordings or in other formats, were preserved to be available for an anticipated inquiry. This was a standard letter, which issued to all the banks and all of them, including Bank of Ireland, wrote back. There is a notable difference in the response from Bank of Ireland, which was written by Mr. Archie Kane on 10 July 2013, and the responses of the other banks. All the letters contain a general acknowledgement. The language used in the Bank of Ireland letter appears to imply that the bank has reservations regarding the Minister's request. I propose to tease out this matter. Mr. Kane confirmed that Bank of Ireland would take all such steps as it reasonably could to retain and maintain records believed to be within the remit of the anticipated inquiry. In Mr. Boucher's view, what are reasonable records and what would be reasonable behaviour in retaining such records?
11:05 am
Mr. Richie Boucher:
I will speak, in particular, about two elements of records. In terms of all written documentary records, we have provided huge documentary evidence of board meetings, memorandums, etc., to a number of commissions, including the Nyberg commission. We have a huge data room of written documentation and e-mails. We also have ongoing interaction with the Bank of England, Federal Reserve, Central Bank of Ireland, British Government and a wide range of other actors. Therefore, we have the documentation.
In the context of tape recordings, it is important to understand, in Bank of Ireland's case, how tape recordings are taken. They arise in two of our activities. We have a call centre that is online 365 days of the year, which customers will ring to speak to experienced but relatively junior officials to carry out minor transactions. This includes where a customer will call to obtain an account balance, order a cheque book, etc. These calls to our call centres are recorded, primarily to allow us to monitor quality, service and training and ascertain whether our colleagues are answering calls in the appropriate fashion and on time, whether we are giving the appropriate information and if there are spikes in queries coming from customers. We can then ask whether we have an issue with a process and assist the call centres.
We also have dealing rooms where transactions are agreed over the telephone and confirmed in writing the following day. This could be where one of our staff will agree to sell a customer €1 million for sterling at 87 pence per euro.
Ciarán Lynch (Cork South Central, Labour)
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The Minister for Finance, Deputy Noonan, is not seeking records related to some guy who loses his bank card and calls Bank of Ireland to find out his PIN. He is seeking information that may be relevant to a banking inquiry, for example, issues related to the bank guarantee and records of communications between the banks regarding balance sheets. The response received from all the other banks stated categorically that they would take the necessary steps. However, Bank of Ireland chose to state it would do what it reasonably could, which implies it is taking a different approach from the other banks. I would like to hear categorically from Mr. Boucher that Bank of Ireland will safely hold every record, whether an audio recording, a document or in some other manifestation, for use in the event of an inquiry or inquiries taking place in future.
Michael McGrath (Cork South Central, Fianna Fail)
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I welcome Mr. Boucher and his colleagues from Bank of Ireland. For the second day in a row, we have had a series of numbers thrown at us during the course of a meeting. As I stated yesterday, it is incredibly difficult for members to process this data, put it in context and frame appropriate questions. The information should have been provided in advance of the meeting. I acknowledge the information provided in table 15, which I will address in a moment. My understanding of the current position in respect of the data is that we do not have a breakdown of the 3,164 offers that were made in the second quarter of 2013, whereas we have a breakdown on page 15 of the forbearance measures in place as of the end of June.
Mr. Richie Boucher:
I apologise for interrupting Deputy McGrath. I will do my best to get the numbers to the Deputy. As a public company, any numbers that we place in the public domain must go through a verification process. I will have the numbers forwarded to the Deputy. I hope the information we have provided is comprehensive, both in our accounts and in the summary. We summarised to try to assist the joint committee. The accounts are public information. We will arrange to provide the specific information to the Deputy. The reason I cannot do so now is that we have to go through a verification process. I will get the information to the committee.
Michael McGrath (Cork South Central, Fianna Fail)
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I understand. I am seeking to clarify the issue and have Mr. Boucher confirm that we are not in a position to do an analysis of the offers made in quarter two of this year, whereas we are in a position to do an analysis of the forbearance arrangements and otherwise that have been agreed in respect of Bank of Ireland's arrears book as of the end of June. The relevant information is provided in table 15. Is that the position?
Michael McGrath (Cork South Central, Fianna Fail)
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My general point is that this highlights how flawed this process has been from the beginning. Yesterday, one of the pillar banks informed the joint committee that issuing 6,000 letters telling its customers to engage or it would go down the road of legal action constitutes a sustainable solution to their mortgage difficulties. Today, the second pillar bank informs us that it does not consider correspondence containing a legal threat to be a sustainable solution under the definition in the Central Bank's mortgage arrears targets programme. This highlights the flawed nature of the process from the beginning.
The vague definition of a sustainable solution in the arrears targets programme published in March last gives the banks the final say in that the definition provides that the bank must be satisfied that the arrangement provides a sustainable solution. Allied Irish Banks is satisfied that issuing a threatening legal letter is a sustainable solution, whereas Bank of Ireland takes a different view. The joint committee is trying to make some sense of all this. I would feel sorry for the Central Bank were it not the culpable party in that it framed the terms of reference in the first instance. That is essentially the position from my perspective. It is farcical that the two main banks in the State have been given a definition which they can interpret completely differently, as they have done. More than 70% of the so-called sustainable offers made by Allied Irish Banks were legal letters which Bank of Ireland states do not constitute a sustainable solution.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, that is clarified. The letters Mr. Boucher describes are much different from the 6,000 letters to which Allied Irish Banks referred yesterday.
Michael McGrath (Cork South Central, Fianna Fail)
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I am not asking Mr. Boucher to comment but making an observation. In terms of analysing Bank of Ireland's treatment of arrears cases, the middle two columns of the table on page 15 provide a breakdown of 3,603 accounts which are in arrears of 90 days or more and the arrangements that are in place in respect of these accounts. That is the information that we can analyse.
Michael McGrath (Cork South Central, Fianna Fail)
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Generally speaking, if I were to characterise the data, they show typical forbearance measures, namely, interest only repayments, reduced payments, term extensions and the capitalisation of arrears. There are also 264 accounts in the category of "Other". How many of this latter category are split mortgages for owner-occupiers? Mr. Mason indicated the overall figure was 226.
Michael McGrath (Cork South Central, Fianna Fail)
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Spilt mortgages account for as many as 200 of the 264 accounts in this category, with the balance made up of a combination of the other measures.
11:15 am
Michael McGrath (Cork South Central, Fianna Fail)
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In that scenario would it be in the first two columns?
Michael McGrath (Cork South Central, Fianna Fail)
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I understand.
Ciarán Lynch (Cork South Central, Labour)
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I ask members to desist from talking while other members are asking questions. All the talk is being picked up on the microphones and is interfering with the responses to questions.
Michael McGrath (Cork South Central, Fianna Fail)
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We are not in a position to analyse the offers, but Bank of Ireland has indicated they will be in a similar vein to the measures that have been agreed and by and large they are the typical forbearance measures. Bank of Ireland has begun to roll out the split mortgages. Is it doing debt for equity arrangements of any kind yet?
Mr. Richie Boucher:
No, but we are continuing to look at that. There is a particular capital issue in regard to debt for equity, particularly under the Basel III rules, because where equity is involved in a situation, the capital requirement is probably eight to nine times what it is for a loan. We will look at debt for equity, but there is a technical issue for a debt for equity swap. If we take equity as part of a swap, for example for a corporate body, we provide fully against that. Therefore, we make a provision up front. That is our policy. Where equity is provided in a distress scenario, we provide up front for it.
Michael McGrath (Cork South Central, Fianna Fail)
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Does Bank of Ireland provide any permanent interest rate reductions?
Michael McGrath (Cork South Central, Fianna Fail)
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With regard to the current number - to July or August - of those who are involved in legal-resolution processes, Bank of Ireland indicated that by the end of June there were approximately 3,100 of these in the owner-occupier sector. How many were there in the buy-to-let sector at that stage?
Mr. Stephen Mason:
Approximately 1,943, but the Deputy would be aware the majority of those would be in the receiver category. At the end of June, we had 1,265 - the majority - where we either had receivers appointed or were in the process of appointing receivers. That will account for many of our resolutions regarding buy-to-let properties.
Michael McGrath (Cork South Central, Fianna Fail)
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Let us focus for a moment on the owner-occupier properties. Approximately 3,100 of these were involved in legal-resolution processes. Has that figure changed much or is that pretty much the ball park figure for the number currently involved?
Mr. Richie Boucher:
I am sorry the figures are not exactly consistent, but I do not think that by the end of July a huge change would have occurred. With regard to the legal resolutions, at the end of July demand letters would have been issued for 1,400. A solicitor's letter would have issued, which is the early stage of the process. With regard to owner occupiers, at the end of July unexecuted possession orders numbered 108 and civil bills numbered 224.
Michael McGrath (Cork South Central, Fianna Fail)
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At the end of June, the figure of 3,100 meant there was formal, legal correspondence under way between the borrower and the banks. Is that correct?
Michael McGrath (Cork South Central, Fianna Fail)
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So there is a strong chance in the majority of those cases that the house will be forfeited, either by voluntary surrender or -----
Mr. Stephen Mason:
No, that is certainly not what we hope. If we return to our process, we go through a significant process with customers, where we try to get them to engage with us and to complete a standard financial statement, SFS, for us. We do this by way of phone contact and written correspondence. If the customers do not do this and do not provide us with the information we require to make a restructure offer to them, we go into what we call our non-co-operating process, where we write to customers and give them more time to try to give us the information. We tell them at that stage that if they do not give us the information, we will have no choice but to go into the legal process. What the Deputy sees with the numbers here are customers where we have had no choice but to go into the legal process. However, we are hopeful, and have seen evidence, that some customers will start to engage and to provide the information required at that stage. Therefore, it would not be right to say that all of these properties will end up in legal repossession.
Mr. Richie Boucher:
I ask the Chairman to bear in mind that in regard to late arrears, I referred in particular to the SFSs and to assessing these in July. This was to indicate that when customers engage with us, we believe that in 80% of cases we can reach a resolution with that customer. In the case of approximately 10% of them, we feel the original contracted mortgage is affordable, but another 10% move to a potentially different category. We had 2,880 SFSs outstanding. In regard to these, we say to customers that whatever their reason for not engaging with the bank, they have made a decision not to engage. That decision not to engage leaves us and the customer with a much narrower range of options. Those options are not available and we then have to move down the legal route.
Michael McGrath (Cork South Central, Fianna Fail)
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I will move on because my time is limited. On the issue of split mortgages, some 309 were agreed across the sector by the end of June, 226 of which were agreed by Bank of Ireland. Sorry, this includes buy-to-let properties.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, but approximately 200 split mortgages were arranged.
Michael McGrath (Cork South Central, Fianna Fail)
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Picking up on the theme explored by the Chairman, even though the Bank of Ireland split mortgage product is the least attractive across the system, Bank of Ireland seems to be doing the majority of split mortgage transactions. I suggest that the Bank of Ireland split mortgage is not really a split mortgage in the sense that it is another form of paying interest plus some capital, because it means the customer pays interest every month on the warehoused portion and paying interest and capital on the other part of the mortgage on the usual annuity basis. It is another form of interest plus capital, although Bank of Ireland says it will review after a period of time how the warehoused portion will be treated.
Mr. Stephen Mason:
Sorry to interrupt, but if we look at the Keane report and what was highlighted in that regarding split mortgages, our product would fall within the definition of a split mortgage. The example given in that report was one where the interest would roll up. That is not what we have done. We have decided to structure it in a way where the interest is being paid and the customer is making reductions on the capital on a monthly basis.
Michael McGrath (Cork South Central, Fianna Fail)
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I would urge Bank of Ireland to review that product. In order to be fair to customers who are already in arrears or financial distress, if the bank is going to offer a split mortgage, it would be far more sustainable for the customers if interest did not accrue on the warehoused portion of the debt. I have dealt with individual cases where, when the interest on the warehoused portion is included, the split mortgage is not a viable product for the customer. I am surprised Bank of Ireland is providing the majority of split mortgages that have been taken up. Some of the people involved may not have had the best advice.
Michael McGrath (Cork South Central, Fianna Fail)
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I will move on to the issue of strategic default, an issue that was not addressed in the presentation and on which no comment has been made by the bank. Other CEOs have commented that in their view up to 20% of the mortgage arrears book is accounted for by those who choose not to pay their mortgage for one reason or another. Is that Bank of Ireland's experience?
Mr. Richie Boucher:
First of all, for the purposes of communication, for our accounts and as a public company, when there is a definition we can set out matters under a definition. We do not have a definition of a strategic default and therefore, I cannot provide figures. We do not do measures on that basis. What we try to demonstrate is the number of customers. For example, in the example we gave of our late arrears, we stated that 2,880 of such customers in the owner-occupier sector had not completed an SFS. Let us be careful to say that this 2,880 might mean that a customer has just moved into the late arrears sector, so it may not be the case that these are strategic defaults.
To return to our experience, which is all I can speak about, I must point out our arrears are 53% of the owner-occupier sector. The number of our total default customers, an amount of €3.9 billion, is vastly different from some of our competitors in terms of quantum and proportion. However, if we go to SFSs we assessed in the month of July, which broadly speaking appear to be consistent with the year to date, we can offer a restructure in 80% of cases. They may be customers who are not engaging with us for a variety of reasons, but I do not know the reasons. It is not possible for us to get into the heads of individual customers on a day-to-day, week-to-week basis. If they do not engage, we have a limited choice.
Michael McGrath (Cork South Central, Fianna Fail)
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Overall, the bank is making progress when we look at the usual banking metrics of loan to deposit ratio and funding mix, etc. One concern I still have is whether Bank of Ireland and the other banks are fully facing up to the losses they are carrying on the mortgage book and the SME book. I have examined Bank of Ireland's impairment provisions in its accounts and in the presentation, which are based on certain assumptions and are only valid based on those assumptions.
Mr. Boucher might address that point. How confident is he that the bank's provisions are adequate and that there will not be a need for additional capital in the short or medium term? Will he address the issue of the Government preference shares from 2009? Bank of Ireland is facing a cliff or an issue in March next year, when they either have to be repaid or the bank will have to come up with some other formula. Will Mr. Boucher comment on this and the options which are being explored?
11:25 am
Mr. Richie Boucher:
A question was asked about our loan loss provisions. Our provisions are made on an international financial reporting standards, IFRS, accounting basis. What gives us comfort and substance to our belief is that we look at the diversification of the Bank of Ireland portfolio, the different geographies in which we operate and the mix of our loan books, all of which I hope are helpfully set out for the committee on the slide we provided. We look at the different mixes and diversifications. Then we look at our assumptions - is the number of customers who are defaulting increasing or starting to slow down? Again, we have tried to demonstrate for the committee that the number of customers who are defaulting is reducing, as is, therefore, the size of the issue. Then, we consider the collateral. What are our assumptions behind the collateral? In the United Kingdom and Ireland, in particular, we see that the collateral values are stabilising. Our assumption for owner-occupier mortgages has a peak-to-trough difference of 55%, which seems to be a valid assumption. It is different in different parts of the country. Ours is a universal bank and we have loans throughout the country. We probably have a slightly different mix in certain more challenged sectors and areas and that is identified in our owner-occupier and buy-to-let arrears relative to the industry. For commercial real estate in Ireland, we assume a peak-to-trough fall in our base case of 67%. That is a heavy assumption.
How do we, as a board, satisfy ourselves on the issue of capital? We go through an internal strenuous process which we term an ICAAP process. It is an internal capital assessment which we share with the Central Bank. For our base case, we use the consensus economic assumptions regarding unemployment, collateral values, interest rates, etc. and do a five-year model on that basis.
Ciarán Lynch (Cork South Central, Labour)
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Will Mr. Boucher, please, summarise?
Mr. Richie Boucher:
I am sorry if I am taking too much time. This is an important point because it comes at the heart of the question from taxpayers, that is, whether Bank of Ireland has enough capital. That is our base case. An important part of our capital assessment is what we call the stress scenario - if things are a good deal worse than anyone envisages. We look at the stress scenarios applied by the Bank of England and the Federal Reserve. In particular, we looked at the stress scenarios evident in the prudential capital assessment review, PCAR, process for 2011. We used these for the assessment. The question is whether, even in a stress scenario, we would have sufficient capital. One of the things that is important to us in a stress scenario is the contingent capital instrument. This bails in, that is, converts to equity, at 8.25% if our ratios fall below 8.25%. In our stress scenario which looks at the quantum of difference between the profit in a stress scenario and a basic scenario used in the PCAR, we do not trigger it. I cannot ever say that, no matter what, we have enough capital, but based on the base case and our stress scenario we believe we are adequately capitalised.
The issue of the preference shares was raised and, again, it is important that we note it. The preference shares have a redemption step-up. The instrument is a perpetual instrument. When the preference shares were put in place in 2009, there was an incentive to redeem. Given that it is a perpetual instrument, it counts as capital on that basis and the coupon rate is 10.25%. Should the preference shares remain in the State's hands at the end of March, the redemption premium will trigger. However, at the end of March 2014 there will be no change to our capital and there is no payment due. The payment is due if and when we redeem. That is important from a capital assessment point of view.
We are working with the Government on the options available to us. I cannot talk about these options because during the past four years when we have come to the market, we have thought through the solution carefully and engaged with all the appropriate people. It is a capital instrument and, therefore, we need to discuss it with other relevant authorities. We are hoping we will come to the market as soon as we can but with a solution rather than our thoughts.
Ciarán Lynch (Cork South Central, Labour)
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Deputy O'Donnell is next in Fine Gael's 15 minute slot. I believe he is sharing time with Deputy Simon Harris and Senator Paul Coghlan. I will be tight on the 15 minute time limit because we will have to finish on time. We are stretching it.
Kieran O'Donnell (Limerick City, Fine Gael)
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I am taking seven minutes.
I am pleased that Bank of Ireland has an operating profit, but to cut to the chase I am dissatisfied with what has happened this morning. Mr. Boucher is not facilitating the committee to enable us to do the work we are supposed to do, that is, to examine the position in quarter two and see exactly the type of sustainable solutions and offers the bank has made. Mr. Boucher has referred to what is stated on page 15. Full interest payments do not form part of that mix.
The bank would have been required to file a return with the Central Bank regarding the offers it had made in quarter two, which totalled 6,267. It would then have been required to give a detailed breakdown of the restructuring figure - 3,164. In the era of the Internet and e-mails the bank should have provided us with these figures this morning. It is not good enough to use the explanation or excuse that the bank is a publicly-quoted company, as is Allied Irish Banks, but it's representatives provided us with the figures yesterday. The point I am making is simple. We want to see the figures. It is nothing personal.
Our job as a committee is to examine the figures for quarter two to see the details for the figure of 6,267, or 53%, which is to be welcomed. We want to drill down. The bank should give us a breakdown of the figure of 3,164 for restructuring. I believe it should be able to provide us with the figures now.
Mr. Richie Boucher:
We have given the figures to the end of June. I cannot give the exact numbers, but what we have said is that the figures for the quarter to the end of June will be broadly similar to the stock at the end of June. I cannot tell the committee that it is exactly to the nth degree, but I am telling it-----
Kieran O'Donnell (Limerick City, Fine Gael)
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With due respect-----
Kieran O'Donnell (Limerick City, Fine Gael)
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I realise that, but I have limited time and want to keep it in ordinary layman's language.
Mr. Boucher has referred us to page 15 and the residential mortgages heading, which is what we are looking at. The number of accounts in arrears for more than 90 days to which this applies is 3,603. Of these, 1,406 are full interest accounts. That does not fall within the terms of looking at sustainable solutions in quarter two. The committee is entitled to a breakdown of the 3,164 restructuring figure and know whether it is made up of the capitalisation of arrears, term extensions, trade downs, mortgage-to-rent arrangements, split mortgages, voluntary repossessions, cash flow help or mortgages that are deemed to be affordable.
This is like being in a maze. We are chasing Mr. Boucher around the place, but I would prefer if he simply sat still for one minute and gave us the figures in order that we can get on with our work such that we can interact in a constructive way rather than speak on macro issues, although I do not deny that they are important. Our job today is to look at the figure of 3,164 for restructuring and the legal process. We also need to know-----
Ciarán Lynch (Cork South Central, Labour)
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The Deputy will have to allow time for a reply.
Kieran O'Donnell (Limerick City, Fine Gael)
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I have two quick questions. Will Mr. Boucher provide us with a breakdown of the 3,164 figure? I believe we are entitled to it now and that the public is entitled to it. How does Bank of Ireland define the legal process? Does it mean letters going out and so forth? I believe Mr. Boucher has the make-up of the 3,164 figure, but for whatever reason he is reluctant to provide us with it. This is very simple. He should show us the figures.
Kieran O'Donnell (Limerick City, Fine Gael)
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Why not?
Mr. Richie Boucher:
We received an invitation from the committee and were asked to prepare a presentation. We looked at what the questions were and believe we have provided the detail sought. The key issue for us concerns the actual stock.
I am trying to assist by saying that the number that would have been done between March and June is in the same proportion to the stock.
11:35 am
Kieran O'Donnell (Limerick City, Fine Gael)
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My time is limited. Without information relating to the figure of 3,164, we cannot do our work. I believe the bank has access to that information and obtaining it would involve nothing more than Mr. Boucher e-mailing a request to someone in his office. We could then get on with our work. Consideration should be given to doing that now. What is the position with regard to the legal process?
Kieran O'Donnell (Limerick City, Fine Gael)
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No, I am interested in Q2. That is what we are here for and the figure for it is 3,103. Mr. Mason provided that earlier.
Kieran O'Donnell (Limerick City, Fine Gael)
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So 1,500 legal letters were issued.
Kieran O'Donnell (Limerick City, Fine Gael)
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And the balance?
Kieran O'Donnell (Limerick City, Fine Gael)
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If Mr. Boucher can provide a breakdown in respect of the 3,103 cases to which I refer, he can also provide one in respect of the 3,164 mentioned earlier.
Kieran O'Donnell (Limerick City, Fine Gael)
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I think Mr. Boucher could gain access to them - if the will was there - by sending a very quick e-mail.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Boucher provided a breakdown to the end of July in respect of restructured loans. How many loans were fully restructured to the end of July?
Kieran O'Donnell (Limerick City, Fine Gael)
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However, Mr. Boucher has not provided a breakdown to the end of June. He provided a global figure of 3,164 but did not supply a breakdown in respect of it.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Boucher has not done so. In the context of the 3,164 that were restructured, Mr. Boucher has not provided a breakdown in terms of the provision of split mortgages, cash flow assistance-----
Ciarán Lynch (Cork South Central, Labour)
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The Deputy is over time.
Kieran O'Donnell (Limerick City, Fine Gael)
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It is unsatisfactory.
Simon Harris (Wicklow, Fine Gael)
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I thank Mr. Boucher and his team for attending. I will not waste time going over old ground. However, I concur with Deputy O'Donnell with regard to a simple matter being made complicated. We are trying to measure Bank of Ireland against a certain metric and we are finding it difficult to do so in the absence of the information required.
What criteria apply with regard to the issuing of legal letters? What level of arrears must accrue or how much time must pass before one of these letters is sent? AIB informed us that approximately three years' worth of repayments must be owed before it will issue a letter. In rough terms, the same amount of time must pass in the context of someone not engaging with the bank. Is Bank of Ireland's process the same?
Will Mr. Boucher provide an update on where Bank of Ireland stands in the context of implementing the recommendations of the Mercer report? We discussed with the chief executive of AIB, the pensions of former executives. Has Bank of Ireland sought voluntary contributions from the pension funds of former senior bank officials?
Mr. Boucher referred to the bank's branch structure. Will he expand on what he said and indicate where more branches are going to be closed? Will he indicate the areas in which he sees room for growth in the bank's network of branches?
Goodbody has estimated that Bank of Ireland will be writing down approximately 9% of mortgages in arrears. Will Mr. Boucher provide some detail on the number of such mortgages the bank expects to write down?
I am somewhat confused with regard to a certain aspect of Bank of Ireland's submission. I refer to page 15. What is the position with regard to voluntary sales whereby people are informed that the only option is to voluntarily sell their homes? I do not view that as being voluntary at all. In addition, what is the position with regard to the mortgage-to-rent figure? Will Mr. Boucher indicate the number of people who have been informed that they must engage in what are termed "voluntary sales"?
Simon Harris (Wicklow, Fine Gael)
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AIB included a figure for voluntary sales in its submission. As Deputy Michael McGrath indicated earlier, we face a difficulty here in that we are comparing apples and oranges in terms of what banks consider to be part of the resolution process. Obviously, Bank of Ireland does not include that as a measure.
Mr. Stephen Mason:
It is not included in our forbearance options. However, we do have voluntary sales and voluntary surrenders of properties. For example, in our half-year accounts to June we talked about 76 properties that had come into possession and 75% of them were voluntary. We do give that information. It is just that it is not in the forbearance.
Simon Harris (Wicklow, Fine Gael)
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So 75-----
Simon Harris (Wicklow, Fine Gael)
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My final point is positive and it is probably one to which Mr. Prizeman may wish to respond. I refer to the work being done by Bank of Ireland's regional and branch managers in respect of credit clinics. I have attended two such clinics in County Wicklow and they were extremely positive in nature. There is a need for an increase in the number of these clinics. I am very much on board with the idea of businesses needing to know that the bank has money available to lend. I acknowledge the work being done in respect of these clinics. The latter constitute a positive development.
Mr. Stephen Mason:
On the legal process, I do not have a breakdown in terms of how long people would be in arrears. First of all, however, everything we do is in compliance with CCMA. So it will be after the CCMA timelines have elapsed. In addition, it will be after significant attempts to contact the customer, as I outlined earlier, by phone and by letter by our centralised collections unit and our localised collectors. It will be after we have spoken to customers in terms of our non-co-operating strategy, which I also outlined earlier. When that is exhausted and we have not obtained the information we require in order to make a forbearance decision, then we will hand it to a solicitor to make a demand for possession. That is what we classify as legal process.
Mr. Richie Boucher:
On accounting write-offs, at the end of June the amounts written off for residential mortgages, which includes our Irish and UK mortgage books - the vast majority would relate to our UK mortgage business - was €20 million. That is from an accounting write-off point of view, the sale of the collateral and the completion of the other processes to maximise the recovery. For non-property SME and corporate, the figure was €114 million. For property and construction, the figure was €51 million. For consumer credit, the figure was €45 million. That makes accounting write-offs of €230 million for the six months to the end of June.
For the branches, we may be counter-intuitive. We believe that we have done the raising of the capital, the restructuring of our balance sheet and the reduction in our costs. We have a huge focus on the generation of revenue. We are investing heavily in e-banking, mobile banking and our infrastructure. However, we believe the branch is a very important way for us to engage with our customers. We have 250 branches. I cannot say whether next week we will have 249 and the following week 251. That is our broad idea of our footprint. Obviously, we write to our customers. In certain city centre locations we have done branch consolidations. There are other issues to do with the building but we closed our branch in Donnybrook and amalgamated it with the branch in Ranelagh. Those two branches were located approximately 1 km from each other. We recently opened two branches at Dublin City University, DCU, and Dublin Airport. We have plans to open further branches but this is a commercially sensitive matter because we are involved in negotiations either with landlords or over location. We will be opening further branches where we see the population is moving. We see the branches as an extremely important part of our engagement with customers.
Simon Harris (Wicklow, Fine Gael)
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Just on-----
Ciarán Lynch (Cork South Central, Labour)
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No, the Deputy's time is exhausted.
Simon Harris (Wicklow, Fine Gael)
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I asked a question about the-----
Ciarán Lynch (Cork South Central, Labour)
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The Deputy was allocated an amount of time. He chose to ask particular questions in that time.
Simon Harris (Wicklow, Fine Gael)
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The Chairman cannot pick and choose-----
Ciarán Lynch (Cork South Central, Labour)
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Fine Gael-----
Simon Harris (Wicklow, Fine Gael)
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The Chairman is picking and choosing which questions-----
Ciarán Lynch (Cork South Central, Labour)
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Excuse me, the Deputy will respect the Chair. The Deputy is new to the committee-----
Simon Harris (Wicklow, Fine Gael)
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I am not new.
Ciarán Lynch (Cork South Central, Labour)
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-----and I must teach him some rules. The Deputy chose to divide his time with his colleagues and it is now Senator Paul Coghlan's turn.
Simon Harris (Wicklow, Fine Gael)
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I do not see why Mr. Boucher cannot answer the relevant question.
Ciarán Lynch (Cork South Central, Labour)
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No, I call Senator Paul Coghlan. The Senator can forego his time in order for Deputy Harris to obtain an answer to his question.
Paul Coghlan (Fine Gael)
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No, I do not want to go over on time. I welcome Mr. Boucher and I very much appreciate what Bank of Ireland has achieved to date in respect of the repayment of State aid.
Ciarán Lynch (Cork South Central, Labour)
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The Senator's mobile phone would appear to be ringing. I will stop his contribution-----
11:45 am
Paul Coghlan (Fine Gael)
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My phone is switched off.
Ciarán Lynch (Cork South Central, Labour)
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The interference is coming from somewhere.
Paul Coghlan (Fine Gael)
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It is not my phone.
Ciarán Lynch (Cork South Central, Labour)
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It is the iPad.
Paul Coghlan (Fine Gael)
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My phone is off. I had switched it off earlier. I am sure Mr. Boucher would rather be somewhere else today rather than here. On the remaining 15% State equity and the preference shares to which he referred - he probably does not want to get into that because as he said the discussion is ongoing - when does he see-----
Ciarán Lynch (Cork South Central, Labour)
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Senator Coghlan will have to allow time for a reply in two minutes.
Paul Coghlan (Fine Gael)
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I appreciate that. When does Mr. Boucher envisage having this monkey off his back, so to speak? Does he want to say something about the timeframe as he sees it, in terms of the remaining 15%? Civil bills were mentioned. I appreciate everything that has been said about the figures. As of now, could he give a figure for how many repossession cases are with lawyers?
On the write-down for SMEs, how many are there, for how much and does the same criteria not apply for residential mortgage debt? Those are my questions. I also wished to ask about the Mercer report.
Ciarán Lynch (Cork South Central, Labour)
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No, there is no more time for questions.
Shane Ross (Dublin South, Independent)
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I will be very quick.
Paul Coghlan (Fine Gael)
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I have to think of who went before me.
Ciarán Lynch (Cork South Central, Labour)
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Members can organise their own meeting.
Ciarán Lynch (Cork South Central, Labour)
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Mr. Boucher should be very brief.
Mr. Richie Boucher:
In response to the question on the Mercer report, our staff costs, as set out in our accounts, are down 10% on the first half of 2012 and 8% on the second half of 2012.
With regard to the Government's ownership of an equity stake in Bank of Ireland, that is not something to which I can speak. The fact that the taxpayer is in a profit over its investment in Bank of Ireland is obviously important to us. It is important to the taxpayer, but that is a matter for the Minister and the National Pensions Reserve Fund so I cannot speak to that.
With regard to the civil bills-----
Paul Coghlan (Fine Gael)
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Were 224 civil bills issued already?
Paul Coghlan (Fine Gael)
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It was about SMEs - how many write-downs, for how much and whether the same criteria are applied to mortgage debt.
Mr. Richie Boucher:
We are broadly following the same criteria. With SMEs there is sometimes more complexity involved. One can have other banks involved and there is a range of other revenues and income streams. What I disclosed relates to defaulted loans of €2.9 billion. We have a range of outcomes. We are moving through them. We have another 20% of offers as of this morning and we expect to have 90%.
Ciarán Lynch (Cork South Central, Labour)
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I will have to ask Mr. Boucher to conclude. I call Deputy Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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The bank is trying to play the committee for fools. That is simply not acceptable. The witnesses mentioned that they had listened to some of the transcripts from yesterday. I am sure other members of the bank listened. The Chairman made very clear what we wanted. The figures have not been provided. The witnesses have given a very good presentation and I commend them on it. I also commend the bank on some of the achievements it has made on the markets and the loan-to-deposit ratio. There are a lot of positives about which we could talk but the purpose of the committee meeting is to focus on mortgage arrears. The bank has provided us with a lot of figures but the document with which we have not been provided relates to the other figure. The bank is trying to play us as fools and to tell us that what is provided is what the committee has sought.
I will go into the detail of what we have and what information has been provided orally to date. The first point relates to table 15, which the bank says is what is in place until the end of quarter 2 in June 2013. Is it correct that they are forbearance measures which could have arisen as far back as 2008?
Pearse Doherty (Donegal South West, Sinn Fein)
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Some of these measures such as full interest, for example, could have been measures the bank has agreed with the customers in 2008, 2009, 2011, 2012 and 2013 – over a period of five years. The Central Bank and the Government have asked about offers for accounts that were in arrears of 90 days or more as of this year. To make it clear to the witnesses, that is why the figures do not correlate in any shape or form with the information the committee wants.
The Government and the Central Bank have asked the banks to do certain things and have said they will impose penalties in terms of the banks' provisions if they do not comply with the 20% target. They are talking about long-term solutions and long-term offers that had to be provided up to 20% by the end of quarter 1. It was mentioned that in quarter 2, 6,267 offers were made. Are those figures correct for quarter 2?
Pearse Doherty (Donegal South West, Sinn Fein)
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Am I correct in saying that at the end of March, 11,774 owner-occupier customers with Bank of Ireland were in arrears of 90 days or more?
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, so that is how many were in arrears at that point in time. Between that time and the end of June, 6,267 offers were made, of which 3,103 were legal.
Pearse Doherty (Donegal South West, Sinn Fein)
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Some processes started earlier but in June there were 6,267, which the bank claims is 53%. Half of all of the long-term solutions being put forward by the bank could potentially lead to repossession. Legal letters were sent that threaten repossession.
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Mason does not believe that they will result in repossession but they have the potential to result in it. They are legal letters that threaten repossession.
Pearse Doherty (Donegal South West, Sinn Fein)
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For clarity, half of the solutions offered by Bank of Ireland at this point in time, because of non-engagement and other reasons, are legal letters potentially threatening repossession.
Mr. Richie Boucher:
We do not regard a legal process as a solution. We have requirements to restructure our mortgages, to identify end-state solutions. What we try to do is say “Yes” in accordance with the Central Bank. What counts can be where a legal process commences but in Bank of Ireland what we focus on is how many restructures we can do. We do not believe that a legal process is something that we would like to do. I am not treating the committee in the way Deputy Doherty described. I am trying to give as much information as I possibly can to give colour behind the figures.
Pearse Doherty (Donegal South West, Sinn Fein)
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I completely disagree. I will move on. In regard to the restructuring, Mr. Boucher mentioned that of the 3,164 cases – again, he has not given us the figures for the quarter – that have been restructured, offered a restructuring or have been resolved between the end of quarter 1 and quarter 2, the type of restructuring that has been offered or is in place is similar to the trend that is in place in table 15.
Pearse Doherty (Donegal South West, Sinn Fein)
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To the stock. If we look at the trend in what is in place in table 15, the majority are interest-only mortgages for a short duration and also interest with a reduced capital. Mr. Boucher mentioned that none of them involve a reduction in interest across the entire period of the loan. They are short-term solutions. It is my understanding that the Central Bank will not accept interest-only as a long-term solution, in particular not of the magnitude presented. If Mr. Boucher could suggest that interest-only would be a long-term solution and there is a genuine belief by the bank that for some reason the customer would be able to pay interest and capital in two years or three years’ time, it would be seen as a long-term solution, but to rely on more than a third of the solutions as interest-only would not be accepted by the Central Bank. That is the position based on the information I have received.
I am not sure whether Mr. Boucher followed the transcripts yesterday but when the CEO of AIB, Mr. David Duffy, presented to the committee on the breakdown of its offers, he did not include interest-only because he mentioned that the Central Bank would not accept that as a long-term solution.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, please.
Mr. Stephen Mason:
Just to be clear, what we are talking about is when we have gone through a process with a customer. The processes are detailed and involve sitting down with customers. We have completed standard financial statements, SFSs. The documents are very comprehensive. A banker has spent some time with the customer going through the process and we have a full understanding of the customer’s circumstances and we put what we believe is a sustainable solution in place for the customer that will work over the long term. Some customers have issues that are short term and we solve them.
Some customers, as the Deputy suggests, would be included in our long-term resolutions where they are able to pay interest only for a period, for example, somebody who has children in college. One can clearly see their difficulty. The difficulty is that for two or three years an arrangement is made with that customer that they would make a reduced repayment for that period and afterwards step back up the capital and interest payments when the issue that is causing the difficulty for the next couple of years has been resolved. What we try to do is accommodate our solutions to the circumstances of individual people.
11:55 am
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Mason will accept that the solutions the bank has put in place in the past, including the short-term solutions such as interest only, have failed. Even today across the financial institutions, one in four restructurings are failing. In the past almost half of all restructurings were failing. The point is that the Central Bank no longer wants short-term restructurings; it wants long-term restructuring. If, for example, one third of these offers are interest only, is Mr. Mason convinced that the Central Bank will accept them as long-term restructuring as defined by it?
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Boucher is comfortable.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes.
Mr. Richie Boucher:
However, if I say that at the end of December we had 4,780 customers moved out of restructures, as we set out on the slides, in an effort to be helpful, in the vast majority of those cases the customer is now in a position where they are on an acceptable repayment basis that they can live with and we can live with. They have moved out of restructures.
The Bank of Ireland restructures do work. We look at the profile of our book and where we are in this process. We are not perfect. We are continuing to learn. We are continuing to do it. We get significant advice and help from third parties. Mr. Mason is continuing to learn but if we come to the proof of the pudding, are our restructures sticking and as people exit from the restructuring? If we look at where we are in Bank of Ireland, and I suspect for the industry as a whole, I cannot absolutely predict how many of those restructures there will be because it will come over time.
In our accounts at the end of June, the Central Bank required us to remove assumptions we had made on cure rates so we took a charge, through our profit and loss, for a change to our provision stock. That has already happened. We believe that cure rates will come in line with our expectations but we have taken provisional charge against that already.
Pearse Doherty (Donegal South West, Sinn Fein)
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I understand that. The figures the committee would like are the figures Mr. Mason presented to the Central Bank at the end of quarter two.
Regarding some other issues, I want to add, in terms of the split mortgage, that the products the bank has on split mortgages are wrong. We had AIB representatives before the committee yesterday. They are modifying their split mortgage in terms of a lifetime interest in the mortgage but they do not charge interest and Bank of Ireland should seriously look at that and come back to the committee and customers on it.
I have some other questions. In regard to the question of strategic defaulters raised by Deputy McGrath, and I know Bank of Ireland does not have a strategic default definition, AIB has defined strategic defaulters as those who can pay their mortgage after the bank has looked at their financial statements that they have submitted to the bank and after the bank has deducted reasonable living expenditures, which are the insolvency service's living expenditure guideline plus 20%. It was interesting that when Mr. Boucher provided figures in regard to the analysis of July's 1,487 financial statements from customers, he said that 149 of them were deemed to be able to pay. Of AIB's analysis of the financial statements, 20% were deemed to be able to pay. For Bank of Ireland, 10% were deemed to be able to pay. What is the underlying formula Bank of Ireland is using? What are the living expenditures? Is it based on the insolvency service's guideline and why is it at half the level of AIB?
Mr. Richie Boucher:
I cannot speak as to why we are relative. The statistics, based on public information, as our arrears profile, as our relative defaults, when assets were transferred to NAMA, may talk to original underwriting - we have made a lot of mistakes - and also the work that we have been trying to do, and continue to do, over the last few months - that may be some of the explanation, but I will ask Mr. Mason to deal with the question on the guidelines, etc.
Mr. Stephen Mason:
This is something we have been doing for a couple of years now so we have a lot of customer information in terms of what is reasonable expenditure. We did look originally at what the Money Advice & Budgeting Service, MABS, was doing. We looked originally at the research done by Trinity College and the Vincentian Partnership. We have looked at what the Insolvency Service of Ireland, ISI, has come out with as well, and we consulted the ISI. What we have are guidelines but what we need to do is sit down and understand an individual customer's circumstances. Some customers, for example, will have medical expenses that others will not have. Some customers will be travelling further to work than other customers. All that needs to be taken into account and it is very hard to say that one customer is exactly the same as another. The detailed process we go through takes that into account. We do have guidelines. We do not apply them too strictly because what we want to put in place are forbearance structures that will work for customers.
Pearse Doherty (Donegal South West, Sinn Fein)
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This made the headlines yesterday - CEO of AIB said 20% were strategic defaulters under his definition. I do not want to use the term "strategic defaulters" but what he basically said is that when the financial statements are analysed, they believe that 20% can pay their mortgages. Bank of Ireland's figure for that, after analysing the statement, is 10%. Would that be correct?
Mr. Richie Boucher:
In fairness to the chief executive of AIB, and again I did not hear it, I do not have the analysis. What we have just given the Deputy is the owner-occupier statistics. If the Deputy would give me one second, and I am sorry to cut into the time, Chairman, I can give him the buy-to-let because-----
Pearse Doherty (Donegal South West, Sinn Fein)
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I would say most would be made up of-----
Mr. Richie Boucher:
Of the total arrears for buy-to-let completed during the month of July, there were 186 forbearance assessments in the month, 129 where we were able to offer an arrangement. In the case of 12 of those, they were deemed affordable. Again, to help, I will give the year to date figure for buy-to-let. The forbearance assessments in the year to date for buy-to-let were 1,950 based on the receipt of information from the customers. Forbearance assessments offered were 1,456. That is the year to date to the end of July. Forbearance requests declined as affordable were 149.
Pearse Doherty (Donegal South West, Sinn Fein)
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I am running out of time. I appreciate that. The last two points require a quick "yes" or "no" answer. The bank has residents in Priory Hall. AIB said it got out of the process. It is engaging with the residents directly to get a home for those individuals who have accounts. I ask Mr. Boucher to make a statement to this committee on Priory Hall. Also, can he inform-----
Ciarán Lynch (Cork South Central, Labour)
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The Deputy will not have enough time to get into the Priory Hall issue.
Pearse Doherty (Donegal South West, Sinn Fein)
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Okay. At some stage somebody else might pick that up. Regarding the Mercer report, Mr. Boucher has answered the question. On 23 April, the Taoiseach said he expected senior executives to take substantial reductions. I have a confidential note here from the Minister for Finance's advisers on Mr. Boucher's own remuneration that was voted upon at the AGM, which I got from a freedom of information request. It states: "I think it would be inappropriate for us to endorse the director's remuneration at this time." How many of the 1,200 staff at Bank of Ireland who have packages above €100,000 took a base reduction in their salary as a result of the Mercer report? Can Mr. Boucher inform the committee if he and his directors lived up to the Taoiseach's expectation that they would take a substantial reduction in their pay as a result of the Mercer report? I believe he expected the response within two weeks after that.
Ciarán Lynch (Cork South Central, Labour)
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I will put the Priory Hall question into the next round of questioning because I know it will come up in answer to those issues. In fairness the Deputy has asked three questions which will take him into 20 minutes if that is the case. Mr. Boucher might respond very briefly.
Ciarán Lynch (Cork South Central, Labour)
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We will deal with Priory Hall in the next round of questions. Mr. Boucher might deal with the ones on the Mercer report and the Taoiseach's statement.
Mr. Richie Boucher:
In terms of the Mercer report, the specific request that the Minister, as a shareholder, made to us was to identify the staff cost savings that would arise. I have mentioned that. Therefore, our own target conformed with the Minister's target.
To answer the Deputy's other question, I am not aware of specific pay cuts having been taken. I am aware, and as we have advised, that there have been significant changes to pension benefits. We have a deficit at the moment. That deficit is impacting on the viability of the schemes and our ability to pay future benefits, and we are engaging with staff representatives. Any changes to pension benefits will impact on any member of the pension scheme on a defined benefit scheme including, for example, myself.
Moreover, the proportion of any benefit changes obviously will be different, depending on that person. I cannot advise as to what are the solutions because we are in a process. We are going before the Labour Relations Commission today.
12:05 pm
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I welcome the witnesses. I will focus on three elements, namely, the performing loan book, Priory Hall and Bank of Ireland's branch consolidation or opening of new branches. In a point I also raised yesterday regarding the performing loan book, I note Bank of Ireland's statement that 89% of loans are performing. In a way, that tells a lie because many people in that category are struggling each month to pay their mortgage. As I stated yesterday, they probably are feeding the mortgage before feeding their children. Do the witnesses have to hand analysis as to how anyone in that performing book may dip into arrears or be part of Bank of Ireland's arrears problem in the coming years? In particular, I am thinking about variable interest rates and note Bank of Ireland increased its variable interest rate by 0.5% last year. There is a feeling among mortgage holders that those who are on variable interest rates are being played off against those who are on tracker rates. What are Bank of Ireland's projections over perhaps five years, as to how it will protect those people or ensure those who are "performing" do not dip into arrears? While the bank may consider them to be performing, many of them are struggling.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I will come back to the other ones.
Mr. Richie Boucher:
Okay. It is impossible for us to forecast in the future. However, as I mentioned, as part of our assessment of our capital requirements we look at each of our portfolios under the range of interest rate scenarios we see, under unemployment scenarios we see and income scenarios we see. That is the consensus and then we look at the stress scenarios. The stress scenarios obviously are significantly worse. One of the particular stress scenarios at which we look is continued recession in Ireland and euro interest rates increasing. That obviously is a stress scenario. What we look at are the customers who are going into default and so, as we mentioned, in the current environment, reflecting work we are doing, a general, gradual and bumpy improvement in the economy and, in particular, the increasing number of people in employment, our early arrears are falling. Should interest rates spike to whatever level, then the number of customers who will move into arrears inevitably will increase. Should the economy not perform in accordance with expectations, the arrears will increase. It is impossible to give an exact figure but we have looked at our capital on both of those scenarios.
With regard to Priory Hall, is there something that Mr. Stephen Mason-----
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I have not yet asked a question on Priory Hall. However, on the variable interest rate, yesterday AIB stated it did not envisage any increase in the next 12 months. Can Bank of Ireland also give that assurance?
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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Yes, on variable interest rates.
Mr. Richie Boucher:
We review our pricing of our products on an ongoing basis. I cannot give a commitment as to where we are. We did 40% of the mortgages in the market in the first half of this year. We must ensure that our products are competitive but I cannot say that under no circumstances would our rates change.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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Members had a reasonably constructive conversation about Priory Hall with AIB yesterday. I made the point yesterday that while this is not saying much, its residents state that AIB is the better of the banks with which to deal. AIB spoke about positive solutions, new homes and dealing with each individual resident on its books in the next number of weeks. What is Bank of Ireland's position in respect of Priory Hall?
Mr. Richie Boucher:
I believe we have eight owner-occupier accounts relating to Priory Hall property. First, those customers are not part of the normal resolution process and we recognise the particular circumstances. In this regard, while we are obliged under the code of conduct on mortgage arrears, CCMA, to send specific letters to those customers, they are not in a resolution or restructuring process. I think six or seven of the eight have advised us that they want a third party to represent them and that process is ongoing.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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Bank of Ireland has made contact with these eight account holders. How frequently has it made contact with them?
Mr. Stephen Mason:
We have made contact with them in the last number of weeks. As everyone knows, we do not necessarily need to be ringing the customers to find out what is happening with Priory Hall. It is something we all follow closely. The last thing we wish to be doing is getting on to these customers, who find themselves in this unfortunate position, too often. As Mr. Boucher stated, they are not part of our standard collections process. However, we stay in touch with them and have been in touch with them in recent weeks.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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Were Bank of Ireland to contact them with the type of language used by AIB yesterday, they might be more willing to talk to the bank because AIB is now talking about positive solutions and new homes in the next number of weeks.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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Which will lead to what?
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I refer to the resolution of what is a particularly unusual situation.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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With respect, considering what members were told yesterday and the "generosity" then on offer regarding this particular situation, yesterday they were given a sense of hope, vision and understanding as to how quickly and positively this situation can be resolved.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I hope Bank of Ireland does. However, if I may finish the question, I am not getting any sense from Mr. Boucher that Bank of Ireland has any solution, positive or negative, in mind. Mr. Boucher is just talking about a process and while everyone knows there is a process, I wish to ascertain what Bank of Ireland considers to be a reasonable outcome for these families who obviously are under considerable stress, considering that the bank still is accumulating interest on the loans they have with it.
Mr. Richie Boucher:
We have stated they have expressed their desire to have a third party representative and that engagement is coming in place. The third party has been in touch with us and has stated there would be an approach to us in the next couple of weeks. We also have a dependency on the third party.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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Mr. Boucher already stated that. However, I wish to know to what is Bank of Ireland open.
Mr. Richie Boucher:
We are open to a range of solutions. I cannot pick on one particular solution. We are open to a range of solutions, depending on the individual circumstances of the customers. As for the particular aspects of the Priory Hall situation, I do not know what AIB offered or stated yesterday. We will look at what other people do as well but I do not know what its representatives stated they would do.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I am a little disappointed with the vagueness of Mr. Boucher's responses. I do not get any sense of imagination as to how he thinks he can give a sense of hope, considering what the joint committee heard yesterday.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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While not much time remains to me, my last point pertains to branches.
Ciarán Lynch (Cork South Central, Labour)
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The Deputy has five minutes.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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The witnesses' bank, albeit not the gentlemen who are present in particular, has caused an incredible amount of pain to this country and to people living in this country, as have other banks. This era in our history will be spoken of for ten, 20, 30,100 or 200 years to come. I refer to the former site of the Irish Parliament at College Green, which is currently in the bank's hands. Given recent events within Bank of Ireland, do the witnesses not think it would be a reasonable suggestion for the bank to do what the Government has suggested should be done and as a gesture to the Irish people, give that site back to them?
Mr. Richie Boucher:
We are not aware of any such request from the Government. However, I should also point out that as we have disclosed, the investment the State has made in Bank of Ireland is €4.8 billion. We repay investment in our businesses in support for the economy in hard cash of €3.9 billion. As for the taxpayer, we are very grateful for that support and throughout my four years, my colleagues have constantly heard me stating we must reduce the risk to the taxpayer and must reward and repay in cash. That is the most tangible way we can do that. That is the most tangible demonstration. If we look at our particular assets and the need for those assets to contribute to the bank in the future, as well as our ability to continue to reward and repay the taxpayer, to use the specific example, we need those assets. Our College Green branch is our largest branch in the country.
It is a key branch, in particular, for Trinity College. It is our most profitable branch. It is also a cash centre. Therefore, it is a commercial asset. We are a privately-owned company which is repaying the taxpayer.
12:15 pm
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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In fairness, the Minister and others have suggested in the past that considering its historical significance, it would be a symbolic gesture for that to be transferred into the hands of the State. Mr. Boucher's gratitude is nice, but pretty meaningless. In terms of a physical transfer of an iconic building, would that be a lasting gesture on the bank's behalf to the Irish people that would be seen as something that would be welcome, and one could look to the future with confidence?
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I meant-----
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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I said Mr. Boucher's gratitude was meaningless.
Mr. Richie Boucher:
I think it is, if we restructure the bank, we raise private capital, we reduce our loan-to-deposit ratios, we come off ELG, we reduce our cost base, we are lending 50% of the SME lending in this market and 40% of the mortgages and the taxpayers' investment in Bank of Ireland is in profit. Those are tangible, material results.
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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In terms of the tangible material of the College Green bank-----
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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So it is a "No".
Aodhán Ó Ríordáin (Dublin North Central, Labour)
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In summary, I am not getting a significant amount of comfort from Mr. Boucher's strategic plan for those 89% in performing loans and some of those within that group of customers who may be in distress in the coming years. For those Priory Hall residents, although there are only eight, I am getting very little positivity. In terms of the gesture that might be given in terms of the Irish Parliament building in College Green, I am getting nothing at all. However, I appreciate Mr. Boucher's responding to my question.
Ciarán Lynch (Cork South Central, Labour)
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Yes, briefly.
Mr. Stephen Mason:
We consistently encourage customers who are in financial difficulty, not those who are necessarily in arrears or in default, but those who are finding difficulty in making their mortgage repayments, to come and talk to us. We have done a significant amount of television advertising asking customers to do that. We have put it on bank statements when we send them out to customers. Forbearance is not just for customers who are in arrears. We are asking customers to talk to us before they come into arrears if they have significant financial difficulties, and if it is appropriate, we will restructure their mortgages. That is what we have been doing over the past while.
Ciarán Lynch (Cork South Central, Labour)
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I thank Mr. Mason. Deputies Boyd Barrett and Donnelly are sharing their time. Deputy Boyd Barrett is first.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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No, it is Deputy Donnelly first.
Ciarán Lynch (Cork South Central, Labour)
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I call Deputy Donnelly.
Stephen Donnelly (Wicklow, Independent)
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I welcome Mr. Boucher and his team today. I want to recognise the ongoing increase in the performance of Bank of Ireland across a range of metrics. That is to be recognised.
For me and members of the committee, as public representatives, the concern is that some of that performance is coming at the cost of customers who were unfortunate to borrow too much money from Bank of Ireland during the bubble. The arrears targets is really what this is about. My concern is that the significant arrears at Bank of Ireland and various other lenders is the symptom. It is not the problem. The problem is there is a significant number of households - be they in arrears or, as was mentioned earlier, struggling to stay out of arrears - who owe too much money relative to their income. I do not believe that offering customers these types of solutions will solve the problem. I believe that reducing their debt levels relative to their household income will solve the problem.
I will go through the figures Mr. Boucher presented to the committee. Of the 12,700 restructures in place, approximately 3,600, or 30%, are interest only. Would Mr. Boucher accept that moving customers to interest only ultimately increases the total amount paid by a borrower to the bank?
Stephen Donnelly (Wicklow, Independent)
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The total amount paid, if one is on capital and interest, one goes on interest only for two years and one then goes back to capital and interest-----
Stephen Donnelly (Wicklow, Independent)
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Yes.
Stephen Donnelly (Wicklow, Independent)
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I do not need to go through that. I merely want to know if Mr. Boucher agrees that putting someone on interest only for a period and then moving him or her back where he or she can pay out the capital and interest over time, increases the total payments to the bank over the period of that mortgage.
Stephen Donnelly (Wicklow, Independent)
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Fine, I thank Mr. Boucher.
Stephen Donnelly (Wicklow, Independent)
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I thank Mr. Boucher.
Stephen Donnelly (Wicklow, Independent)
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I have only seven minutes.
Stephen Donnelly (Wicklow, Independent)
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I understand. I am going to move on.
There is another 20% which are on reduced payment. Obviously, these are temporary as well. In this case, the amount of capital being paid - let us say, over an 18-month period - is reduced and the full interest is paid. Would Mr. Boucher agree that, in this case as well, the total amount paid by a household to the bank over the term of the full mortgage will be higher than the original mortgage envisaged?
Stephen Donnelly (Wicklow, Independent)
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I thank Mr. Boucher.
With term extension, the customers pay capital and interest, but they pay the capital over a longer period of time. These account for 30% of the restructures - we are now up to 80% of all restructures. Would Mr. Boucher agree that term extensions also increase the total amount that a household will pay relative to what was expected when the mortgage was taken out?
Stephen Donnelly (Wicklow, Independent)
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Yes.
Stephen Donnelly (Wicklow, Independent)
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I appreciate that. There is another 10% - this is now 90% of all restructures - which involve recapitalisation of arrears. Would Mr. Boucher agree that when that is fully paid down, the total amount paid by the household to the bank is higher than the total amount envisaged when the mortgage was taken out.
Stephen Donnelly (Wicklow, Independent)
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Unless there is a write down.
Stephen Donnelly (Wicklow, Independent)
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I thank Mr. Boucher. At least 90% of restructures increase the total payments from the household to the bank. In terms of sustainability and addressing the fact that households have too much debt and too many payments, at least 90% of Bank of Ireland's restructures increase the level of indebtedness of these households. For the 10% who are left, we do not have the full breakdown.
On the split mortgage, is the interest charged on the shelved portion a market interest the same as the interest paid on the non-shelved portion?
Stephen Donnelly (Wicklow, Independent)
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Therefore, in fact, that is not a split mortgage at all. The bank is taking a mortgage and splitting it in half. Mr. Boucher is saying the customer is paying the full interest at market rate on the full capital amount as to Deputy Michael McGrath's question and there is no reduction in the amount being paid there either.
Does the bank engage in voluntary surrenders?
Stephen Donnelly (Wicklow, Independent)
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Sure, but the household ends up paying more money to the bank.
Stephen Donnelly (Wicklow, Independent)
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Does the bank engage in voluntary surrenders?
Stephen Donnelly (Wicklow, Independent)
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Does the bank pick up the difference between the amount owed and the sale value, or does the borrower pick that up?
Stephen Donnelly (Wicklow, Independent)
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At AIB, for Mr. Boucher's information, it is the bank. AIB also charges 0% on the split, which makes it something that lowers the total amount to the bank.
Here is my problem. Mr. Boucher stated earlier that Bank of Ireland made many mistakes and these restructured mortgages are those mistakes. We are seeing them and, obviously, there is much more. However, it turns out that in at least 90% of cases - I will bet Mr. Boucher it is 99% - the bank will profit from those mistakes because all of these households will not only repay the bank all of these loans, much of which, Mr. Boucher stated, were mistakes - obviously, the borrower made a mistake in borrowing it but, by God, the bank made a mistake in some of the lending-----
Mr. Richie Boucher:
I beg Deputy Donnelly's pardon. I have actually just said that the forbearance costs the bank money. It costs the bank money because we have to borrow the money. If we are not getting amortisation in accordance with our expectations, we have to borrow the money in the market or pay a deposit. Therefore, it does cost us money. Every forbearance costs us money. That is why it is disclosed in our accounts. It is an important issue for investors.
Stephen Donnelly (Wicklow, Independent)
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In some cases it may cost the bank more money but in other cases it would cost you less money, for example, on interest only. If the interest the bank is getting from the borrower is less than the amount that the bank can borrow, for example, from the ECB, that interest-only loan is not costing the bank money and the bank is profiting from it. The total profit, the total net present value of those mortgages to the bank, increases.
Mr. Richie Boucher:
If I could answer that question, to be helpful I said that the vast majority of our arrears customers are on a tracker.
I said that the average all-in cost of a tracker basis 155 points. In our accounts at the end of June, we said that the total cost of money to the bank was 161 basis points, so they are costing us money. Tracker mortgages cost us money.
12:25 pm
Stephen Donnelly (Wicklow, Independent)
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I believe the approach the Government is taking with the arrears targets is wrong but it is doing it in good faith and is trying to deal with the fact that there is too much unsustainable household debt. The solutions offered by Bank of Ireland in at least 90% of the cases, and I bet there are more, actually increase the total amount those households will end up paying the bank. If I was in Mr. Boucher's position or was a shareholder in the bank, I would think that is fine. I accept that this is the sensible thing to do for Bank of Ireland. However, for us as public representatives, allowing Bank of Ireland to increase the total amount that these households pay it is wrong.
I know I am running out of time-----
Ciarán Lynch (Cork South Central, Labour)
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The Deputy is actually out of time.
Stephen Donnelly (Wicklow, Independent)
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The key to this is sustainability. One of the questions which has not been asked is how Bank of Ireland defines sustainability. For example, I will quickly give-----
Ciarán Lynch (Cork South Central, Labour)
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I will give the Deputy ten seconds and one question.
Stephen Donnelly (Wicklow, Independent)
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How does the bank define sustainability when it is deciding what restructured offers to make to borrowers?
Mr. Stephen Mason:
Again, we are back to the process whereby we go through a detailed process with customers where we find out what they can afford and match that affordability to the sustainable options we can offer them. If that matches, then we have a sustainable solution, but we do not just do it on the basis of conversations. We do it on a rigorous assessment of the customer's income and outgoings and then match them to what we can offer.
Stephen Donnelly (Wicklow, Independent)
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How does the bank define "afford"?
Stephen Donnelly (Wicklow, Independent)
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Can we see those guidelines?
Ciarán Lynch (Cork South Central, Labour)
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If members wish to split their time, they must split their time.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank Mr. Boucher and his team for coming in. I agree with him as opposed to Deputy Ó Ríordáin that we do not really need gestures. We need real action from the bank not just in terms of hard cash, although that is one side of it. The major issue is whether we can get the tens or hundreds of thousands of people in the country as a whole and the tens of thousands with whom Bank of Ireland is dealing who are in dire distress and unable or barely able to pay their mortgages out of this hole and what Bank of Ireland is doing to help them out of a hole it helped dig for them. What I do not get from Bank of Ireland in particular or any of the banks is any sense that it has a responsibility to take a hit for what it did to put those people into a hole. What Mr. Boucher is really describing is that Bank of Ireland is seeking to squeeze every single cent it can out of every single one of its mortgage account holders. The bank will chase them for every last cent, even if they are forced to give the house back to it in a so-called voluntary surrender. The bank will hound them for every cent regardless of whether they do a so-called restructure or hand back their home. Is there any talk of write-down, which is what the bank should be doing to acknowledge its role in creating this mess in the first place?
Mr. Richie Boucher:
Debt forgiveness is not a policy of the bank. We have a responsibility to a wide range of stakeholders. Nine out of ten of our owner-occupiers often struggle to meet their mortgages, so we must have faith and they must have faith in us that they will be treated fairly. We work extremely hard on restructuring mortgages where we can and in particular dealing with customers' cashflow issues. We believe the solutions we offer to customers are solutions that keep them in their family homes wherever possible. That costs the bank money.
Sometimes we can look at these things in one particular way. My job is to look at the wider spectrum and how each thing influences it. The bank must be profitable. If it is not profitable, we cannot lend the money into the economy that it needs. That is a commercial and strategic objective and a fact of life. If the €3.9 billion in cash that has come from Bank of Ireland was not provided, tax rates would need to be higher and services or State investment would need to be lower. The money must come from somewhere. It is a zero sum game. A restructure or forgiveness to someone costs someone else money and it comes to the heart of the bank's capital, objectives and repayment to the taxpayer.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Mr. Duffy revealed yesterday that whereas AIB had written off around €475 million, only €38 million of that was write-offs for residential mortgages and the rest was for the buy-to-let sector. In other words, the developers who were most guilty of getting us into this mess were getting write-offs while for the most part, ordinary home owners were not getting any forgiveness. What is the comparable situation in Bank of Ireland? Is it giving debt write-down or forgiveness to the developers on its books?
Mr. Richie Boucher:
No. We looked to maximise the recoveries, so in answer to a question from Deputy Harris - my apologies if it is the wrong Deputy - I set out the accounting write-offs. The accounting write-off occurs after we have realised our collateral and maximised all other forms of recovery. Very often, that involves insolvency. In some instances with corporates, we will do a debt for equity swap. We do not write that off but we provide upfront for that.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Does Mr. Boucher not think it is unfair for the majority of ordinary mortgage holders under these restructuring arrangements and certainly under the forbearance, as Deputy Donnelly just outlined, which is not a long-term restructure and is just digging people further into a hole of debt? Many of the banks seem to be just playing for time in situations that are further digging people into a hole and possibly hoping the economy will bounce back or the property situation will improve. Does Mr. Boucher not think that it is also extremely damaging for the economy? Under what he and all the banks are describing, there might be up to 200,000 families who will be pinned to the wall for 20 or 30 years.
Ciarán Lynch (Cork South Central, Labour)
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I will have to push the Deputy to a question as he is over time.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Does Mr. Boucher not think that Bank of Ireland must take some write-down? Even if, as he says, it cannot afford a full write-down of all the negative equity and arrears, does he not think it must talk about some level of write-down where it acknowledges its responsibility and gets people out of this hole both for their sake, for the sake of the economy and for the sake of fairness?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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At what cost for many of them?
Mr. Richie Boucher:
That is a fact. The fact is that if Bank of Ireland is not profitable, it cannot lend into the economy and give a return and repayments to the taxpayer. Those are the broad parameters. Should we spend the time concentrating on a single issue without looking at the consequences broadly across the responsibilities that I, my colleagues and our board have to consider all our stakeholders, including private sector shareholders who provided capital and the customers who are meeting their repayments, often in difficult circumstances, and to work with challenged customers? I do not and cannot agree with the Deputy that our restructures are not working.
They are sustainable restructures which take into consideration the cashflow characteristics of the customers, and we want to resolve those with customers. In July, we provided a solution to 80% customers who had engaged with us and provided an SFS, standard financial statement. It may not be the solution some people might like, but to us and to that customer, who has taken third party advice, that is a sustainable solution and, in particular, that customer stays in the family home.
12:35 pm
Ciarán Lynch (Cork South Central, Labour)
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We are running over time. This concludes the round of the principal lead questioners. We move on to the second round of questioners. We had hoped to conclude at 1 p.m., but that will hot happen so I propose we try to finish between 1.20 p.m. and 1.30 p.m. We must get Ulster Bank in this afternoon and we can push the start time of that discussion to 2.20 p.m. or 2.30 p.m. depending on when we get out of here as people need to eat and prepare for this afternoon. I propose that the second round of questions be reduced to five minutes for the priority people, who are committee members, and non-members will be allocated two minutes at the end of that.
Heather Humphreys (Cavan-Monaghan, Fine Gael)
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I thank Mr. Boucher and his team for coming into the committee. From earlier conversations, there seem to be different interpretations of various Central Bank directives among the banks. How happy is Mr. Boucher that his directives are being interpreted as he intended when his staff interface with distressed borrowers? Do they have the discretion to show compassion in difficult cases, bearing in mind that they may be constrained by performance targets or rigid processes? How would Mr. Boucher describe the ethos or culture of his organisation regarding distressed borrowers and mortgage holders?
Mr. Richie Boucher:
Our culture and ethos is to work with our customers. Moving towards a repossession is, from our perspective, a fail. We need the customer to engage. Where the customer is engaged, we can help, as I mentioned, in 80% of cases. If the customer does not engage, for whatever unknown reason, the customer is narrowing down the options. A repossession is a cost to the bank which we always seek to avoid, but we lend against collateral and we must, if necessary in extreme cases, be able to realise our collateral.
We monitor the performance of our front-line staff on an ongoing basis through the recording of their conversations. It is a very important part of the process that we are professional and empathetic with the customer. We get advice from independent third parties, for example UK Asset Resolution, UKAR, the UK Government-owned agency that deals with the mortgage banks it took over, such as Bradford & Bingley. They examine the standards we operate. The Central Bank sends in third parties or its own staff to sit beside our colleagues who are dealing with very difficult situations, and they monitor their performances. We have checks and balances to ensure that happens.
Heather Humphreys (Cavan-Monaghan, Fine Gael)
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I thank Mr. Boucher for that. Would he comment on the fact that Bank of Ireland is advising its customers not to pay their credit union loans? That has come back to me strongly. Does he not feel that an holistic approach to debt management produces better results in the long term rather than one financial institution advising its customers not to pay another?
Mr. Richie Boucher:
Our priority has been the family home. In the first instance Bank of Ireland led, with the other banks, a protocol of significant restructuring and repayment of unsecured loans from one bank to another, for example, if a person has an unsecured loan or a credit card with Bank of Ireland and a mortgage with AIB. An holistic approach is absolutely what we seek. We cannot restructure in a situation where other creditors are making no gesture towards the customer and everyone. We are strong advocates of an holistic approach to dealing with debt. The customers' cashflows are what they are and cannot be adjusted or manoeuvred. The question is how those cashflows are used towards repayment.
Even though strictly speaking, under normal credit criteria in a normal situation, unsecured creditors take all the hit, Bank of Ireland has advocated a protocol which ensures as much clarity as possible for customers and debt service agencies, etc. as to what is tolerable. I cannot say we will restructure a mortgage where there is no gesture on the part of another unsecured creditor, and it would be inappropriate for me to do so. At the same time, I do not expect an unsecured creditor, on a voluntary basis, to get nothing, so there is a compromise but it must reflect the family home, the priorities and the usage of the customers' cashflows.
Heather Humphreys (Cavan-Monaghan, Fine Gael)
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I accept that, but there have been instances where Bank of Ireland staff have specifically told customers not to pay their credit unions. I have heard that back on a number of occasions and it is concerning.
Heather Humphreys (Cavan-Monaghan, Fine Gael)
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What interest rate does Bank of Ireland charge on the warehoused part of the split mortgage?
Thomas Byrne (Fianna Fail)
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There has been a lot of fluff here this morning on all sides. We are here to talk about the arrears and the targets the Government set when the Minister for Finance announced this strategy on 13 March. Clearly, the strategy has failed. It is arguable that Bank of Ireland, in the little it has done, has gone beyond what the Government set out for it. It is time we, as the Legislature, took control of this and brought in legislation instead of just having the banks in here every so often, asking questions and then away with them, again and again. Let us not forget the banks that come before us and which are subject to the rules we are discussing today represent only approximately three quarters of the mortgage market. This is of no relevance to one quarter of the mortgage-holding public. They might as well switch off the television as the Oireachtas is doing nothing for them. It is time we took a grip of this situation.
When it was launched, the Government's scheme was widely welcomed by Government Deputies and criticised by the Opposition. We received criticism for criticising it but we have been proved right. The whole thing has been a failure. I hope this committee does not stop at these interviews as if we have done our job. We must take control of this, legislate for this situation and force the banks, through legislation, to put solutions in place. If effort is needed at international or European level to change capital rules to bring in debt-for-equity schemes, that has to happen and the Government should prioritise that.
Bank of Ireland did a nasty thing in the UK this year when it took tracker rates away from borrowers. It was a mean thing to do because people expected their tracker rates would last forever. Has Bank of Ireland examined this in Ireland and has it any plans to do that here? Can Mr. Boucher give me a categorical assurance it will not tamper with the tracker rates of borrowers in Ireland?
Thomas Byrne (Fianna Fail)
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If they were not on trackers, why did everyone but Bank of Ireland consider them to be on trackers?
Mr. Richie Boucher:
Because that reflected the contractual requirements. We went through a complete process of engagement with the Financial Services Authority, FSA, which is the UK equivalent of the Central Bank and regulatory authorities, both from a prudential and a customer side. The regulatory authorities recognised the pattern we had and allowed us to proceed.
That was a particular part of our mortgage book in the UK. They were not trackers. Some people may have described them as trackers; they were not trackers and could not have been trackers because we could not have done what we did after engagement with the FSA.
12:45 pm
Thomas Byrne (Fianna Fail)
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Were these borrowers not on trackers for almost a decade effectively?
Thomas Byrne (Fianna Fail)
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Mr. Boucher has not yet assured me that this will not happen in Ireland or that there is not similar small print in Irish tracker mortgages of which Bank of Ireland could avail.
Thomas Byrne (Fianna Fail)
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Can Mr. Boucher give me an assurance that there are no plans?
Thomas Byrne (Fianna Fail)
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Are all the contractual arrangements for people with tracker mortgages sufficiently strong to keep those trackers in place as far as Bank of Ireland is concerned?
Thomas Byrne (Fianna Fail)
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So there is no danger to Irish tracker mortgages from Bank of Ireland's perspective.
Thomas Byrne (Fianna Fail)
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Yes, I know. However, the bank observed the contract in England but there was small print in that contract about which people were not aware. Is there small print in Irish contracts that may be used by the bank?
Thomas Byrne (Fianna Fail)
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It is not going to happen.
While it is not the most important issue today, I seek clarification on the College Green branch. I had the perception that the Government, through the Minister for the Arts, Heritage and the Gaeltacht, Deputy Deenihan, had asked Bank of Ireland to hand it over. Mr. Boucher has said he has had no contact from the Government.
Thomas Byrne (Fianna Fail)
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Mr. Boucher said earlier there was no request from the Government.
Mr. Richie Boucher:
The Minister, Deputy Deenihan, contacted the bank and wanted to discuss it. I met the Minister and explained that it was a commercial asset. I explained the bank's procedures. I also confirmed that on a daily basis, despite it being our building, we provide guided tours going into the House of Lords and we make College Green - because it is an important building - available for public occasions.
Arthur Spring (Kerry North-West Limerick, Labour)
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I am in a position of Acting Chairman but I will ask my questions from here. I have five minutes.
Is Mr. Boucher aware of the Government's cap on salaries for people working in banks?
Arthur Spring (Kerry North-West Limerick, Labour)
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Is he aware of the Government's position?
Arthur Spring (Kerry North-West Limerick, Labour)
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I asked Mr. Boucher a question. Is he aware of the Government's cap?
Arthur Spring (Kerry North-West Limerick, Labour)
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Is Mr. Boucher in breach of that cap?
Arthur Spring (Kerry North-West Limerick, Labour)
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Mr. Boucher is in breach of the cap that was set by the Government. He would acknowledge that.
Arthur Spring (Kerry North-West Limerick, Labour)
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Is Mr. Boucher in breach of the cap that was set by the Government?
Arthur Spring (Kerry North-West Limerick, Labour)
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I did not ask about the contract. I am sorry.
Arthur Spring (Kerry North-West Limerick, Labour)
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I am asking if Mr. Boucher is in breach of the cap that was set. Who allowed that? Was it the shareholders or the Government?
Mr. Richie Boucher:
If we go back to the history, in 2009 I was appointed as chief executive in the bank. At the time of my appointment - the board appointed me - I had to have approval by the Central Bank of Ireland, and I had to have approval by the National Pensions Reserve Fund and the Minister for Finance at that time.
Arthur Spring (Kerry North-West Limerick, Labour)
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I thank Mr. Boucher. Did he get an increase in salary this year?
Arthur Spring (Kerry North-West Limerick, Labour)
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At the AGM, was there approval of an additional amount of funding for Mr. Boucher?
Mr. Richie Boucher:
Under my pension arrangements, which is an actuarial adjustment, my pension has not changed one iota. The actuarial adjustments and the cash that is provided can change depending on interest rates, depending on yields, etc. That can change from time to time. My pension has not changed one iota. I had a contract in 2009 which gave me certain pension rights. I voluntarily gave those up in 2010, when we were in the middle of a capitalisation programme. This became an issue and I voluntarily gave that up.
Arthur Spring (Kerry North-West Limerick, Labour)
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Does Mr. Boucher have any bonus arrangement in place with the current owners of the bank?
Arthur Spring (Kerry North-West Limerick, Labour)
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None.
Arthur Spring (Kerry North-West Limerick, Labour)
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I thank Mr. Boucher. Is he a shareholder of the bank?
Arthur Spring (Kerry North-West Limerick, Labour)
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By the performance of the bank improving, the profits of the bank increasing and the value of the shares increasing, Mr. Boucher would be getting a substantial reward outside his salary. Is that correct?
Arthur Spring (Kerry North-West Limerick, Labour)
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What increase in share value has there been in the past 12 months?
Arthur Spring (Kerry North-West Limerick, Labour)
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Is that not a form of incentive or bonus for Mr. Boucher?
Arthur Spring (Kerry North-West Limerick, Labour)
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Correct.
Arthur Spring (Kerry North-West Limerick, Labour)
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To whom are Mr. Boucher's fiduciary duties?
Arthur Spring (Kerry North-West Limerick, Labour)
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To the bank, meaning the shareholders.
Arthur Spring (Kerry North-West Limerick, Labour)
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Not to the customers or the individuals.
Arthur Spring (Kerry North-West Limerick, Labour)
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I understand that.
Arthur Spring (Kerry North-West Limerick, Labour)
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I understand that.
Arthur Spring (Kerry North-West Limerick, Labour)
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I am running out of time and I am in the position of being Acting Chairman also. Does Mr. Boucher think it is appropriate that people of my generation are left here, first, paying an increased mortgage for themselves, second, picking up the developers' haircut write-down of 55% and then picking up the debts of those who are defaulting strategically on loans, and yet shareholders have seen an increase in the value of their Bank of Ireland shares of 150%?
Arthur Spring (Kerry North-West Limerick, Labour)
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I am addressing Mr. Boucher, if that is okay.
Arthur Spring (Kerry North-West Limerick, Labour)
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As a result of certain things.
Arthur Spring (Kerry North-West Limerick, Labour)
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I understand that. I have one minute left. I am with Deputy Donnelly on this because I am from that generation. From my dealings with people, as a former banker and now a politician, I am acutely aware that ultimately those of us who enter into an arrangement will be paying more for that house than we envisaged initially. I am of the opinion - Mr. Boucher will have heard me say this on numerous occasions - that there should be a moratorium on profit making for institutions such as Bank of Ireland. I believe there needs to be an investigation into whether the previous directors or some of the existing directors were negligent in their behaviour. My final question is as follows. Has Bank of Ireland held an internal investigation into whether the directors conducted themselves in a negligent manner?
Arthur Spring (Kerry North-West Limerick, Labour)
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As CEO.
Mr. Richie Boucher:
-----as CEO, an investigation as to whether I am a fit and proper person. This was a comprehensive seven-month process where the Central Bank was assisted by an eminent independent third party. My fitness and probity as CEO, which would have to take into consideration my performance in my current job and my previous roles, would have to be part of that.
Arthur Spring (Kerry North-West Limerick, Labour)
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Has there been an investigation of the board at the time of the collapse of the bank?
Arthur Spring (Kerry North-West Limerick, Labour)
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The bank is having an investigation. I thank Mr. Boucher very much for his time.
Arthur Spring (Kerry North-West Limerick, Labour)
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I beg your pardon.
Arthur Spring (Kerry North-West Limerick, Labour)
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Is there an outcome of an investigation?
Arthur Spring (Kerry North-West Limerick, Labour)
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Is there an outcome?
Arthur Spring (Kerry North-West Limerick, Labour)
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I understand that the board has been cleaned out so to speak - there are some people who remain. Was there an internal investigation into the board that led to the collapse of the bank?
Arthur Spring (Kerry North-West Limerick, Labour)
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That is for the future. I thank Mr. Boucher.
I need to be fair to everyone else. I now call Deputy Higgins who has five minutes.
Joe Higgins (Dublin West, Socialist Party)
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According to the documents Mr. Boucher has given us, in the Republic of Ireland owner-occupied mortgages the bank has loaned €26 billion. How much of that would be in negative equity?
Mr. Richie Boucher:
As an overall total, taking into account the buy-to-let and the owner-occupier, there is €27 billion. The negative equity component of that is €3.9 billion. Of the impaired loans - that is 90 days past due and-or impaired - €1 billion is considered impaired negative equity and 90 days beyond it is due but not considered impaired is €200 million.
Joe Higgins (Dublin West, Socialist Party)
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What is the amount for negative equity for owner-occupiers?
Arthur Spring (Kerry North-West Limerick, Labour)
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Of course, if that is acceptable to the Deputy.
12:55 pm
Joe Higgins (Dublin West, Socialist Party)
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I am anxious to get a figure because it relates to what Mr. Boucher calls debt forgiveness, but I do not. In response to my colleague Mr. Boucher said categorically the Bank of Ireland did not do what he called debt forgiveness. Does that mean that Bank of Ireland has not, in respect of any owner-occupier mortgage, reduced the amount of capital borrowed during the bubble?
Joe Higgins (Dublin West, Socialist Party)
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That is the problem. Mr. Boucher was central to the banks conniving with bondholders, developers and right-wing politicians during the property bubble in legal extortion of a generation of young working people in terms of holding them over a barrel for the human right of having a home over their heads. Following the collapse of the bubble and the crash in the economy, many of them are now on a thread mill of endless suffering and grief.
Bank of Ireland now has 12,700 people subject to forbearance and 103,000 fully performing mortgages, with many at the pin of their collar to make repayments. Included in that 103,000 figure are many people who were forced to borrow exorbitant amounts to purchase a modest home. I again put it to Mr. Boucher that it is high time that not only Bank of Ireland but also banks in general, the Government, the Central Bank of Ireland and the European Central Bank realised that soaking the amount of money they do from hard pressed people is not only causing them huge suffering but is also damaging the economy which Mr. Boucher says he is pledged to assist. Is it not time that all of those mentioned got together and provided for a blanket write-down according to the current value of people's homes and, thus, a write-down calibrated on the monthly repayments? Is that not the solution to this nightmare?
Peter Mathews (Dublin South, Independent)
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The eurosystem.
Peter Mathews (Dublin South, Independent)
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It will not, if people do not at least try-----
Arthur Spring (Kerry North-West Limerick, Labour)
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Deputy Mathews, please allow Deputy Higgins to continue.
Joe Higgins (Dublin West, Socialist Party)
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I put it to Mr. Boucher, as somebody who was at the heart of the gouging that went on and the conspiracy of profiteering which resulted in young people now in their thirties and forties being enslaved to Bank of Ireland and other banks, that it is up to him, the banking system and the financial market sharks who were instrumental in causing the problem to come up with solutions in this regard.
Joe Higgins (Dublin West, Socialist Party)
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It is clear that it is true. Did it ever occur to Mr. Boucher to get together with the other banks, the Government and other players to consider this as the solutin, rather than all of what is being proposed today, with all of the suffering it involves and the drain on the economy?
Joe Higgins (Dublin West, Socialist Party)
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Yes and we know who is paying.
Dara Murphy (Cork North Central, Fine Gael)
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I welcome the delegates and thank them for remaining over time. We heard yesterday from representatives of Allied Irish Banks, are hearing today from representatives of Bank of Ireland and will hear tomorrow from other bank representatives, all of whom adhere to definitions as per guidelines from the Central Bank in tabulating statistics and targets. Would the banks welcome more clarity in defining strategic defaulters, split mortgages and the legal process such that all banks would have the same terms of reference?
Mr. Richie Boucher:
Clarity is always important. We provide significant information in our financial statements. In the case of Bank of Ireland, when we provide information on our accounts, we clearly set out the definitions. It is hard to know how one would define a strategic default. If we were requested to provide information based on certain criteria-assumptions, we would be happy to provide it.
Dara Murphy (Cork North Central, Fine Gael)
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The bank is defining it in that Mr. Boucher said earlier that the figure in that regard in respect of Bank of Ireland was approximately 10%.
Dara Murphy (Cork North Central, Fine Gael)
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That is what I mean.
Dara Murphy (Cork North Central, Fine Gael)
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Presumably, if the bank did have a definition, even if it were not perfect, it would be better than the current situation.
Dara Murphy (Cork North Central, Fine Gael)
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Some 89% are paying their mortgages.
Dara Murphy (Cork North Central, Fine Gael)
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Our ambition is to try to find out how many of the remaining 11% are in a position to pay. Mr. Boucher has mentioned that some of the people who have not contacted the bank are strategic defaulters and that others cannot pay.
Dara Murphy (Cork North Central, Fine Gael)
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Let me put it another way. Of the current mortgages in default, how many fall into the category of persons who have contacted and engaged with the bank and are now deemed by it to be unable to pay? Earlier Mr. Boucher said 1,097 mortgages were unsustainable, 937 were in default and 10% of loans in arrears were in what he termed potentially a different category. Can he say how many Bank of Ireland mortgages are unsustainable and what will happen to the holders of these mortgages?
Dara Murphy (Cork North Central, Fine Gael)
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What will happen in the cases of those with whom the bank has engaged?
Mr. Richie Boucher:
In terms of the assessments, I was trying to be helpful by giving the figures for the year to date and the July figures which are the most up-to-date figures available to me and my colleagues. Obviously, we look at this on an ongoing basis, but in a format that I can discuss with the committee, Bank of Ireland was able to offer restructuring of debt to 80% of the customers who had had an SFS assessed by it.
Dara Murphy (Cork North Central, Fine Gael)
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What about the others to whom the bank cannot offer it?
Dara Murphy (Cork North Central, Fine Gael)
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I am interested in hearing what will happen to the people who have engaged with the bank whose mortgages it has deemed are not affordable.
Dara Murphy (Cork North Central, Fine Gael)
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They are the people about whom we are most concerned. If people are strategic defaulters, the taxpayer would want the money to be recovered. What else can the bank do?
Mr. Richie Boucher:
In those instances we do not know whether the customer is co-operating fully. Where an SFS form has been completed and we are unable to form an opinion or believe the customer can afford to contract a payment, we will take another look. In other cases there is a wide range of issues involved, including that there has not been full disclosure on the SFS and so on. It is impossible for me to judge. We have tried to be helpful to the committee in setting out where we are in the legal process. Again, I gave statistics for the legal process.
Dara Murphy (Cork North Central, Fine Gael)
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Does Mr. Boucher believe that in the current economic climate it makes commercial sense for Bank of Ireland to increase charges, bearing in mind that customers cannot generally move from it?
Mr. Richie Boucher:
In the first instance, Bank of Ireland looks at the long term. We want our customers to remain with us because they want to do so, not because they do not have a choice. Customers will always have a choice and competitors can emerge at any stage. Bank of Ireland has been around for 220 years and expects to be around for at least another 200. To do this, we must provide competitive options for customers that are commercially sensible.
We have seen banks come and go in this country whose business models were not sustainable, and the customers have been left stranded. Our products must be competitive and commercially sensible and sustainable in order for us to continue to provide them, and to continue having investment. As every business person does, we must have a long-term objective. Ours is to ensure that we have more customers with Bank of Ireland at the end of this year than we had at the start of this year. That can only happen by providing products and services that our customers want and need.
1:05 pm
Sean Barrett (Independent)
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I welcome our guests and wish them good luck in restoring commercial viability to at least one part of the Irish banking system. I will ask again for the breakdown of the 3,103 customers and the 3,164 customers with regard to defaults. There are four people from Bank of Ireland before the committee, with four in the Gallery, and it is not acceptable that we have been asking for three hours for those numbers to be broken down. It reminds me of a Which? survey in the UK that found Bank of Ireland to have one of the lowest levels of customer service. I would hate to be waiting at a counter for the kind of responses we are seeking. The numbers should be supplied.
What does the bank think are correct loan-to-value ratios and loan-to-earnings ratios? The committee is trying to restore solvency in Irish banking and the prudent ratios were exceeded in the past. That is why we are here. In pages 11 and 12 of the documentation provided, there are details of an extra €300 million in defaulted owner-occupancy loans, with the rate of default increasing during this year. Some €100 million was added in the second half of last year and €200 million was added in the first half of this year. There is also €300 million defaulted in buy-to-lets.
Mr. Boucher mentioned that people with multiple buy-to-let properties are his big problem. That is also true in the Houses, as many Deputies and Senators have found that the receivers of these properties tend to evict tenants. Yesterday, we asked AIB for an assurance that such practices would not happen. We will have to get used to much rented accommodation because of a collapse in the mortgage market, and for people, rented properties will be principal private residences. They may be paying rent to a bankrupt landlord. Threshold and the likes of Senator Aideen Hayden have drawn attention to that serious problem, so I would like a clear statement from the bank on the policy in that regard. The Family Home Protection Act should be extended to people who pay rent and live in buy-to-let properties. The landlord should be pursued but the conduct of the receivers should be considered by banks. There has been some concern in rural areas that fairly nasty characters have turned up on behalf of banks to engage in repossessions.
The Minister, Deputy Rabbitte, recently told the Seanad that banks had intervened to try to reduce the rate of interest paid by the post office on savings. Is Bank of Ireland part of that? It would be regrettable if that happened. The Minister indicated he opposed the measure at Cabinet but the request came from the banks. Did this bank play a role?
With regard to the Mercer report, figures in the presentation indicate that staff costs are down by 9.5%, with other figures indicating that staff numbers went down by 10.6%. Those who remained must have seen a pay increase. It seems there has been a decision not to implement the findings of the Mercer report.
Ciarán Lynch (Cork South Central, Labour)
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The Senator should allow time for reply.
Sean Barrett (Independent)
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Is that the policy?
Mr. Richie Boucher:
The staff numbers are from a point in time and the reductions are over a period. I do not believe the Senator's conclusion or assertion is correct, although I can understand how the Senator has made it while considering two different sets of figures.
With regard to rent receivers, tenants may be paying rent that is diverted. There is a requirement to professionalise the way the matter is dealt with by the rent receiver, which has obligations to abide by contracts. The tenant would have a lease agreement that I presume would be registered with the Private Residential Tenancies Board. The receiver would have a commercial interest in seeing that done, as the receiver wants to see income flowing. We appoint a receiver when we have evidence that income is being diverted. The apartment or house may be occupied, with the tenant paying rent, but we are not getting it. The tenant's occupancy would be endangered if that happens. A rent receiver must respect obligations and ensure, for example, that if management charges are payable, they are paid. There is professionalisation and regularisation of the process.
The Senator mentioned a Which? survey but I should note that the survey was of products we do not have. We do not provide a current account in Britain, although we provide them in Northern Ireland. A MORI survey of current accounts provided in Northern Ireland indicated customer satisfaction levels to be very high. We need to appreciate what is being surveyed. Our current account is offered only in Northern Ireland in the United Kingdom. We run the operation in Northern Ireland as an island of Ireland business but from a regulatory perspective, it must be part of the UK division.
We review the competitive environment and if state aid is being utilised to distort competition, we object to it.
Sean Barrett (Independent)
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The banks are bankrupt. It is really strange-----
Sean Barrett (Independent)
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-----that the post office was softened and it was told to pay lower interest on savings when the banks were being bailed out. That does not meet any criteria of competition.
Sean Barrett (Independent)
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The industry received €64 billion so how much does Mr. Boucher think the post office received?
Sean Barrett (Independent)
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It is a bizarre way for the banking industry in Ireland to conduct itself. It received €64 billion but complains that the post office is engaged in unfair competition. I have never heard the likes of that before.
Peter Mathews (Dublin South, Independent)
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I must get straight to it as time is against me. An overall calamity has hit Ireland, and it is a shameful episode of ten years, with four years after 2008 and six years leading up to that time. The banking sector - not just here but abroad and everywhere - has acted disgracefully, crushing and distressing households and indigenous businesses. I can explain mathematically how this was done.
Unfortunately, the media does not seem to understand the following. Loan-to-deposit ratios are the centripetal prudential force of a bank's balance sheet and if bank boards waver from that idea, they endanger deposits and lead to a financial collapse. Yesterday, the chief executive of AIB, Mr. David Duffy, reminded everybody here that a mortgage is a loan secured on an asset. If the banking sector for six years abandons in a cumulative fashion the prudential principles of keeping loans to deposits at 90% and a fractional reserve of 10%, they create the credit asset bubble. How dare a banking sector think it is entitled to collect all the loan secured on the asset which it consistently helped to pump up for six years. That would be wrong, and that is why Deputy Higgins is correct. As Deputy Donnelly mentioned, it is wrong for loans to be manufactured and recalculated over a longer period.
There should be a concerted effort by the two big banks. They are zombie banks. The households are crushed but the bank is still a zombie, and I will show how. Go to page 10 of the loans and provisions. There is nothing personal in this; I am just superbly frustrated for the last five years by the denials of the truth of the situation. Bank of Ireland has a loan book of €95 billion in four categories, three main categories and a little one called "consumer". The bank has provisions of €8.1 billion on €95 billion. That is 8.5%. The sister bank with a loan book of €88.9 billion has €17 billion of provisions, or 18.5%. It is the same size as Bank of Ireland's loan book and is probably not unalike in geographical dispersion. It is in the same economy with roughly the same number of employees. Yet Bank of Ireland is saying it is 2.2 times better than AIB in terms of what is collectable.
If one reruns the provisioning, and I suggest the bank do that, at 15% provisioning on the €52.2 billion for residential mortgages, at 10% on the €22.5 billion of non-property SMEs and a modest 25% on the property and construction loans, one arrives at a figure of €14.68 billion of required provisions, but the bank only has €8.1 billion. That indicates the bank needs between €6.5 billion and €7 billion more capital. That is why groups such as Fitch and Moody's say the banks are under-capitalised. If the banks did have the right capital, they would get on with the job of recalibrating households and businesses to what their maintainable, reasonable incomes will be able to service. That is what is required.
Deputy Higgins was right when he told Mr. Barroso that it is wrong to have €70 billion of private sector losses by speculators, which is technically the right word to use, in an economy. They are the people who put money in. In March 2009, Bank of Ireland had €45 billion in senior secured debt on its balance sheet. That was down from €61 billion in March 2008. The huge number of speculator, high yielding bond guys got out. They did that with the help of Central Bank of Ireland advances as well as ECB advances.
1:15 pm
Ciarán Lynch (Cork South Central, Labour)
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Deputy, you are nearly out of time.
Peter Mathews (Dublin South, Independent)
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It is very important that people understand this, and they ought to understand it if they are reluctant to understand it. A national concerted effort is needed to get the country out of the hole and to drain the swamp so normal economic activity can start again. Yes, it is approximately €60 billion for the euro system. As regards the promissory note of €27 billion that was recently refinanced by a series of 40 year bonds, that was a sham. There was no negotiation. That had to happen. There was no chance that Ireland ever could have borne an 11 year profile of €28 billion. It was not even a question of asking for it; we were given it.
Ciarán Lynch (Cork South Central, Labour)
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The Deputy must conclude.
Peter Mathews (Dublin South, Independent)
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We did not even ask for it. Does the witness know why? It is because our establishment figure in the form of the Governor of the Central Bank was a co-author of the promissory notes.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Mathews, you must conclude. I do not know if there was a question in that, but I ask Mr. Boucher to respond.
Mr. Richie Boucher:
The Deputy has made a number of assertions. For example, he talked about Bank of Ireland's mortgage book and said it is similar to that of AIB. That is not factually the case. Of our €52 billion in mortgages, €27 billion are in the Republic of Ireland and €25 billion are in the UK. One would have to accept there is a different profile. If we look to our Irish books, on the basis of the information provided by AIB and the information provided by us and as independently assessed and verified, we see that of AIB's €38.8 billion owner-occupier loans, the defaulted loans are 22.7%. It is 14% for Bank of Ireland. There is a different profile. One cannot compare that. I do not agree with the Deputy's assertion.
Peter Mathews (Dublin South, Independent)
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HBOS got out of this country with 45% to 50% losses on a €42 billion loan book.
Ciarán Lynch (Cork South Central, Labour)
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Deputy Mathews, I do not wish to suspend you from the meeting but you must abide by the rules like everybody else. I call on Mr. Boucher to respond without interruption. Then I will move to summarising the meeting.
Ciarán Lynch (Cork South Central, Labour)
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To wrap things up, I will call on Deputies O'Donnell, Doherty and Higgins for a brief comment.
Joe Higgins (Dublin West, Socialist Party)
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I asked about the negative equity figure. If the witnesses do not have it now, will they correspond it to the committee?
Kieran O'Donnell (Limerick City, Fine Gael)
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Some 1,500 letters went out in the case of the 3,103. What was the profile of the people to whom the letters were sent? AIB's representatives said yesterday that the letters were sent to people who had not made any repayments for three years. The witness went through the breakdown of the 3,103 very quickly. Can the witness outline the profile of the 1,500 and give the breakdown? I know it was not of the 3,103 but of an up-to-date figure.
Mr. Stephen Mason:
Mr. Boucher gave an example of several hundred that are at civil bill level. Some are at unexecuted possession order stage in that. I do not have a breakdown. In our case it is highly unlikely that there were three years without repayments before we got to this stage. I would have thought that they would be beyond the demand stage and they would be somewhere deeper in the legal process, unless they were held up by the Dunne judgment which meant we could not have progressed them in the legal process. I have not looked at it in that way. We just make sure that we are compliant with CCMA and that we have given the customer every opportunity before we instigate the legal process. Even when we do so, we would still be hopeful that the customer will engage with us and give us the information required to make a restructure of their mortgage.
Mr. Richie Boucher:
We might have touched on this earlier. If a customer has not engaged and continues to not engage in accordance with the CCMA process, the first step for us is that we write to the customer and say: "Would you please engage with us. If you do not engage with us, we will have to go with the legal process."
Kieran O'Donnell (Limerick City, Fine Gael)
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On the 3,164 figure, is it fair to say that well in excess of 50% of that is made up of a combination of interest and reduced payment? Is that a fair comment? If I conducted a pro rata exercise based on what the witnesses have said, the full interest would be approximately 40% and the reduced payment would be greater than 50%.
Ciarán Lynch (Cork South Central, Labour)
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I call Deputy Doherty.
Kieran O'Donnell (Limerick City, Fine Gael)
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So over 50% of it is made up of-----
Ciarán Lynch (Cork South Central, Labour)
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Sorry, Deputy. I have called Deputy Doherty.
Pearse Doherty (Donegal South West, Sinn Fein)
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On how many customers has the bank or its legal advisers commissioned lifestyle reports by private investigators? What is the cost of these lifestyle reports on the customers?
Mr. Richie Boucher:
That is not information I have to hand. It is not something we would use extensively, but in certain circumstances we do. In certain high profile cases we have to secure information. Obviously, ours is a commercial organisation and we cannot disclose those costs. Again, I do not believe they would be material in their own right or in the context of the bank as a whole.
Pearse Doherty (Donegal South West, Sinn Fein)
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Is it only on high profile cases? There is concern because it has been reported that in some non-high profile cases, banks have these people snooping around the garden to see what type of car people are driving, looking in windows and so forth
Pearse Doherty (Donegal South West, Sinn Fein)
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Can the witness provide the figures to us at a later stage?
Mr. Richie Boucher:
It would not be material and I would not be able to provide a cost in its own right. However, in certain instances, where we have a very difficult situation, we will have to verify information. If we were in a bankruptcy situation, for example, where there is a dispute on evidence, we must employ a third party to try to ensure there is verification for assertions we are making or for the production of a legal affidavit.
Joe Higgins (Dublin West, Socialist Party)
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How many possession orders does the bank have currently against people who wish to stay in their homes?
Ciarán Lynch (Cork South Central, Labour)
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Deputy Higgins, I gave you the opportunity to speak already. I need to wrap up proceedings.
Joe Higgins (Dublin West, Socialist Party)
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This is my last question, Chairman.
Ciarán Lynch (Cork South Central, Labour)
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What is it?
Joe Higgins (Dublin West, Socialist Party)
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How many possession orders does the bank have against people who wish to stay in their homes, and does the bank have projections for the end of next year as to how many possession orders it will have?
Joe Higgins (Dublin West, Socialist Party)
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How many currently?
1:25 pm
Ciarán Lynch (Cork South Central, Labour)
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I want the bank to clarify a point following what Deputy Pearse Doherty said. AIB appeared before us yesterday and referred to the number of customers in default for 90 days or more. To clarify, 90 refers to 90 days in arrears rather than 90 calendar days. It is the sum of 90 days. Someone might accrue 90 days of arrears over 18 months.
Ciarán Lynch (Cork South Central, Labour)
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It is the sum of three payments in three months. Yesterday afternoon, AIB stated that a percentage of those over 90 days in arrears who have provided SFSs show they have sums on account that may be equal or greater to the arrears outstanding. They might have €15,000 or €20,000 on deposit. The point was raised by Mr. Duffy. Is there a similar situation according to investigations by Bank of Ireland?
Mr. Richie Boucher:
We do not have that level of detail or information. Coming back to the assessment of the SFSs, while we can get caught up in tiny figures, directionally out of SFS assessments for owner-occupier customers that we did in the month of July, in roughly 10% of them we felt the customer could pay. Let us not take the month of July in isolation because this can change. The year to date figure is broadly similar.
Ciarán Lynch (Cork South Central, Labour)
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When Mr. Duffy was speaking, he asserted that it seemed quite noticeable in the AIB assessment. Mr. Boucher is saying this is not leaping off the page or setting off red lights.
Ciarán Lynch (Cork South Central, Labour)
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One of the rebuttals is that people are holding money on account on the basis of the belief that the resolution processes they are engaging in are unsustainable and that if they put that €15,000 or €20,000 in the pot, it will vanish in the next two years, leaving them with nothing.
I thank Mr. Boucher, Mr. Farrell, Mr. Mason and Mr. Prizeman for coming before the committee. The target figures are a process we will see over the coming 12 months. The 50% figure will be reached by year's end and the committee will wish to engage with the banks at that stage to see how the 50% figure is being reached. There seems to be an issue with getting the precise figures of the 20% resolution and the modelling going on. I hope we have resolved that and I hope Bank of Ireland can furnish us with those figures in terms of modelling.
We will meet the Governor of the Central Bank later this month. One of the outcomes that has arisen from meetings so far is the need to sit down and talk with the Governor about the definition of a resolution process. I thank Mr. Boucher and I welcome some of his remarks, particularly the noticeable increase in lending to SMEs, which is separate to those that are restructuring. That is a positive development and a topic on which the bank has engaged with us in the past. I propose suspending until 2.30 p.m. when we will resume proceedings with Ulster Bank. Is that agreed? Agreed.