Oireachtas Joint and Select Committees

Wednesday, 29 April 2015

Joint Oireachtas Committee on Finance, Public Expenditure and Reform

Overview of the Banking Sector in Ireland (Resumed): Ulster Bank

2:00 pm

Photo of Brian WalshBrian Walsh (Galway West, Independent)
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I welcome Mr. Jim Brown, chief executive of Ulster Bank, who is accompanied by Mr. Paul Stanley, chief financial officer, and Mr. Stephen Bell, chief risk officer. The format of the meeting is that Mr. Brown will make an opening statement. In advance of the meeting, we collated questions from members and submitted these to Ulster Bank. I thank Mr. Brown and his staff for their responses in writing to these queries, which we received last Monday. The responses have been distributed to members. Together with the input of our witnesses today, I hope all the key topics will be covered. None the less, a question and answer session will follow to clarify any matter that might arise.

I advise the witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I invite Mr. Brown to make his opening statement.

Mr. Jim Brown:

I am accompanied by my colleagues, Mr. Paul Stanley, chief financial officer, and Mr. Stephen Bell, chief risk officer. I thank members of the committee for their invitation to appear before them. I will go through our opening statement relatively quickly and will then respond to any specific issues the committee wishes to address. Royal Bank of Scotland, RBS, is committed to Ulster Bank. It is unique in the market as the only internationally owned systemic bank that operates across the island of Ireland. We employ over 5,200 people, have a network of 175 branches and serve almost 2 million customers. We have lent in excess of €31 billion across the island of Ireland and hold €26 billion in customer deposits.

In 2014 lending activity increased by 38% with €1.4 billion of new lending facilities to business customers and a further €900 million in personal lending. I am pleased to say this strong performance has continued into 2015. We have submitted our responses to the committee's questionnaire and look forward to discussing this over the course of our appearance here. Before we go into further detail, I would like to make a few comments regarding mortgage arrears and our standard variable mortgage interest rates, areas which are of particular interest to the committee.

Ulster Bank has made significant progress in helping 22,000 customers resolve their mortgage difficulties. Approximately 2,000 customers, however, will neither pay their mortgage nor engage with us. We believe this group of customers can be helped if they can be persuaded to engage with us. As members have seen in our submission, we have published our commitments this week to encourage engagement and emphasise to customers in arrears that we have solutions, will help them and treat them fairly. We can all agree that there is a cost to living in a home and that it is unacceptable for a borrower to make no payment whatsoever towards the cost of his or her accommodation. Therefore, the mortgage payment must be regularised or we must enforce our security.

It is Ulster Bank's belief that its standard variable rate, SVR, is not overpriced. The current narrative that the SVR minus the European Central Bank, ECB, rate equals margin is simply incorrect. There is a range of other costs that must be factored into the SVR and these costs are substantially higher in Ireland when compared with other markets in which Ulster Bank and RBS operate.

Ulster Bank recently recorded an operating profit of €752 million for 2014, representing the first annual profit since 2008. This performance was driven by the underlying strength of the core Ulster Bank franchise, increased lending to customers, proactive management of our legacy issues, coupled with an overall improvement in the economy and the property market. Our customers' requirements are also changing with digital transactions now representing 57% of our total transaction volumes.

We are also investing in our physical distribution, including a recent announcement with our arrangement with An Post providing customers with an additional 1,100 new points of presence.

We have made significant progress in addressing and resolving our mortgage arrears issues. From the outset our objective has been and is, to keep customers in their homes. We have achieved month-on-month reductions in mortgage arrears every month for the past 25 months. To date, 10,000 customers who were in arrears are now up to date and paying and a further 12,000 customers are on alternative solutions. Of these 22,000 cases only five personal insolvency proposals were vetoed by Ulster Bank in 2014 and these were due to their specific circumstances. It is disappointing, however, and notwithstanding the progress made to date, that approximately 2,000 customers will neither talk to us nor pay their mortgage, despite our efforts and the efforts of the Government, the Central Bank, the insolvency service and the courts, to encourage engagement. In a further effort to engage with these customers, we have recently launched our commitments to customers in arrears which give specific assurance that these customers will be treated fairly. With engagement we believe that satisfactory arrangements can be found for the vast majority of these customers. There are no circumstances where we or society in general can sustain or justify a situation where a mortgage holder continues to make no contribution towards the cost of his or her accommodation. As I said earlier, there is a cost to living in a home and this must be recognised.

In the absence of engagement and where no repayment is being made, we are left with no alternative but to continue with legal proceedings. This is not a good outcome for anyone as the legal process does not generally provide any realistic alternative other than repossession. Any further initiatives in this area must ensure that secured lending remains prioritised over unsecured lending in all repayment situations. If secured mortgage debt is treated with similar or lesser status to unsecured lending, then inevitably the cost of mortgage lending will increase as it becomes quasi-secured debt. In making this argument we recognise and accept that unsecured lending by banks should be treated in the same way as all other unsecured lending.

Within the wider RBS, mortgage lending is an important part of our offering in all our main markets, including England, Wales, Scotland, Northern Ireland and Ireland. Broadly speaking the interest margins in all of these markets is similar. However, unlike the other markets, our mortgage book in Ireland has been loss-making. Notwithstanding this fact and reflecting our commitment to the market, we have been progressively reducing our variable interest rates to both our existing and new customers. Separately, the cost of providing mortgage finance reflects the cost of our capital funding, operations, compliance, management of arrears, credit losses and levies. Virtually every one of these inputs in Ireland is substantially higher when compared to other markets in which Ulster Bank and RBS operate. In this context, we do not believe that our SVR is overpriced.

I reiterate that we continue to make significant progress in helping customers in financial difficulties and we are confident that we can help any remaining customers who are in difficulty if they are prepared to engage. However, in the absence of engagement and where there is no regular payment, we are left with very little alternative but to go through the court process.

Second, our standard variable rate is not overpriced. The cost of providing mortgage finance in Ireland is substantially higher than in other jurisdictions in which Ulster Bank and RBS operate. Third, RBS is committed to Ulster Bank and it is unique in the market as an internationally owned systemic bank that operates across the island of Ireland. Ulster Bank looks forward to continuing to support personal and business customers and the broader economy, both now and into the future. I am happy to take any questions from members.

Photo of Brian WalshBrian Walsh (Galway West, Independent)
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Before we begin the question and answer session I propose that we adhere to some of the usual ground rules. Heretofore the arrangement has been that the lead spokesperson for each party will be allocated a total of ten minutes interaction with those giving evidence while other members may avail of five minutes each. This session will conclude at 4 p.m. to allow for witnesses from Bank of Ireland. We will keep an eye on the clock and indicate when one minute speaking time remains. Is that agreed? Agreed.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I welcome Mr. Brown and his colleagues to the meeting. I wish to deal with the point made by Mr. Brown that the cost of providing mortgage finance in Ireland is substantially higher than in other jurisdictions in which Ulster Bank and RBS operate. It is my understanding that the lowest three-year rate for a borrower in the Republic is 3.65%. However, a person in the same loan-to-value can borrow at 1.49% fixed rate in Northern Ireland. Is that correct and can there be that level of a difference, which is more than 100%, going from 1.5% to 3.5%?

Mr. Jim Brown:

There are differences in terms of pricing on fixed rates across the various markets. The comments I made were with regard to standard variable rates and there is a consistency in rates between the two markets for fixed rates depending on the term of the loan. It is correct that depending on the loan-to-value ratio and other credit criteria there can be differences in rates.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Why is this the case?

Mr. Jim Brown:

As I said it depends on the term for which the customer is taking out the loan. It also depends on the loan-to-value ratio, the value of the lending against the home, the underlying security. The risk can be higher or lower so that impacts pricing as well. It also depends on the customer's individual credit criteria. There are a number of criteria that could impact on the difference in rate. This also applies to our standard variable rates here in the Republic of Ireland. Our standard rate is 4.3% but customers can get lower interest rates depending on the loan-to-value they borrow against.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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For the equivalent type customer here and in the North who meets all similar requirements such as income, risk, property value, occupation, public servants, why would there be a different risk factor?

Mr. Jim Brown:

I use the standard variable rate as a good example across both markets, looking at the rates that Ulster Bank charges in Northern Ireland as well as the rates that are charged by RBS NatWest in the rest of Great Britain. There is very little difference between the rates that we charge and there is very little difference between the cost of funds across those lines. The margin is more or less similar. However, there is a distinct difference in terms of providing the cost of the mortgage to customers here. As I mentioned in my opening statement, capital operational costs, the cost of servicing arrears, the cost of funds, etc., are all significantly higher in this market.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Brown is saying that the cost of providing a mortgage is higher here-----

Mr. Jim Brown:

That is correct.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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-----than if I were to drive to the other side of the road into Northern Ireland.

Mr. Jim Brown:

That is correct. The requirement for the amount of capital one must hold for a mortgage in this market, the cost of funds in this market-----

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I ask Mr. Brown to spell out the difference between the requirement here for capital against what is required in the North.

Mr. Jim Brown:

In terms of the amount of capital that has to be held for mortgages in the Republic, that requirement is significantly higher as a result of the losses that have been experienced.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I ask Mr. Brown to translate that into money for us. What ratios are required here versus in the North?

Mr. Paul Stanley:

An estimate of the differential between the two from a capital perspective would be around 70 basis points or so.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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That is the figure but what is the capital requirement? Mr. Stanley is saying it is different for the banks here to lend a mortgage here versus the capital requirement in the Six Counties. What is the difference in the two markets, between our Central Bank and their authorities there?

Mr. Paul Stanley:

Much of that is driven by the risk-weighted assets that are attributed to a mortgage.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Is 15%, 20% or 10% capital required? What is the difference? The witnesses have stated three times that the capital requirements for providing a mortgage here is higher. Tell me the difference.

Mr. Paul Stanley:

The capital requirement in terms of percentage is the same; the issue is the risk-weighted asset figure.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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The chief executive said something different just ten seconds ago. He said the capital requirement is different. Now Mr. Stanley is saying that they are the same.

Mr. Paul Stanley:

The Deputy is asking me what is the ratio. The ratio requirements are the same. The issue is the level of risk that is attributed to the loan is very different from the North to the South.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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So the capital requirements are the same but the risk is different.

Mr. Paul Stanley:

Given the risk weighting that is attached to the underlying principal of the loan, one multiplies the capital requirements by the risk weighting to get the absolute amount of capital required. There is about a 70 basis point differential between-----

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Stanley is saying approximately 0.75%.

Mr. Paul Stanley:

If the Deputy is trying to translate what is the attributable amount differential between a loan and the SVR rate, it is around 70 basis points.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Has the risk in the market not improved significantly due to the reduced number of new mortgages? Surely the risk factor of a person who has been granted a mortgage, following a high level risk assessment, should be lower? In simple language, is the bank making riskier lending for mortgages in the Republic than in Northern Ireland?

Mr. Paul Stanley:

That is not what we are saying. We are saying that-----

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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If the level of risk is the same and the capital requirement is the same, why is there a different of 0.75% in the rate? It would be extraordinary if the bank were taking greater risks on the property market in the Republic than would be approved across the Border in Belfast. I am not getting the point of the argument that Mr. Stanley is making.

Mr. Stephen Bell:

I would be happy to try to develop that point. When banks are looking at the capital they have to put behind particular assets, they have to look at the historical performance of the business. It is a regulation and accounting requirement matter. It is not something we choose to do, it is a matter that is required of us as a prudential institution. Looking at the loss history and the loss performance of the portfolio in the Republic of Ireland, we end up with a significantly higher risk-weighted asset percentage applying to a mortgage in the Republic of Ireland than we do in Northern Ireland, England, Wales or Scotland. That is effectively something that will change over time as the historical loss performance washes through, but at this point in time, the models we are using and the calculations we are making require us to hold multiple times the capital more for the same risk in the Republic.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Are these the rules of Ulster Bank or the Central Bank?

Mr. Stephen Bell:

They have been around for a very long time.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Are they the rules of Ulster Bank?

Mr. Stephen Bell:

No, they are not our rules, they are regulatory requirements that have been around for as long as I know.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Mr. Bell talks about the historical performance, how many years in terms of history does the bank go back? Does the bank go back five, ten or 40 years when looking at the historical performance? This is feeding into the current rate.

Mr. Stephen Bell:

One has to look at the historical performance.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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How many years does the bank have to look back to see the historical performance?

Mr. Stephen Bell:

It can be ten years.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Is Mr. Bell saying that because in the previous ten years, new customers in their twenties, who were children ten years ago and are now borrowing because they have reasonable jobs will have to pay a higher interest rate in the South, solely because of the historical performance of other people's loans ten years ago? Is that what Mr. Bell is saying?

Mr. Stephen Bell:

Yes, in a round-about way.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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Does he think that is fair?

Mr. Stephen Bell:

It is a matter of regulatory and accounting requirements for a prudential institution. It is not something we choose to do. We are asked by our shareholder to make an adequate return on equity. The level of equity is driven by the risk-weighted assets and the risk-weighted assets are driven by accounting and regulatory rules, so it is not our choice.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I want to be positive. I thank Ulster Bank for its announcement about not chasing people in negative equity who would be eligible for social housing. If we could get a number of other banks to do the same, we would be very pleased. I acknowledge that positive move.

New mortgage holders, who have never had a mortgage in their life before will be penalised by the mortgage rate for the next 30 years because of what happened ten years ago and which they had nothing do with. That is the message I have got, which is awful.

Mr. Jim Brown:

What we are saying is that there is a regulatory obligation for us to have more capital against each of our mortgages as a result of the losses that have been experienced.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I do not expect the delegates to have the answer to my final question. Will Mr. Brown send the regulatory rules that specifically states that to the committee secretariat?

Mr. Jim Brown:

Sure.

Photo of Michael CreedMichael Creed (Cork North West, Fine Gael)
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I wish to give two minutes of my time to Senator Paul Coghlan.

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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I welcome the delegation from Ulster Bank. I am pleased they have restored the bank to profitability and I hope they will stabilise matters at the 175 bank branches. I hope Ulster Bank will not close any further branches. I do not think they anticipate doing that. Ulster Bank has 2 million customers.

A major issue for the committee has been the difference between the SVR and the ECB rates. I accept the point that interest rates range from 3.5% to 4.3%. What are the specific component parts? Are the 2,000 customers who will not engage with the bank being prosecuted for recovery of the money? Do I understand from the replies that in the case of somebody who voluntarily surrenders the house, the bank will go after the client for the residual debt, even where the individual may not be able to afford it?

How does Ulster Bank handle the case of clients who did not engage until they had been prosecuted, but following prosecution they engage with the bank?

Mr. Jim Brown:

Before I answer Senator Coghlan's two specific questions, I will comment on the bank branches. We are on record as saying that we will not close any more branches this year. We recognise the importance of a physical distribution network, hence the reason we enter into what we think is a very important relationship with An Post so that our customers have access not just to the 175 branches but now have access to another 1,100 outlets as well. I cannot say that we would never close any more branches further out into the future because it does depend on customers preferences and behaviour but what we can say is that we will respond to that and make as many points of presence available to our customers as we possibly can.

I will ask Mr. Bell to address the specific points.

Mr. Stephen Bell:

In regard to the 2,000 customers, this is an approximate number of customers who are already in the legal process. We have stated our policy that where a person who is 90 days in arrears and has not engaged with the bank, we would have to initiate legal action. It is the responsible thing to do. We are using the commitments we made on Monday to encourage people who may have thought it is too late, because the legal process has commenced that it is not too late to deal with the bank. We want to encourage them by saying it is never too late. It is only too late when the judge finally announces an eviction date, which is something we want to avoid at all costs. We have ensured that at every court hearing there is a representative of the bank available so if the customer arrives at the court process wishing to engage we can pick up with them there and then. We have adjourned hearings in the past because the customer has approached us prior to the hearing, saying they would like to talk to us about a solution.

The overwhelming message about the commitments we made is that engagement is critical and it is never too late to engage. We think it is important to recognise that the kind of payments we are looking for when a restructured home loan repayment is agreed will be substantially less, by some margin, than an equivalent private rental cost. The reason for our comments regarding eligibility for social housing is because of the income level that would be relevant for that consideration. There is absolutely no way we are able to restructure the mortgage so that it becomes affordable for somebody at that level of income. We think it is the responsible thing to do to say that if somebody's financial circumstances have deteriorated so much that they are reliant on the State to provide housing, it would be irresponsible of us to pursue them for a shortfall after the property has been sold. Where somebody in our opinion is perfectly able to service a restructured home loan and simply does not wish to, then if the end of that process is the sale of the property, we would look at recovery of the shortfall. We think that is the right thing to do because if the customer had engaged, we believe we could find a solution which would have kept them in the home, which is absolutely our first priority at all times.

Photo of Paul CoghlanPaul Coghlan (Fine Gael)
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In the case of a customer who voluntarily surrenders the house leaving a residual debt that he or she cannot afford, is Mr. Bell stating that the bank goes after the remainder?

Mr. Stephen Bell:

Where the customer who makes the voluntary surrender is not eligible for social housing, we would look to recover the debt as best we could. We would have no expectation of recovering all of it because that is the nature of the business we are in. It would be our stance that it is a recoverable amount.

Mr. Jim Brown:

Senator Coghlan had another question about the components of the margin and the costs.

Mr. Paul Stanley:

I will take that question. One of the specific components would be the capital. During a previous response to questioning, I spoke about capital. The other component is funding. Let me clarify a point on funding. We are a subsidiary bank of a parent and as part of our financial disclosures, we do not have the same levels of disclosures as one would see in AIB or Bank of Ireland. AIB would have given a fair bit of detail on its funding rate. We have indicated in the response that, given we are in the same market, our funding levels are not that dissimilar from those that are disclosed by the other banks. Our parent will obviously have a full disclosure similar to the likes of those banks, and that is available in their accounts. That is a matter for their operations but we have to fund ourselves in the Irish market.

When we take those funding costs away from the 4.3% standard rate, taking the standard variable rate as an example, the margin we end up with in the market will be about 300 basis points before we take all our other costs, capital and everything else from those. That is a very similar margin to what we are earning in the North of Ireland in Ulster Bank's own operations. It is a similar margin to what RBS earns in its domestic markets.

The other component elements would be standard operation costs for running the mortgage areas and running the arrears areas as well. We have to attribute a portfolio element of credit losses. We do not make an assumption, despite the difficulties that may exist from a legal perspective, in terms of recovery in the market. We make a run rate or normalised assumption as to what the portfolio would attract by way of credit losses in a normal market. These are probably the main principal components, and while there is a little bit for levies and other items, these are the principal items.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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In their response to question 46, the witnesses state that unlike other markets, their mortgage book, both tracker and standard variable rate, has been loss marking. That seems a remarkable admission. Is it the case that the mortgage business as it currently stands is unsustainable? Does that mean that in the short to medium term there is no proposition of a cut to the rate for mortgage holders?

Mr. Jim Brown:

It is a fact that if one adds up the losses we have experienced on our mortgage book in the past five years, they are in excess of €2 billion. The losses have been significant. We have experienced losses across the various types of mortgages, be it trackers, fixed or variable rate mortgages. With regard to the standard variable rate loans, the rate we are charging coupled with the cost we are incurring, assuming a normal regularised market, is such that we can probably make a reasonable return on shareholders' funds. Unless any of these other costs come down, be it the cost of funds, the amount of capital we have to have, the credit losses and so on, the standard variable rate will not come down.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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Is it the case, as stated in the questionnaire, that the mortgage book has been loss making up to the end of 2014?

Mr. Jim Brown:

We made a profit on our mortgage book in 2014, but a lot of it came through a recovery in the property market that allowed us to release some of the provision that had been taken in previous years.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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There was talk previously about a merger or even exiting the economy. Is the merger off the table? Is there a full commitment to the economy?

Mr. Jim Brown:

Royal Bank of Scotland put a significant amount of capital, around £15 billion, into Ulster Bank through the downturn. I think it was the right thing to ask about 18 months ago if there would be a viable business for Ulster Bank in this market. A review was undertaken over a 15-month period and there was a very clear commitment from RBS that they are committed to Ulster Bank. We think there is an opportunity for Ulster Bank to be a competitor in the market and to contribute to the economy. We are looking for the market to rise over time, which is what we would expect. The members should put out of their mind any questions or doubts about our commitment. We are here to stay.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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That is very good. Is the Ulster Bank policy to write off residual debt for those who are eligible for social housing, having surrendered their home a new policy? Is it available to people in the North of Ireland? With regard to residual debt for others, the bank will still seek to chase it, but is there a seven-year or other timescale when it will come to be considered at the end?

Mr. Stephen Bell:

The problem of mortgage arrears is fundamentally different in the Republic of Ireland from Northern Ireland. Non-performing loans, which is the measure of cases 90 days or more in arrears, never peaked beyond 4.5% in Northern Ireland whereas here it peaked in the high 20%. The nature of the problem is very different and therefore the nature of the solutions we offer are different in Northern Ireland from the Republic. The legal system that applies in Northern Ireland is based on the system in the United Kingdom and as such there was no impact on Northern Ireland from the Ms Justice Dunne ruling which in effect meant for two years, between the middle of 2011 and the middle of 2013, there was no meaningful threat of repossession. I say that upfront because it is probably not helpful to try to compare the mortgage arrears activities between Northern Ireland and the Republic of Ireland. In fact, the regulatory view of what are appropriate solutions between the PRA and FCA and the Central Bank are quite different as well.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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Is that not available in the North?

Mr. Stephen Bell:

It is not available in the North. It is not really necessary to address the problem in the North based on our experience. Where we believe a person has the capacity to pay for a restructured home loan but chooses not to and works to sell the property, we would look at the residual debt on a case-by-case basis. We recognise that in some instances we may achieve a better outcome through the co-operation of the customer than if we had to go through a lengthy court process. We would typically not look to go beyond seven to ten years in any kind of arrangement because that would be consistent with the personal insolvency Act. We do not want to put people in a position whereby in co-operating with the bank, they put themselves in a worse position than if they had gone through a personal insolvency process. We would typically base our expectations on affordability and their individual circumstances.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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There are detailed figures for repossessions and voluntary surrenders and the table shows a significant spike in the last two quarters of 2014. Is this the start of a prolonged period of these numbers?

Mr. Stephen Bell:

The figures we have shared with the committee on previous appearances is that in the UK in the late 1980s and early 1990s, we saw something between 0.5% and 0.7% of the housing stock repossessed each year for about a five-year period. That is the level of repossessions that most economies would see as they correct from a severe economic contraction. The level of 150 repossessions a quarter, which is the most recent figure we quoted, would seem to be a more normal representation of what will be needed to see this problem work through the courts system. The difficulty is that for the period from mid-2011 to the end of 2013, the average number of repossessions was 26 per quarter, not 150. One has seen quite a dramatic difference. In effect what happened was that cases that could not be heard for two years or more are now having to hit the system.

Mr. Jim Brown:

While the number has significantly increased in 2014 on 2013, the vast majority of that increase has actually come from vacant and abandoned properties.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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Yes, that is my next question.

Mr. Jim Brown:

The actual number of non-voluntary orders has actually only increased from 43 to 54 for the whole year.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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These vacant and abandoned properties are not voluntary surrenders. Is that the case? These are cases where people simply drop the keys back in the door.

Mr. Jim Brown:

They are gone.

Mr. Stephen Bell:

These are situations where, after a lengthy period, when we finally get some kind of order from the court and when we finally visit before an enforcement of the order, we find that the property is abandoned.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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How many of those are there?

Mr. Jim Brown:

There were approximately 200 vacant and abandoned properties in 2014.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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Another issue arises not only with mortgage debt but with other types of debt as well. Let us suppose a debtor is trying to negotiate a better deal on a particular debt and he makes an offer to pay back 30% of the debt to the bank. He is refused and then the debt is sold to a third party for maybe 20% of the value, etc. I am not saying this has happened with Ulster Bank. Is it the case that debt is sold to third parties for less than the negotiated offer from the dweller or business person?

Mr. Jim Brown:

Is Deputy Tóibín referring to mortgages? We have not sold any mortgage debt.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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That is grand.

Photo of Brian WalshBrian Walsh (Galway West, Independent)
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You have one minute left, Deputy.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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Is Ulster Bank still deleveraging?

Mr. Jim Brown:

We have been deleveraging what we call our RBS capital resolution portfolio. It is our mini-NAMA equivalent. That is all but completed. We started at the end of 2014 at approximately £4.8 billion. We are in a closed period and therefore I cannot tell the committee the exact amount now, but a considerable portion of that has been resolved. We expect that the vast majority of that £4.8 billion will be resolved before the end of this year.

Photo of Peadar TóibínPeadar Tóibín (Meath West, Sinn Fein)
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I thank the deputation for all those details. The last question relates to one of the points Mr. Brown made in his presentation. He mentioned the fact that if secured debt were no longer secured it would have an upward pressure on the cost of lending. Is Mr. Brown adverting to a situation whereby the banks would no longer have a veto in a negotiated settlement? Is he saying that taking away the veto from a bank would have the effect of increasing the cost of debt?

Mr. Jim Brown:

No, that is not what we are saying. What we are saying is that if any further measures are introduced people need to be mindful of the fact that the rights of secured lenders need to be preserved. The reason interest rates are relatively low on mortgages is because of the right to enforce that security. If that right were over-ridden or if it became quasi-secured then the reality is that the interest rates would reflect the increased risk we would be running on the portfolios.

Mr. Stephen Bell:

That is to say the asset financing rates are probably in the high single-digits or low double-digits, while unsecured lending is typically between 15% and 25% APR. This is to reflect the fact that there is no real security for lenders to rely on in those cases. The reason for standard variable rates being at comparatively low levels is because of that effective security.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Let us go back to the question raised by Deputy Fleming about the standard variable rate and the cost of inputs in Ireland being higher than elsewhere. The difference in regard to Northern Ireland is at 70 basis points. Is that the same as the difference between here and the rest of the United Kingdom?

Mr. Jim Brown:

Mr. Bell may know the specifics, but the broad answer is that, for the reasons we outlined earlier, the amount of capital we have to hold against our mortgages in Northern Ireland is higher versus the United Kingdom.

Mr. Stephen Bell:

It is higher but not as high as it is for Ireland.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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What about the recent history in the United Kingdom, on the mainland, in any event? Is that not markedly different from what has been experienced here?

Mr. Jim Brown:

The losses that we have experienced on our portfolios are considerably higher.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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What about the regulatory imperative on Ulster Bank? Is that same regulatory imperative on the rest of the lending institutions here?

Mr. Jim Brown:

In terms of the other mortgage lenders, yes, it is.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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It is not something that featured in our exchanges with the officials from Allied Irish Bank. They did not advance it as a reason for-----

Mr. Jim Brown:

There is a difference. What we are saying is that because we operate Ulster Bank in Northern Ireland and we also operate in the rest of Great Britain, we can say to the committee that, based on our experiences in those markets - we operate in all of them - the amount of capital that we have to deploy against each mortgage that we issue is higher in terms of risk-weighted assets.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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We will have a look at the text when Mr. Brown sends it on. Is Mr. Brown saying that the bank has no intention of reducing the standard variable rate?

Mr. Jim Brown:

That is correct. However, we continue to monitor the rate based on competition, clearly. Importantly, as we were saying a moment ago, it is also related to the cost of paying the mortgage. That is made up of a number of components, be it cost of funds, capital operating costs, mortgage arrears, credit losses, levies and so on.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Will Mr. Brown be saying as much to the Minister for Finance, Deputy Noonan, when he meets him?

Mr. Jim Brown:

I will.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Let us consider the matter of the 22,000 or 10,000 plus 12,000. The 10,000 are now up-to-date, paying and so on. Are the 12,000 settled or is it a question of temporary arrangements?

Mr. Stephen Bell:

These are typically longer term arrangements. They would not be short-term interest-only arrangements. They would be longer term periods of lower interest, capitalisation of the arrears or an extension of the term. These are arrangements that are far more permanent in their nature. It is fair to say that there is ongoing work involved in working with these customers.

This goes back to the point about engagement. We do not have a once-and-done approach to engagement. We ask customers to keep talking to us because we recognise that mortgage arrears typically mean general financial distress. Unexpected events can occur which may make a payment difficult to make in a particular month. We still work closely with customers who are on arrangements even though the arrangements are functioning effectively.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Mr. Bell said 22,000 cases have been resolved. Short of the kind of situation that always happens or that can happen where a person loses his job, these are reasonable solutions from the point of view of the person who is the borrower. Is that the case?

Mr. Stephen Bell:

Absolutely. As part of the mortgage arrears process and in the event that a customer took the view that the arrangement he was offered was unfair, he has a statutory right to appeal. He could appeal to an independent body within the bank which then looks at the circumstances of the case. The levels of appeals that we have experienced within Ulster Bank Ireland Ltd. have been extraordinarily low. We take this as a sign that the customer is broadly happy with the proposal that has been made.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Do the Ulster Bank representatives have a figure for the write-downs for 2014 on mortgages?

Mr. Stephen Bell:

No, there has been no write-down. We have had write-offs where the property has been sold at the end of a repossession process, but there have been no write-downs of debt which have left the customer in the property.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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What about the 2,000 who are not engaging? It appears, on the face of it, that the steps Ulster Bank has taken are positive. How does Ulster Bank propose to proceed? Is Ulster Bank treating it without discernment? Presumably Ulster Bank has done the selecting of the 2,000 in question. Irrespective of location, amount or whatever, is the offer the same?

Mr. Jim Brown:

We have not done the selection. It is the 2,000 customers who have done the selection because they are neither engaging nor are they making a payment.

While our undertaking is to try to keep customers in their homes, there must be meaningful engagement on it. As I said in my opening statement, although we, the Government, the Insolvency Service of Ireland and the Financial Regulator have been trying to encourage engagement, it has not happened. That is why we have come out with our commitment to make it very clear to customers that we want them to engage, we have solutions and we will treat them fairly as we go through it. If those people are apprehensive about dealing with the bank, the commitment spells out how we will deal with it. If there is no engagement, we cannot offer solutions.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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While I appreciate that, do the solutions the bank is advancing mean it will treat the 2,000 customers alike or individually?

Mr. Stephen Bell:

We will treat every case on an individual basis. We are illustrating our approach.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Could Mr. Bell spell out the approach?

Mr. Stephen Bell:

If a customer engages with us and says he or she cannot resume any kind of meaningful contribution to the home loan, is eligible for social housing and would like to work with us to dispose of the property, we would confirm to the customer that once the property has been sold and the loan repaid with the proceeds, there would be no pursuit of them for the residual shortfall.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Mr. Bell said that he exercised the veto in only five cases in terms of the personal insolvency arrangements. Do the answers he supplied state the total number of cases that came before him?

Mr. Jim Brown:

Yes, 100.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Is it 100 in total?

Mr. Stephen Bell:

It is 100 or more.

Mr. Jim Brown:

It is approximately 100. The figure is in the disclosures we made earlier.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Is Mr. Brown surprised at that?

Mr. Jim Brown:

Not really. Given that we have solutions that allow us to resolve the situation with the vast majority of customers, the need for them to go to the Insolvency Service of Ireland is low. We try to resolve matters before they reach that stage. It does not surprise us that we have vetoed only five.

Mr. Stephen Bell:

In our answer we stated that they were in very specific circumstances. In many of the instances there had not been adequate engagement by the customer before a relatively late appeal by the personal insolvency practitioner for a solution. One of the essential aspects of the personal insolvency process when it was launched was that it was for people who had engaged meaningfully with the institution, could not reach an agreement and were insolvent. We have seen some cases, and they are representative in the five cases, in which there had been no engagement until the very last minute.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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On the solution being offered to the 2,000 non-engagers, how severe is the requirement to be eligible for social housing? Is there much room for objective judgment? A person resident in a house such as Gorse Hill might or might not automatically be on the social housing list. If the bank judges a person to be a significant earner, how severe is the assessment? Could the bank use the eligibility for social housing to put a line through many of the 2,000 and prevent them from getting what they thought they would get?

Mr. Stephen Bell:

Given that they have not engaged, it is difficult for us to tell because we do not have the benefit of the full information. The significant majority of our customers have a home loan balance that is considerably less than €200,000. Even at the standard variable rate, the capital and interest repayment would be well within the affordability of somebody who has an income of €35,000, based on tax deductions, etc. In many counties and for the vast majority of people, social housing eligibility is within the €30,000 to €35,000 range, although it is less in certain parts of the country. We thought it was an effective commitment to make because above the levels that would typically qualify a person for social housing, it provides the kind of income that would allow a person to service a restructured loan.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Does the bank have non-engagers above the threshold?

Mr. Stephen Bell:

Absolutely. Probably, some of the people who have got used to a higher standard of living find it hardest to adjust downwards when times become difficult.

Photo of Pat RabbittePat Rabbitte (Dublin South West, Labour)
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Mr. Brown said the bank did not select the 2,000, but that they have selected themselves. While I understand the point, the bank selected the 2,000. I am trying to establish that the bank will do "what it says on the tin". The bank selected them on the basis that the threshold of earnings would seem to suggest that in most local authorities they would be eligible for housing.

Mr. Stephen Bell:

Yes, that is correct.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I thank the witnesses for their participation. I would like to discuss the variable rate mortgages and the apparent differences in the rates here compared to those in the UK. While profiles of borrowers can vary anywhere, variable interest rates seem to be higher here than in Britain and the North of Ireland. The witnesses referred to greater risk in the South. Could they elaborate on it? Is the greater risk to do with what we have just been through, namely the bubble, the crash and the unprecedented mortgage arrears crisis? Does the bank constantly factor it in and recoup its losses? Is that the reason rates are higher here?

Mr. Jim Brown:

Over the past five years, we have lost a considerable amount of money on mortgages in the Republic of Ireland. Separately, a dialogue has been going on in the market that somehow the standard variable rate, SVR, is tied to the ECB rate which then determines margins. This is not the case. A number of factors need to be taken into account when determining the profitability or otherwise of a mortgage. Because we operate on both sides of the Border and in the UK, we know the SVR for a similar type of product to a similar type of customer is very similar in Northern Ireland, England, Scotland and Wales and the cost to fund it is very similar. Although the rate might vary by 20 basis points, so does the cost of funds. Clearly, we do not have the same information about Europe. The margin on all those loans is very similar, as Mr. Stanley said earlier, approximately 3%. A number of costs are incurred in providing mortgage, including capital, the cost of funds, operating expenses, the cost to service mortgage arrears, credit losses and levies. Despite the fact that the margins are the same, the cost to provide all of those imports in terms of servicing a mortgage is higher in this market than in other markets in which we operate.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Credit losses?

Mr. Jim Brown:

Credit losses, costs of capital, operating costs, costs of servicing mortgage arrears and bank levies were all higher.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Credit losses refers to losses the bank has incurred in the South of Ireland, presumably much of which has to do with what we have just been through.

Mr. Jim Brown:

That is correct, and it impacts on credit losses going forward.

A further comment we were making was that because of those credit losses the requirement in terms of the risk weighting against the capital we have to deploy for each loan is higher in this market than in other markets.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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What I am trying to establish, and this is probably the perception, is that the banks are unloading the cost of their own mistakes onto the variable mortgage holder, therefore, the cost is greater here because we have been through this crisis, which was largely not of the making of the people with the mortgages but of the financial institutions.

Mr. Jim Brown:

I do not think that is what we are saying. What we are saying is that is a factor, but there are several other factors that are different. The cost in supporting customers in arrears, the operating costs, the levies we incur and the actual cost of funds in this market are all different as well.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Mr. Brown has made that point, and I do not have much time so I will take that answer.

I ask about Mr. Brown's interaction with the Minister, the Department and so on. Can he tell us anything about what the Minister is saying or has said to him on these matters or the degree to which he would be willing to respond to what the Government is saying about the extra pressure it will put on the banks to give people a break on variable mortgages?

Mr. Jim Brown:

In terms of variable rates, as I mentioned in my opening statement, we have been progressively reducing our rates for existing and new customers. We have a wide range of fixed rates that are lower than the standard variable rates that existing and new customers can take as well.

In terms of engagement with the Minister, I am more than happy to engage and I am willing to share with him the discussions we have had on the various components that make up the cost of providing mortgage finance in the market. We are happy to engage.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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What I really want to know is whether he is putting pressure on the bank.

Mr. Jim Brown:

I believe I might be invited to a meeting, so we will have to see how the meeting goes.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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But to date.

Mr. Jim Brown:

There has been no specific debate on mortgages. We have regular dialogue on various issues but nothing specific on standard variable rates, SVRs, that I can recall.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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To date, the Minister has not put any pressure on Mr. Brown on this matter.

Mr. Jim Brown:

He has not spoken to me directly, no.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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On the mortgage arrears issue, what is Mr. Brown's explanation of the 2,000 people who just will not engage?

Mr. Jim Brown:

As was said, we have made numerous efforts to try to get customers to engage, everything from calls, letters and visits. There has also been clear communication from Government, the Central Bank, the Insolvency Service of Ireland and even the court process and despite all of that, there is a group of customers that still will not engage, even through to the court process. It has been reported that only one in five turn up in the courts, for example. I cannot explain that but in recent days we have come out with our commitments to customers in arrears in terms of how we will treat them so that they can see that the process we would be putting them through will be fair. We would rather that those 2,000 customers engage with us because if they do we believe we have got a solution that will help them, just as we have helped the other 22,000 customers, but we need to engage. As to why they are not, I cannot answer that.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Generally speaking, the mortgage-to-rent process does not seem to have happened. I am disappointed that has not materialised to a greater extent because it is potentially the solution to many of the most difficult cases that one would imagine, that is, people who have lost their jobs and those on low income. Mr. Brown might answer that but I will ask him one final question given that my time is running out.

A big issue that has dominated the agenda in recent weeks is the events around Siteserv, and it has opened a window to the bigger issue of big write-downs for corporate and commercial interests. While Mr. Brown is not involved in the Siteserv issue, has he any opinion on the scale of the write-downs being handed out, and what is Ulster Bank's record in regard to big write-downs? The Minister is now saying, after the event, that he wants to know about any write-down over €10 million and so on. Can Mr. Brown tell us anything about the volume of big commercial loans his bank has written down and the writing down of loans in those type of circumstances to that extent, which is arguably of significant benefit to the companies that get them?

Mr. Jim Brown:

The only answer I can give to that is that we were not part of the Siteserv transaction so I cannot comment on that.

In terms of the losses we have incurred, we had a considerable commercial lending portfolio on which we took write-downs. We have virtually disposed of all of that; the majority of it will be done by the end of this year. We have taken some gains back in terms of realising slightly more for the assets than what we had marked but, generally for us, the situation is that the majority of those loans have been disposed.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is there anything comparable in terms of where companies that would owe Ulster Bank €150 million, for example, would get a write-down of €110 million?

Mr. Jim Brown:

I do not know the specifics of the transaction but I can say that-----

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Does Mr. Brown have anything like that in terms of his bank's write-downs?

Mr. Jim Brown:

We have quarantined our non-performing book into our restructuring area. We have progressively disposed of that book, not just written it down, out of the hands of Ulster Bank over the past few years.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Sold them at a big discount.

Mr. Jim Brown:

Absolutely. That is where we took the losses.

Mr. Stephen Bell:

Our stance has been that the idea of writing down debts owed by people who continue to trade or exist in the previous form is not something of which we are supportive but where we have to enforce our security and sell the asset, it has to be sold at today's market price, and that creates write-offs. We stick to our distinction between write-downs and write-offs. There will have been large write-offs as a consequence of disposing of assets at today's market prices, which would be substantially less than the price at which we financed the transaction, but we have not done large-scale write-downs for companies that have continued to trade as normal.

Photo of Brian WalshBrian Walsh (Galway West, Independent)
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That concludes our contributions from lead spokespersons. Time is on our side so we can allow some flexibility. Five minutes is the allocated time for non-main spokespersons but we can add to that. I presume other members who have contributed might wish to come back in with further questions. I call Deputy Creed.

Photo of Michael CreedMichael Creed (Cork North West, Fine Gael)
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I thank Mr. Brown and his colleagues for their presentation. I have a number of questions primarily on the standard variable rate. First, in response to question No. 4 Mr. Brown said that a permanent interest rate reduction has been invoked in zero cases. That strikes me as strange. In most cases the mortgage holder is endeavouring to do their best but often it is the marginal difference that determines whether they can make a payment in terms of the higher or lower rates Ulster Bank charges on mortgages at various stages, be it on the basis of their loan to value, fixed or variable rate. Mr. Brown might comment on that and also on a comment by the previous speaker with regard to mortgage-to-rent. What is the impediment to that being used more widely?

Second, in respect of the fact that Ulster Bank operates in Northern Ireland, what is Mr. Brown's experience there of the bankruptcy regime, which is a one year bankruptcy term, and how that impacts on its mortgage book? Where it is invoked, what has been the outcome for the family home in those situations?

Third, Mr. Brown made reference to the factors that impact on the bank's variable rate including capital levies, taxes, compliance costs, credit losses, operational costs, etc.

I presume these factors also impact on the bank's credit rating. Does Ulster Bank have two separate credit ratings for its operations in the Republic of Ireland and Northern Ireland? Are the two credit ratings different, and if not, does it suggest that those who operate the ratings see no significant difference in the operating risks of loan books in the two jurisdictions? How active is the switching market in Northern Ireland? How many competitors does Ulster Bank have in Northern Ireland compared with here, and is the relative lack of competition here a factor that enables the bank to charge a higher interest rate here? Does Ulster Bank have a profile of the 2,000 non-engagers in terms of age, employment and loan-to-value ratio? I appreciate that if a person does not open his or her post, the bank has a difficulty. On the basis of other products that exist regarding switching, loan-to-value ratios and appreciating property prices, could the non-engagers become compliant mortgage holders?

Mr. Jim Brown:

In our experience, the bankruptcy period, be it three years or one year, is not the issue in trying to resolve the 2,000 cases in arrears. Whatever the period, those customers will not engage with us, and changing the bankruptcy period will not cause them to do so. Unless customers respond to the commitments we have just launched, the only tool we have is the court process. The standard variable rates are very similar in Northern Ireland and the Republic of Ireland and the margins are virtually identical. We have four or five key competitors in the mortgage market here. Although the competitors in the North are different, competition is equally active, and there are competitors there from the rest of the UK and Europe. The number of competitors is similar in round terms. We are rated by Standard & Poor's, Moody's and Fitch in Northern Ireland and the Republic of Ireland. Although I do not have the ratings here, we are happy to provide them.

Photo of Michael CreedMichael Creed (Cork North West, Fine Gael)
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In so far as Mr. Brown can recall, are they equal?

Mr. Jim Brown:

While there is a difference in the ratings, I cannot give the specifics, given that each of the legal entities has different amounts of capital, financial returns and profitability.

Mr. Paul Stanley:

They are different, and I will give a flavour of why they are. Our Northern Ireland company, UBL, holds the investment in UBIL, which is the Republic of Ireland company. The liquidity regime for UBL is very much wrapped up in Royal Bank of Scotland, RBS, and there is a look through to that linkage to the parent, whereas UBIL is increasingly being regarded by the rating agencies on a standalone basis. Given that Moody's is reviewing its methodologies and reinforcing this approach, I expect to see the existing differential widen.

Photo of Michael CreedMichael Creed (Cork North West, Fine Gael)
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Do the credit rating agencies hold Ulster Bank's Republic of Ireland operation as a higher or lower risk?

Mr. Paul Stanley:

They see UBIL as a higher risk and somewhat removed from the parent.

Mr. Jim Brown:

Switching activity across both markets has been relatively subdued in the mortgage area, predominantly due to the fact that a significant number of customers have gone into negative equity as a result of falling property prices. However, we allow customers to apply to port their mortgages in cases of negative equity.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I welcome Mr. Brown and his team to the committee and thank them for their time. I think this will be the last time Mr. Brown will appear before the committee.

Mr. Jim Brown:

Maybe.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I am delighted that lending increased by nearly 40% last year. It is very positive and I hope it continues. I recognise the efforts Ulster Bank has made in the mortgage arrears crisis. People who work on behalf of borrowers have said positive things to me about Ulster Bank and told me the bank is making genuine efforts to keep people in their homes, where possible, and come to reasonable agreements. I also welcome the fact that the interest rate fell by a few basis points in March.

I will pick up on Deputy Boyd Barrett's line of questioning. Although Ulster Bank has nothing to do with Siteserv or the IBRC sales processes, let us say a company with a market capitalisation of approximately €50 million owed Ulster Bank €150 million, but an agreement was reached that the company would be sold and the amount raised returned to Ulster Bank, which would write down approximately 65%. In this case, would the shareholders ever get a multi-million euro pay-off as part of the transaction, thereby reducing the amount Ulster Bank would receive by several million euro?

Mr. Jim Brown:

I cannot envisage it.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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To the best of Mr. Brown's knowledge, has it ever happened while he was in control of Ulster Bank?

Mr. Jim Brown:

I cannot recall a specific example such as the one the Deputy mentioned. We have written down transactions and converted debt to equity several times, and this has been widely reported in the market.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Is it the kind of thing Ulster Bank would do?

Mr. Jim Brown:

I cannot see that we would, and I cannot recall any specific examples.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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The previous time Ulster Bank representatives appeared before us, they told us it was the bank's policy that there would be no write-down of debt. I very much welcome Monday's statement that, in particular situations, the residual debt after a voluntary sale would be written off. On the last occasion we spoke, Mr. Brown said where Ulster Bank had a controlling vote on a proposed personal insolvency arrangement, PIA, if the arrangement included the write-down of debt on the part of Ulster Bank, the bank's policy was to vote against the PIA. Now that the very welcome precedent has been set in limited circumstances, would Mr. Brown envisage Ulster Bank, where it has a controlling vote, being open to PIAs that may include some write-down of debt as part of a reasonable solution?

Mr. Jim Brown:

Last time we were here, we said we could not envisage a case in which we could not find a solution that would keep people in their homes, and we still believe that.

We also said at the meeting in November that in a case where somebody had sold their home and qualified for social housing we would not pursue them for that residual debt. What we have done, in a last ditch effort to get that clear message out to customers, is to come up with a customer commitment that clearly states how we will engage with customers and that we will treat them fairly. It reiterates many of the points that were mentioned previously but it set them out in a way that is very clear and transparent for customers. I will ask Mr. Bell to comment on specific examples.

Mr. Stephen Bell:

We have always tried to be consistent in our answers to the committee in setting out the distinction between write-down and write-off. What we said, with respect to those commitments on Monday, is that in the event of a write-off at the end of a sale process, we will not chase the residual shortfall for those people who are at a sufficiently low income that they would be eligible for social housing.

In terms of our approach to the personal insolvency process, we are still of the view that the vast majority of cases can be resolved without the need for a principal write-down. Our concerns around that are that it is not a solution that could be offered to everybody. We, as an organisation that has said we wish to be known for trust, service and advocacy are deeply uncomfortable to offer solutions to some people that we cannot offer to very many people. We are in a position where the Irish real estate market is recovering from a very low base but offering somebody a write-down of principal and leaving the contractual interest rate the same simply extracts profit in a different way and creates a capital gain at the end of the process for which there is no real justification. Our preference is to regard arrears as an affordability issue, to work on reducing the monthly payment as far as we can through either extending the term of lowering the rate for a period of time which can be quite lengthy. However, for us, the consequence of writing down debt seems to create something of a moral hazard concern because, in reality, what it is doing is potentially rewarding those who borrowed most aggressively at the peak of the market as opposed to those who were more prudent in the run up to the peak. The difference between policy and practicality-----

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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I am sorry to cut across Mr. Bell but I am mindful of the time factor. Various proposals are currently being considered by the Government on accelerating the pace of the mortgage crisis. It has gone on in Ireland far longer than it has gone on anywhere else. I tabled a motion in Dáil last night that raised a few possibilities. Can I get a quick response from the bank as to whether it would support the following four proposals? I will go through them and Mr. Brown can then respond to them. The first proposal is to move the bankruptcy period from three years to one year, at least for a term-limited time until the mortgage crisis is resolved. The second is the provision of financial expertise, be it a personal insolvency practitioner, PIP, or a personal financial adviser, to those who cannot afford them. The third is the provision of legal representation. What struck me about the process in the Circuit Court recently was that the borrowers who did turn up did not have a lawyer. Borrowers were not turning up with legal representation in court. The fourth proposal is a recommendation from the committee last year that the restructures offered by any lender would be stress-tested in the same way that new lending would be stress-tested. Can I get Mr. Brown's response to those four proposals?

Mr. Jim Brown:

First, it would be useful if we could get details of those in order that we could respond in a more thoughtful way. Therefore, the responses I will give may not be exact. On the first issue, as I mentioned, I do not think that moving the three year period to one year is the issue in terms of speeding the resolution. The key here is that there are two or three elements that make the process lengthy. The first is that there is a code of conduct on mortgage arrears process, which we need to go through with customers. That can be quite protracted. Getting into the court process and getting a case through the system, heard and finalised is also very lengthy. In my view the only way to shorten the process is to address both of those. At present the only tool we have available to us, due to lack of engagement, is the court process. Therefore, we have no choice but to go through that protracted process to get those 2,000 people to engage. In terms of financial expertise, we already advise customers of that.

Mr. Stephen Bell:

We launched a scheme last year where we agreed to pay for the cost of a personal insolvency interview for a customer who felt it was the right answer but did not have the money to do so. We would be very supportive of that notion.

Mr. Jim Brown:

On legal representation, I think we are fine on that as well.

Mr. Stephen Bell:

Yes. It is a very good point. Turning up at a court without anybody to represent one is probably quite difficult, which is why we try to make sure that we are present so that we could be the friendly face of that process. We would absolutely supportive of that.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Mr. Brown said that he did not think that reducing the bankruptcy period from three years to one year would help much, regardless of that, would he have any serious concerns about it being introduced?

Mr. Jim Brown:

Not really. The period is one year in Northern Ireland. I would have to give it a considered opinion and look at the differences between the two markets.

Mr. Stephen Bell:

What would really help, and I am sorry if this sounds a little harsh, is if we could agree that for those people who will not engage and who do not pay or do anything to help themselves with this process that the courts will allow those cases to move through the system more quickly because what we have now is not helping us or the customer at the end of the day. Repeated adjournments and extension of the situation simply adds to the balance, the cost and the losses that everybody will face. We would be fine with bankruptcy periods of whatever length but what would make a huge difference is the ability for the court process to be speeded up in those cases where we agree this cannot be allowed to continue. The measure of that can be seen in England and Wales where the court system is faster. The most serious arrears have hovered between 0.2% and 0.25% of the total mortgage stock while in Ireland that equivalent number is nearly 10%, which equates to 50 times higher levels of serious arrears. The simple answer for that being the case is that no repossessions are taking place.

Photo of Stephen DonnellyStephen Donnelly (Wicklow, Independent)
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Thank you.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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I thank the delegates for attending today. We have had delegates from other banks appear before the committee already. I did not see the cost of the bank's funds in the handout and Mr. Brown might indicate that. Is he in a position to tell us that?

Mr. Jim Brown:

What we have said is that our cost of funds------

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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I noted the reasons Mr. Brown have given us.

Mr. Jim Brown:

We responded in the data that was requested earlier. We said that it is not in the public domain and that our cost of funds is not materially different from that of the other larger banks in the Republic.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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How much of the bank's funds are from the ECB?

Mr. Jim Brown:

It is a relatively small amount.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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Are we talking about less than 5% like the other banks, or is it up to 10% or 15%?

Mr. Paul Stanley:

It would be more in the 5% range, it is relatively small.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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Okay. With regard to restructuring, and I am sure the bank has many customers who would be in the pre-arrears category as opposed to the arrears category that we are considering. I am surprised to note that with respect to the bank's split mortgage product - which is a something that would have been recommended under the Keane report where a borrower would park a percentage of the mortgage, pay what they can and address the balance afterwards - that it has zero in the long term and very small numbers in any event.

Mr. Jim Brown:

Yes.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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Why is that the case?

Mr. Jim Brown:

Mr. Bell might like to explain that. We have another product, the economic concession, which operates similarly but we think it is actually better for the customer. The Deputy will note from the numbers that we have provided that a significant number of customers have taken that solution. Approximately 4,500 have taken up that product. Mr. Bell might go through that and explain it.

Mr. Stephen Bell:

The reason we have had so little uptake for the split mortgage product is that when we have offered the customer the choice between a split mortgage and the economic concession product, they tend to prefer the economic concession. The way it works is that we will agree to lower the interest rate and it can go as low as 0.5%, although not all cases are at 0.5%. That concessionary rate can be for a period as long as seven years but they are not necessarily all for that period. We picked seven years because we try to be complementary to the work of the personal insolvency service and we wanted to ensure that at the period end the customer would be able to resume normal service. Because of the way that works, the vast majority of the customer's monthly repayments goes towards paying down capital.

They will not service interest unduly because the interest rate has been set at such a low level. What one finds, therefore, over a medium to longer term forbearance period is that the balance the customer owes reduces and when the forbearance period ends the balance he or she must service on the original interest rate has been substantially reduced.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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I will tease out that issue if I may. Given that some of these customers were on tracker rates of 1%, an arrangement under which the rate is reduced by 0.5% will not exactly allow them to see light at the end of the tunnel.

Mr. Stephen Bell:

The tracker rate would be closer to 2% because there is a 1% margin over the European Central Bank rate, which has been closer to 1% in the past. The reduction can make a material difference, although I admit it does not work for everybody to the same extent.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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Does Ulster Bank add amounts for arrears capitalisation to that figure?

Mr. Stephen Bell:

That could occur if it is the right thing to do.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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Is it the right thing to do?

Mr. Stephen Bell:

It is if it is the right thing to do for the customer.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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Simply reducing the interest rate will not work for a customer who is in difficulty with arrears. My fear concerns young families in a certain age bracket who are offered a restructured mortgage arrangement. By the time their children start third level education they will be barely hanging on and will be unable to afford to pay the costs of putting their children through college. I am afraid this will result in another dramatic event. I discussed this issue with representatives of the Money Advice and Budgeting Service who expressed considerable concern that many people will encounter serious problems with third level education because they are barely hanging on under the current arrangements.

Mr. Jim Brown:

As we stated, notwithstanding the position in which individuals find themselves, there is a cost to living in a home. If one takes an average mortgage of €170,000, in the case of a customer who is offered an interest-only period at an interest rate of 2%, the monthly cost of his or her mortgage will be €300 per month. It is impossible to rent anything in Dublin for €300 per month, whereas we can put in place a solution that keeps a customer in his or her home, provided there is co-operation and engagement.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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While I appreciate Mr. Brown's point, having dealt with many people who are experiencing problems with their mortgages, the problem is that arrears and interest clock up to such an extent that they face large bills. They will settle for any type of arrangement that keeps them in their homes. Is Ulster Bank future proofing its approach to this issue?

Mr. Stephen Bell:

We are not resistant to split mortgages and I do not want to give the impression-----

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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A split mortgage would allow people to stay in their home and, at a later date, either sell the property or pass it on to someone who would then have a small mortgage on it. This option removes the fear element. While I appreciate that every case is different, I am not a fan of the concept Mr. Bell outlined.

Mr. Stephen Bell:

Ulster Bank is perfectly relaxed about split mortgages as a concept. Under our approach, the customer could pay down as much as that part of the debt that would have been warehoused during the forbearance period when the interest rate has been set low. The net economic effect is, therefore, the same. As we indicated to the joint committee in one of our first appearances before it, when we did the total cost of credit for a split mortgage against an economic concession for the same rates and terms, we found it was cheaper for the customer to have the economic concession than the split mortgage. The reason is that typically the market construct for the split mortgage is that the contractual rate applies on the non-warehoused portion and a zero rate applies on the warehoused portion. Net of those two factors, the customer can end up with a higher total cost over the life of the loan.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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Mr. Bell and I will agree to differ on that point.

If a person moves into a restructured arrangement for a business which has a core or non-core debt or in circumstances in which he or she is moving from being a sole trader to a limited company, the interest rate is likely to increase on the basis that many of them will have borrowed at a very favourable rate. In such cases, Ulster Bank will already hold the title, for example, where the person is a farmer. Does Ulster Bank ask customers in such circumstances to bear the full costs of perfecting the title for a second time? Does the customer have to pay the bank's legal fees? While I accept this is not directly related to mortgages, it also involves restructuring.

Mr. Jim Brown:

I cannot answer the Deputy's question but I will be more than happy to revert to him with a reply.

Photo of Tom BarryTom Barry (Cork East, Fine Gael)
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I would like a written reply.

Mr. Jim Brown:

We will provide one.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I am trying to place a construct on my thesis on family homes and the way in which banks are trying to restructure their balance sheets. What would be the valuation of Ulster Bank if it were to obtain a market capitalisation?

Mr. Jim Brown:

I cannot answer that question as it is speculative. Ulster Bank is a fully owned subsidiary of Royal Bank of Scotland. It would not be right for me to comment on the issue the Deputy raises.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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A figure is known.

Mr. Jim Brown:

As it is not something we have looked into, I could not tell the Deputy if that is the case.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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If RBS is looking at Ulster Bank as being part of its overall portfolio, it will have a value attributed to it.

Mr. Jim Brown:

RBS looks at the attractiveness of Ulster Bank as part of the RBS group and its alignment with RBS strategy, which is very clear.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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It must place a value on the bank.

Mr. Jim Brown:

Ultimately, the value comes through the RBS stock price. If the Deputy is asking me for a specific market valuation on Ulster Bank, we do not have one because-----

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I will make the question a little easier for Mr. Brown. Has the value of Ulster Bank increased or decreased over the five years since 2010?

Mr. Jim Brown:

That question is also difficult to answer. We have gone through a period in which we have-----

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Has the bank's balance sheet repaired itself over the past five years?

Mr. Jim Brown:

It is repairing itself.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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In that case, its value will have increased.

Mr. Jim Brown:

It depends on how one looks at it. We have put in £15 billion to cover the losses we have experienced in this market, which is still not completely normalised. While we have reduced considerably the legacy in commercial real estate lines that were on the books, we still have a little way to go in that regard. In addition, the mortgage market is not yet normalised.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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While that has obviously been factor, the mortgage market is improving and the value of the assets, namely, the loans backed by the security on the properties in question, has increased in the past five years. Ultimately, therefore, with the loans now worth more, Ulster Bank must be worth more.

Mr. Jim Brown:

Last year, we reported a profit of €700 million. This was achieved through improving profitability within the business. Much of this was on the back of the improvement in the property market and economy. However, we also lost £15 billion in the preceding years.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I acknowledge that but there has been an improvement in the property market.

Mr. Jim Brown:

Profitability is still not yet normalised. As the bank noted in its results, a considerable amount of the profitability for last year came through write-backs. If one looks at the profit before losses, it is still not normalised.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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It is improving, however.

Mr. Jim Brown:

Yes, it is definitely improving.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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What percentage of the bank's lending facility is being given over to site finance for developers and working capital for developers and builders to build new homes?

Mr. Jim Brown:

On the first issue, we had a considerable exposure to developers, which is what we have been selling for the past few years as part of the non-core or bad bank, so to speak, that we have been winding down. We still have some distance to go in that regard. That said, we recognise the importance that Ulster Bank, as a systemic bank, plays in the market. We have re-entered the market to do some construction. While it is at a relatively modest level, we are doing construction lending in the market, both in Northern Ireland and the Republic.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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How significant is the bank's construction lending relative to ten years ago?

Mr. Jim Brown:

It is considerably lower that it was ten years ago.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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How much lower?

Mr. Jim Brown:

We are talking billions.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Can Mr. Brown express the figure as a percentage? Is it 50% or 20% lower than it was ten years ago?

Mr. Jim Brown:

It is probably less than 10% of the previous figure. That said, as part of the strategic review that was undertaken by RBS, we recognise the strategic importance of the role Ulster Bank plays and we are prepared to increase our current exposure in development. While it will be modest, we have the appetite to do some lending over the next four or five years.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Lending for site finance is, therefore, approximately 10% of what it was previously.

Mr. Jim Brown:

That figure refers to construction in general, that is, housing, commercial developments and so on.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Site finance and working capital to build new homes, etc., stands at approximately 10% of the level at which it stood ten years ago.

Mr. Jim Brown:

The Deputy asked the question in terms of quantum. I will come back with an exact quantum if he wishes. The point I was making is that the figure is considerably lower than it was.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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This is part of the problem we are experiencing the housing market. Approximately 80,000 homes were being built annually a decade ago. If Ulster Bank and all the other financial institutions are providing only 10% of the construction finance they were providing at that time, only 8,000 houses will be built annually. This figure is nowhere near what the market needs.

Ultimately, if one is to look at how this will affect supply and demand for the housing market, it will reduce the amount of supply while demand increases. Accordingly, the price of the houses goes up. The value of Ulster Bank’s loans and balance sheet will improve as a result of the restriction of the marketplace. I have a problem with this and believe the Central Bank has a larger role to play in this.

Mr. Jim Brown:

On the other side, our shareholders lost a considerable amount of money as a result of the activity that we were involved in previously. We are still unwinding some of that exposure.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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That is the bank’s fault, not the fault of the homeowners of Ireland.

Mr. Jim Brown:

I did not say it was. Our shareholders are still reducing an exposure from previous activity. We are doing some lending.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Is it not a form of market manipulation when Ulster Bank is down to 10% of previous lending to this sector and there is a restriction on the amount of money available to the banking system for people to buy sites and build homes?

Mr. Jim Brown:

It is not market manipulation. The Deputy is asking us to lend money while we are in the middle of still selling billions of euro of commercial exposure from the previous boom. We need to be prudent in the lending we give to developers.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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How are we going to get the supply-and-demand issue sorted if the banks take the attitude that Ulster Bank has taken?

Mr. Jim Brown:

We will support the sector if we are given reasonable cases for developing houses and so forth. We are going to do it in a modest way because we lost £15 billion over the past several years by not being prudent.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I acknowledge that. However, the reason the bank exists is because it is provided with a licence by the Central Bank for the betterment of the State.

Mr. Jim Brown:

I agree.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Ultimately, the cost of housing is going up which is improving the share price of the banks. However, this is all to the detriment of those who want to get on the housing ladder, particularly for first-time buyers who are down to 80% LTV, loan-to-value, ratios as opposed to the 100% RBS, Royal Bank of Scotland, introduced back in the day.

I am pressing upon Mr. Brown the need for Ulster Bank to give more money to site finance. I have worked in this area in the past and I accept some of the lending then was over the top. Ulster Bank’s 10% of lending to this sector is going nowhere towards meeting current demand, however.

Mr. Jim Brown:

We are active supporters of the economy in the Republic. Across the island of Ireland, two thirds of our lending goes to the Republic. Last year, we lent €1.4 billion to business and gave €900 million of new lending to mortgages. We are active in supporting businesses and the mortgage market too. That trend in lending has continued into this year. We are looking to increase our lending by another 30% over and above what we lent last year.

However, we will be very prudent about the lending we will be doing. We realised the role we play in the market but we do not want to get ourselves into the situation that we were previously.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I acknowledge that but I must press my point that we need more houses to be built and finance to do that. In the Dublin area and other cities, I have seen many cases where there is a demand for housing but it is not being met by the banks. It will be to the benefit of the banks’ shareholders to complete the circle.

How would reducing the bankruptcy term from three years to one year affect Ulster Bank’s balance sheet?

Mr. Jim Brown:

From my perspective, I do not think moving from three years to one year is the issue. Despite all the efforts we have made to engage customers, as well as the efforts made by politicians, the Government more broadly, the Central Bank, the Insolvency Service of Ireland and the courts, we still have 2,000 customers who will not engage with the bank. We came out with our customer commitments earlier this week to make it clear as to how we will work with customers in this situation. The bottom line to resolve this issue is to find a way to engage those 2,000 people. Today, the only option we have if they do not engage is the court process.

I am less interested in the term going from three years to one.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Mr. Brown, may I give you some tacit knowledge from dealing with people as a politician and a former banker myself? I thought there would have been an avalanche of applications for bankruptcy after the introduction of the three-year regime.

Mr. Jim Brown:

I thought that too.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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There is a hang-up about bankruptcy in Ireland. There is a stigma attached to it with an unwillingness to declare it publicly and admit what is perceived as a failure when it is a consequence of something greater than the individual or the bank.

The one-year element will encourage many people to go down the route of bankruptcy. I would like to see an arrangement put in place whereby a line is put in the sand after the term is over, meaning an individual’s creditworthiness is fine and they are not excluded from the mortgage market, small business loans or car finance loans.

However, this will cost the banks money. With the price of property going up, the banks are getting back towards equilibrium and hoping to get repaid the money they lent. If people start pressing the eject button with the bankruptcy arrangement of one year, however, it will have a negative effect on the banks. Ulster Bank is one of the better banks for dealing with customers and helping them with mortgage problems. There is still a long way to go, however. The numbers involved in negative equity, in arrears and distressed mortgages is enormous. I am of the generation that is affected. I would encourage the banks to facilitate the one-year term for bankruptcy. The banks should allow for credit ratings to be renewed without the baggage of the past.

Has Ulster Bank engaged with the Department of Finance, the Central Bank or Financial Services Ireland on the idea of the bankruptcy period being reduced from three years to one?

Mr. Jim Brown:

No, we have not.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Originally, I had one supplementary question but after Deputy Arthur Spring’s question I have two.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Deputy Richard Boyd Barrett is not robbing my ideas anymore.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It is the opposite because I totally disagree with what the Deputy just said. Deputy Spring’s line of questioning essentially shows the desperation of the Government trying to resolve the housing crisis. It is now trying to put the onus on the banks to sort it out. That is a futile policy which is destined to go nowhere and, essentially, absolves the Government of its requirement to start building houses.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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We have just announced €2 billion for social housing.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It is not enough by a long mile.

From the bank’s point of view, given the Government’s strategy to resolve the serious housing crisis appears to be to beg the banks to start lending again-----

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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Where does it appear to do that?

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is what you just said.

Photo of Arthur SpringArthur Spring (Kerry North-West Limerick, Labour)
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I am not the Government.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Deputy Spring and the Government are relying on the banks and the private sector to fill this enormous gap in the construction of housing units.

Given his own caution about getting back into this market again, does Mr. Brown believe realistically that the banks, collectively, are going to provide the sort of finance that will fill the enormous gap in housing construction that is needed at an affordable level?

Mr. Jim Brown:

I cannot speak for the other banks. However, I recognise the need for the banks, including Ulster Bank, to play a role in that area. Despite the fact that we are still dealing with some legacy issues, we are prepared to participate. We will look at any good proposition with which we would be comfortable.

I cannot answer the broader question as to what is the collective position for the other banks. We believe we have a role. We will not be participating to the level, however, that we did previously. In terms of risk appetite, to have the weighting of our balance sheet towards that one specific sector of the economy is not prudent.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will not pursue it further. However, I draw from that response that given everything that happened, if other banks are likely to have a similar concern about going down that road again, the current housing crisis will not be resolved - at least alone - by the finance that might be provided by the banking system in this country and that we are going to have to look elsewhere.

I understand Mr. Brown was not involved in Siteserv but if I may pursue the question I put to Mr. Brown about Siteserv-type scenarios. If I understand him correctly he said that he cannot imagine a situation where a commercial loan of €150 million would be written down by €110 million where that company would continue in business. I think that is what Mr. Bell said. If I understand him correctly, Mr. Brown followed on from that to say that he cannot envisage circumstances where such a company that was being sold off that the shareholders would be allowed walk away with €5 million. That is fairly damning opinion in terms of what happened in Siteserv, even if Mr. Brown is being moderate in his statement of it. I have one further question for Mr. Brown in the Siteserv case scenario. Can he envisage a situation of that sort where the buyer of the company that is being sold off was somebody who also had a number of other companies that between them had a controlling share in a number of other companies and, between them, owed Mr. Brown's bank hundreds of millions of euro in other arrangements and that he would offer a write-down of that sort in that kind of arrangement?

Mr. Jim Brown:

I have already answered the question earlier. Most of the losses that we have experienced have been on commercial real estate. Over the past two to three years in particular, but before that, our exit strategy on those loans has been to take them to the market and either sell the loan or the underlying asset. With regard to the specifics on Siteserv we were not involved with it so I cannot answer that question.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am asking Mr. Brown if he would sell them to somebody-----

Mr. Jim Brown:

It is a hypothetical question. I have said I cannot recall an instance of us doing that.

Photo of Richard Boyd BarrettRichard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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As a policy, Mr. Brown seems to be saying "No". I just want clarification. Can he envisage a situation where he would sell them to somebody who had controlling shares in other companies that owed his bank huge sums of money?

Mr. Jim Brown:

I cannot answer the question because it is a hypothetical. We treat each case on its own merits but the vast majority of loans that we have had to deal with have been around commercial real estate which we have disposed of progressively over the past two or three years.

Photo of Brian WalshBrian Walsh (Galway West, Independent)
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I thank the representatives for their attendance and for participating in this meeting. Is it agreed to publish the material on the committee's website? Agreed.

Sitting suspended at 3.55 p.m. and resumed at 4.15 p.m.