Oireachtas Joint and Select Committees
Thursday, 1 December 2016
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Banking Sector in Ireland: Ulster Bank
9:30 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We now move on to our engagement on the banking sector in Ireland with Mr. Gerry Mallon, chief executive officer of Ulster Bank. I welcome Mr. Mallon and his colleagues, Mr. Paul Stanley and Mr. Andrew Blair. I also thank him for the information provided in advance of this meeting in response to questions from the committee which will form the backdrop to this meeting.
I remind everybody to switch off mobile phones because they interfere with the recording and transmission of the proceedings. I wish to advise the witnesses that by virtue of section 172)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to this committee. However, if they are directed by the committee to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. I now invite Mr. Mallon to make a brief opening statement.
Mr. Gerry Mallon:
As this is my first time appearing before an Oireachtas committee, it is an opportune time to introduce myself. As indicated, I am chief executive officer of Ulster Bank Ireland, a role I commenced on 1 June this year. Before joining Ulster Bank I was CEO of Danske Bank in Northern Ireland, having previously held other senior positions in Danske Bank as well as Bank of Ireland and McKinsey & Company Management Consultants. I am accompanied this morning by Mr. Paul Stanley, chief finance officer, and Mr. Andrew Blair, head of problem debt management, at Ulster Bank Ireland, DAC. We thank the committee for the invitation to attend this meeting.
As the committee will be aware, Ulster Bank is a subsidiary of Royal Bank of Scotland, RBS, and accordingly it is subject to the normal disclosure constraints of a publicly quoted company, although I do not believe this will unduly constrain our responses to the committee this morning. With the agreement of the committee, I will read my opening statement relatively quickly, following which I will respond to any specific issues the committee wants to address.
The following are themes I would like to convey to the committee. First, Ulster Bank is a strong franchise with an established market position and a loyal customer base. We provide important and much-needed services to Irish customers on a business and personal basis. We also provide competition in the Irish banking market. Second, while the post-crisis recovery continues there are market head winds to consider, including a low interest rate environment, the impact of Brexit and a challenging regulatory cost environment. Third, we continue to work hard to address our legacy issues. While we have made significant progress, we fully appreciate that there is more to do. Fourth, we are looking with determination and confidence to the future, running the business as efficiently as possible, leveraging the strength of RBS and key market opportunities that exist.
I would like now to expand on each of these four points, starting with our strong franchise with an established market position and a loyal customer base. Ulster Bank has been providing banking services in Ireland for the past 180 years. It is unique as the only systemic bank that operates in the Republic of Ireland that is owned by a parent with international reach. RBS has confirmed that Ulster Bank remains an integral part of its plan to build a leading retail and commercial bank, substantially focused in the UK and Ireland. Ulster Bank employs over 3,000 people, it has a network of 110 branches and it serves almost 1.1 million personal and business customers. It has net lending of in excess of €22.6 billion in the Irish economy and it holds circa €17.5 billion in customer deposits. Despite operating in a low interest rate environment, it continues to make good progress in the strengthening of its business.
The year 2016 to date has been a strong customer focused period for Ulster Bank. We reported an adjusted operating profit of €236 million to end September 2016 and we are demonstrating steady progress through increasing income and reducing our operating costs. Following the announcement by Ulster Bank to pay a €1.5 billion dividend to its parent company, it maintains a strong capital position. Our results reinforce our progress in building a strong and sustainable business as RBS in Ireland. We have a shared ambition across RBS to become the number one bank for customer service, trust and advocacy. By advocacy I mean word of mouth recommendations that generate new business and relationships based not on what we say but on what we do and how we treat our customers. We believe that we are making progress on this ambition. We are growing market share in terms of flow of new business, particularly in the mortgage market, and our customer net promoter scores continue to rise, reflecting the level of service we provide to our customers. We continue to invest in our customers and people and in reinforcing our brand presence.
While the post-crisis recovery continues there are market head winds that need to be considered in our outlook. There is no doubt, as indicated as recently at last week by the CSO data, that the post-crisis recovery continues. However, while the macroeconomic outlook remains favourable it is not as favourable or as certain as it was prior to the UK referendum or US election results. We are also operating in a low interest rate environment which is impacting all banks' deposit margins and our returns on deposit funds remain at historically negative lows. The recent UK vote to leave the EU is also likely to have a negative impact on the Irish economy, in our view, predominantly affecting exports and investment. In addition, we continue to pay increasing Government and regulatory levies which already represent circa 9% of our total cost base and which adversely impacts our cost income ratio by approximately 7%.
On a more positive note however, the decision of the UK to exit the European Union has strengthened and reinforced the strategic importance of Ulster Bank to RBS. As a bank regulated in Ireland, in a post-Brexit scenario Ulster Bank has a unique position within RBS.
The third area concerns addressing our legacy issues. As part of our progress to build a sustainable business, there are a number of legacy issues which we continue to manage and which impact on our customers and our recovery. This includes our work, under the direction of the Central Bank of Ireland, to address issues identified in our tracker mortgage portfolio of customers. We are focused on completing this very complex piece of work and ensuring that we do the right thing for our customers, sorting these legacy issues out so that our focus can be on building a strong business and rebuilding the trust of customers, the pride of our people and the support of our stakeholders.
In the course of our discussion today, we can touch on any of these issues members want to discuss. However, one area they have already indicated they want to talk to us about is mortgage arrears. From the outset it is important to restate that our objective has been, and remains, to keep customers in their homes. As we have previously indicated to the committee, there is a cost to living in a home. Where customers engage meaningfully with us we can provide, and have in the vast majority of cases provided, a solution to keep them in their home. We have made significant progress addressing and resolving outstanding arrears issues and to date we have supported over 22,000 customers who are experiencing difficulties to stay in their home.
In terms of loan sales, I remind the committee that Ulster Bank was not part of NAMA and therefore never benefitted from having impaired assets removed from our balance sheet, unlike the other domestic banks in this market. As a result, we have undertaken a number of loan sales as part of our recovery, with the full knowledge of our regulators, both the Central Bank and the ECB, which have encouraged these processes to address what is a key issue for Irish banks in bringing the volume of non-performing loans in line with acceptable market norms. These types of sales are an essential part of our recovery and enable not just Ulster Bank but all other financial institutions to strengthen our balance sheets, reduce our risk profile and enable us to facilitate lending and growth back into the economy for both personal and commercial customers.
We are firmly of the view that the future of Ulster Bank must be built on customer trust and integrity to ensure we are a powerful and competitive presence in this market. Having been in recovery mode, we are now moving into a new phase of our business where we are focused on our customers and transforming our business, unlocking the potential that we know exists, investing in the future and running the bank efficiently. Our clear purpose and ambition is to be the number one bank for customer service, trust and advocacy. Running our business in a responsible, sustainable and efficient way is at the core of that ambition.
To the end of September 2016, our lending activity increased by 26% year on year, with €970 million of new lending facilities to business customers and a further €810 million in personal lending. Our new mortgage lending is up 49% compared with the third quarter of 2015, with our market share of new mortgage lending increasing by 4% on last year, which is very positive in a competitive market. Our new service-led improvements to customer experience, such as mobile mortgage managers and secure video chat, have increased Ulster Bank's market share to 19% in the third quarter of 2016. Our broad range of fixed and variable rates, which are available to both new and existing customers, are both comprehensive and competitive.
We are also gaining market share in agribusiness with a range of propositions and services to support and grow our customer base in this important sector. A total of 34 of our agrispecialists will graduate this week from our unique tailored agriculture programme, designed to provide the best support to our agricustomers. We have been out on the road all of this year talking and listening to business customers and providing support on everything from exporting to new markets, expanding organic SME businesses, the impact of Brexit and innovation in farming. We have also started to offer finance under the Strategic Banking Corporation of Ireland.
We are working in an operating environment that is changing fast. International and global events, such as Brexit or various EU or international trade issues, lower-for-longer interest rates, affect the economic environment and, in turn, our customers regardless of the outcomes. We are focused on transforming our organisation to ensure it is fully prepared to meet these challenges in the short and long term. As part of this transformation, we need to factor in the issues of strong competition and innovation from both banks and other non-traditional competitors. Technical innovation, shifting consumer trends, changing demographics and increased regulatory requirements highlight the need to continuously adapt our way of working to ensure a customer-focused sustainable response and strong financial performance. It is clear from the ongoing developments in technology and the customer response that products, services and distribution channels need to be reviewed and updated on an ongoing basis to ensure that we meet and are responsive to customer needs.
The next era in banking is defined not just by the financial products or services delivered, but by who delivers them, how they reach customers and how they meet their needs. Central to this is the application of rapidly developing technology at both the retail and wholesale levels. These latest developments, led in the main by FinTech startups, pose challenges for market participants and regulators alike, particularly in balancing the potential benefits of innovation with the possible risks of new approaches. It is clear, however, that the evolving banking and payments landscape requires collaboration among financial service providers, regulators, policy makers and FinTech companies to help foster the evolution of this area. Ulster Bank, supported by our international parent RBS, is central to this collaboration.
In conclusion, I reiterate that our ambition in Ulster Bank is to become the number one bank for customer service in Ireland. We have a strong franchise with an established market position and loyal customer base. While the post-crisis recovery continues, there are market headwinds which need to be considered in our outlook. We continue to work hard to address our legacy issues and while we have made significant progress, we fully appreciate there is more to do. We are looking with both determination and confidence to the future, running the business as efficiently as possible and leveraging the strength of RBS for the key market opportunities that exist.
We look forward to continuing our progress in 2017 and beyond. Mr. Andrew Blair, Mr. Paul Stanley and I are happy to take any questions.
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Mallon spoke of Brexit and the strategic importance of Ulster Bank within the RBS group. Can he enlighten us on the prospects of Ulster Bank operating in the Twenty-six Counties, on which there have been discussions in the past number of years? Has Brexit strengthened the position of Ulster Bank in the Twenty-six Counties, has it weakened it or has the effect been neutral?
Mr. Gerry Mallon:
There is no question over the long-term commitment of RBS to this bank and to its presence in Ireland. I joined the bank only this year and I would not have joined unless I was fully satisfied that, following conversations I had at every level of the organisation on this subject, it was core to the long-term strategy of RBS. Brexit has increased the strategic value of Ulster Bank within the RBS portfolio but nobody really knows what Brexit is going to look like. The future is very uncertain and there are all sorts of permutations, as well as speculation on what the impact might be. It certainly casts a question over the issue of the passporting of banking capability across borders. RBS has less of international presence than it had in the past but it does have customers and services which operate internationally so it needs to think about what its options might be should passporting rights be lost. It has a number of licences in Europe, in Ireland, in Germany and in the Netherlands, and we are a key and very real part of the strategic options that exist.
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Mallon spoke about last year's request of the Central Bank that the bank carry out a review of how many people were taken off tracker mortgages by the bank, or denied the right to go back onto a tracker mortgage as they would have been entitled to do under their contract. How many such people have been identified within Ulster Bank so far?
Mr. Gerry Mallon:
We are very deep into the review of that mortgage book at the moment so I will give a bit of background to the issue. We are trying to identify cases where we failed to honour the contractual entitlements of customers or to live up to the standards we and the regulator would have wanted in terms of full disclosure of transparent information, so that the rate to which given customers were entitled was clear to them. It is in the second area, namely, the need to be unambiguous about information and to avoid the potential for confusion in customer's minds, that we have not lived up to our standards and where we, as a bank, have an issue.
I have apologised to all the affected customers for this and I reiterate that apology today. This was something that was wrong and we do not want to see this kind of issue. Customer service, trust and customers advocating on our behalf make up the fundamental basis for the development of our bank in the future. We cannot have this kind of issue in the future. It is a very complicated process because we are working through every individual case to understand how customers were communicated with, what their situation was and so on. Approximately 200 people are working on it at the moment and we are continuing to add people to that number. It is important that we get it right and attain the standards we and the regulator would want. The final number of customers has not yet been concluded because we are continuing to work all the way through it but we will be writing to the first cohort, which we believe is substantial, this month. We will looking to implement immediate steps to rectify the rates on their accounts. We will continue to keep working on that into 2017. It will be into 2017 before we have worked through the entire portfolio and determined what the full extent of it is. I am not in a position to give the Deputy any final number.
Pearse Doherty (Donegal, Sinn Fein)
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I appreciate all of that. I will repeat the question and I would appreciate it if Mr. Mallon would answer it. I did not ask him for the final number. Obviously, he does not know it because it has not been completed. That is why I did not ask him for it. I asked him for the numbers identified within his bank to date who have been prevented from going back on a tracker mortgage or who have been taken off a tracker mortgage. Can he give us those figures at this point in time?
Pearse Doherty (Donegal, Sinn Fein)
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How many of those 2,000 customers have lost their homes?
Pearse Doherty (Donegal, Sinn Fein)
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Mr. Mallon does not know how many people lost their homes as a result of Ulster Bank taking their tracker mortgages away from them? He is the CEO of the institution. I appreciate that he has only been in the job for the past year but is he telling me that the bank does not know this?
Mr. Gerry Mallon:
Of the 2,000 customers we have identified so far, we know for certain that a proportion of them will have lost their homes. I think it is inevitable. I do not know the number who will have lost their homes as a consequence of other events or the fact that they were on the incorrect rate. The reason for their circumstances has yet to be discovered. I think the number is about 14 or 15 out of that 2,000 who would have lost their homes. The question of whether it was a direct result of the tracker rate or something has yet to be determined.
Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that. At least we are getting somewhere with figures. The 2,000 customers were subject to what I would describe as industry theft because that is what it is to me and to the ordinary person on the street. Mr. Mallon's bank wrongly took their money from them and will now be forced to give it back to them in a so-called redress scheme. It is industry language for what is going on here. To how many of the 2,000 customers has the bank written to tell them that the bank was in error in respect of tracker mortgage rates not being provided to them?
Pearse Doherty (Donegal, Sinn Fein)
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So am I right in saying that the bank has written to none of them? Mr. Mallon told me earlier that the bank had apologised to each of those people individually but it has not actually told any of them that it erred.
Pearse Doherty (Donegal, Sinn Fein)
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The 2,000 people identified by the bank were not identified yesterday. This has been going on since December 2015 at the latest. Ulster Bank has been identifying where it wrongly took tracker mortgages off individuals since that time and is still making them pay a standard variable rate. While the bank is getting all its ducks in a row so it can make a big announcement and send out a big mail shot next month, for the past number of months, these people have been trying to find the euros and cents to make sure they can put bread on the table. At the same time, members of the bank's board are sitting there knowing that 2,000 customers have been wrongly treated by the bank. When some of these customers have contacted the bank, it has sent them a standard letter, a copy of which I have here, telling them that the review is continuing and has not been completed and the bank will provide them with a further update within 60 days. That letter is being reissued by Ulster Bank every 60 days. It is a disgrace because the bank knows that it has taken the mortgages off some of these people yet it still has not put them back on the proper tracker mortgage rate. How can Mr. Mallon justify that?
Mr. Gerry Mallon:
The fact that it has taken a long time to resolve this is not something we are proud of. People are working very hard on this. We need to get to an agreed and high level of clarity in respect of exactly who is impacted. We do not want to get this wrong. We want to get it right for people. We have been working extremely hard on this. Again, I apologise to those who have been impacted by this and those who have been impacted by the delay. It is not right. All I can do is say that we will continue to put a lot of resources and effort behind it to make sure we resolve it as quickly as we can.
Pearse Doherty (Donegal, Sinn Fein)
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Will all of these customers receive a letter and be put back on to their tracker mortgages before Christmas?
Pearse Doherty (Donegal, Sinn Fein)
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I want to move on to another issue, which is the global restructuring group within the bank. I know it happened before Mr. Mallon's time but 2,141 Irish businesses located in this State were transferred into the global restructuring group. Is that the correct figure?
Pearse Doherty (Donegal, Sinn Fein)
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How many of those 2,141 Irish businesses located in this State came out of the global restructuring group?
Mr. Andrew Blair:
Perhaps I should put this in context. The background to the initial allegations relating to this were made by Dr. Laurence Tomlinson in the UK. Those allegations were that the bank put companies into the global restructuring group in some artificial distressed manner. Those allegations were independently investigated by Clifford Chance, a firm of solicitors, in the UK and by Mason Hayes & Curran, another firm of solicitors, in Ireland. Those investigations showed no foundation for the argument that those customers were put in on a basis that was not appropriate. Since then, the Financial Conduct Authority has conducted its own investigation. That process is not yet complete and the authority's review has not been published. However, on 8 November, RBS announced that it was taking its own action pending the outcome of that review. The Financial Conduct Authority noted on that date that no evidence was found in the review that is ongoing that the bank had artificially engineered a position to cause customers to transfer to a global restructuring group, that any customers exhibiting signs of difficulty that went into a global restructuring group were exhibiting clear signs of difficulty and that there was no widespread practice of transferring companies for inappropriate reasons. There was no evidence that any assets acquired by the bank subsequent to that transfer were premeditated. On the other side, the authority also noted that communication with customers during that transfer process could have been better, that there was a focus on pricing increases for risk at the expense of due consideration of long-term viability and that the decisions made relating to customers were not well documented or explained. The final point made was that complaints were not well identified and handled by the bank. As a result of that, RBS in the UK announced a new complaints process with independent oversight from a former UK High Court judge and an automatic refund of what I would describe as complex fees, which is the expression used.
In respect of Ulster Bank Ireland DAC, clearly, the review by the Financial Conduct Authority only covers the UK. The Mason Hayes & Curran review, which was conducted on the original allocations, found no basis for those allegations and Ulster Bank has agreed. The bank will seek to provide exactly the same treatment to any similarly affected customers who are identified and that process has started and is ongoing. It will not be a very swift process but I do not think it will take an inordinate length of time to do. We have kept our regulator informed of where we are in that process. As soon as we have identified affected customers, we will be in contact with them.
I will make two further comments on this regarding the nature of Ulster Bank customers. It is fair to say that customers that transferred to the global restructuring group to a greater extent in the Republic of Ireland were those with commercial real estate exposure versus more SME-orientated businesses in the UK.
The incidence of the payment of so-called complex fees is expected to have been relatively low, for no reason other than that most customers just were not in a position to meet ongoing commitments, never mind fees over and above those.
With regard to the question on the transfer out of the global restructuring group, relatively few of the customers transferred out of the group back into Ulster Bank.
Pearse Doherty (Donegal, Sinn Fein)
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I appreciate the background. Obviously, the Chairman has allowed Mr. Blair time to put all that on record. Let me return to my original question again. There were 2,141 businesses involved. They had debts in excess of €1 million up to €25 million. We are talking about the local publican or corner shop owner in Mayo or Donegal, for example. We are talking about some household businesses with whose names we would all be familiar. They transferred into the global restructuring group but Mr. Blair said relatively few were transferred back. Would I be correct in saying six came out of the process?
Pearse Doherty (Donegal, Sinn Fein)
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Is it seven?
Pearse Doherty (Donegal, Sinn Fein)
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Is it less than 100?
Pearse Doherty (Donegal, Sinn Fein)
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Businesses believed they would be supported but, as was put to me, they were not aware that they were being put on death row. Is it credible that fewer than 100 out of 2,141 businesses that went into a global restructuring group came out alive? Is there truth in the allegation made, which is that the group was a vehicle that allowed Ulster Bank to appoint receivers and liquidators for businesses with equity in respect of their assets? Was it not a snatch and grab? The bank strangled businesses. I accept that some would never have survived but the figures are completely out of line with anything we have seen among any of the bank's peers across the Irish banking sector. Does Mr. Blair acknowledge that?
Mr. Andrew Blair:
The primary role of the restructuring group was to try to restore companies to financial health. The people in the business worked extremely hard to try to achieve that. The goal of the bank, be it in respect of companies or personal customers, is always to try to keep businesses viable and keep people in their homes. That is the way we try to conduct our business because it presents the best outcome for the customer and the bank. Therefore, I do not accept that the role of the restructuring group was to distress companies in any way. The Mason Hayes & Curran review that was conducted does not support that allegation.
Pearse Doherty (Donegal, Sinn Fein)
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The Mason Hayes & Curran reviewers interviewed five individuals. The review did not identify the issue whereby the bank is now allowing some of the businesses to seek compensation from the fund that has been established by the bank's parent group. Is that not correct? Is it correct that the review did not identify this issue in respect of the fees and that only five individuals were interviewed out of the 2,141?
Pearse Doherty (Donegal, Sinn Fein)
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What would Mr. Blair say about the comments of the senior executive in Ulster Bank, a whistleblower reported in the Irish Independentin 2013, three years ago to the very day, to the effect that GRG Ireland was about putting businesses to the wall?
Pearse Doherty (Donegal, Sinn Fein)
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Does Mr. Blair accept that while he claims the intention of Ulster Bank in putting businesses into the global restructuring group was to support them, it dramatically failed given that, out of the 2,141 businesses that entered the group, fewer than 100 actually survived?
Mr. Andrew Blair:
The context of this needs to be seen. The vast majority of those customers had commercial real estate exposure. We all know the value of commercial real estate fell by 65%. Residential real estate values fell by up to 55%, depending on where it was in the country. Buy-to-let property values fell by a similar amount. Therefore, the extent of the downturn in this country was extreme. That is acknowledged. The banks all suffered. The community suffered, businesses suffered and the country suffered economically. This was an extreme downturn. The extent to which people recovered from it when they were over-geared was much lower than one might have expected.
Pearse Doherty (Donegal, Sinn Fein)
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I agree on that point. Would Ulster Bank welcome a review by the Central Bank of Ireland into Global Restructuring Group Ireland to determine whether Ulster Bank treated SMEs unfairly by comparison with other Irish banks? Would it welcome a review to clear up this issue once and for all?
Mr. Gerry Mallon:
I do not currently perceive that as necessary. Based on our examination, we perceive that there are broader issues that are not yet adequately identified or in the process of being resolved, either through the Mason Hayes & Curran review or through the new channels for appeal that we have opened. We will certainly keep that matter under review. I do not perceive a particular need for a further Central Bank inquiry at this stage.
Pearse Doherty (Donegal, Sinn Fein)
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If the Central Bank had not asked Ulster Bank to review tracker mortgages last year, our guests would be in here today telling us no issue arises in terms of tracker mortgages. The Central Bank has forced it to acknowledge this because of an independent review. It is looking over its shoulder in respect of having treated two thousand of its customers wrongly in that regard. I hope I will have the support of the committee in requesting that the Central Bank carry out a review. Is that something the bank would welcome to bring clarity to this issue?
Mr. Gerry Mallon:
As I said, I do not particularly perceive a need for it right at this moment. I cannot comment on the decision-making process in the bank or in respect of the tracker mortgage examination, nor can I commend on the deliberations involving the Central Bank or otherwise, but I reiterate that the aspiration and ambition of Ulster Bank is to build its future on customer service, trust, advocacy and core integrity. We do want the very best outcomes for our customers. We are focused on trying to resolve all the issues of the past to make sure that happens.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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With regard to the 2,141 businesses transferred and the delegation's opening remarks, there is not a bank that has appeared before us that would not say the same thing, namely, that the customers comes first and that they are being looked after. With regard to the global restructuring group and those businesses that went into it, Mr. Blair cannot tell us the exact number that emerged. It was less than 100. Nine is less than 100. Is it 50 less than 100? How many businesses came out of the group? There have been many complaints about the process. Ulster Bank appointed Mason Hayes & Curran to investigate it. The 2,141 businesses would prefer it if there were an independent review of the process. The banks have dealt with them very unfairly. There is a need for clarity in respect of quite a number of issues associated with the group and how businesses were treated. The only way the bank could fulfil its ambition to understand and help the customer would be by having an independent investigation into this matter. As much as the bank wants to recover, in terms of its banking model and role in the economy, so too did the 2,141 businesses.
Arising from Deputy Pearse Doherty's contribution, I ask that the bank provide the committee with as much detail on the activities of the group as possible, defining the types of businesses that went into it, without naming any. I seek generalities in order that we can have a greater understanding of the matter.
Seán Sherlock (Cork East, Labour)
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What I would like to know is whether the Mason Hayes & Curran report is in the public domain.
Seán Sherlock (Cork East, Labour)
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Could that be published or made available to this committee? There was in the United Kingdom a process in which Royal Bank of Scotland provided €400 million to compensate small business customers.
There is a question mark as to whether or not, as a result of the GRG process, there are businesses in this State that could be eligible for compensation among the 2,000 odd businesses we have discussed. This committee will have to explore this matter further and it will endeavour to bring in people whose businesses have been directly affected by this GRG process. Does Mr. Blair foresee that compensation will be paid out to customers in this State?
Seán Sherlock (Cork East, Labour)
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We should not be pedantic at this stage, although perhaps Mr. Blair is not being deliberately pedantic on this one.
Seán Sherlock (Cork East, Labour)
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Has Mr. Blair made provision on the books for compensation to small business operators in this State?
Seán Sherlock (Cork East, Labour)
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Does Mr. Blair foresee making such provision?
Seán Sherlock (Cork East, Labour)
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I thank Mr. Blair.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is it.
Seán Sherlock (Cork East, Labour)
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That is it on GRG, but I would like to come back in later.
Gerry Horkan (Fianna Fail)
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I wish to comment briefly on GRG, if that is possible at this point.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Yes.
Gerry Horkan (Fianna Fail)
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We have discussed GRG but what has happened in the UK has not happened here. Is it possible for what happened in the UK to happen here in terms of analysing those businesses and seeing which are entitled to compensation? We should go through them systematically and examine them all. I would be interested to know the breakdown of real estate versus non-real estate. Obviously, lots of non-real estate businesses were connected to people who had real estate problems, so they became real estate problems. However, I would be interested to see how many were not related to real estate, how many were a mix of viable businesses caught up in real estate and then pure real estate. Hundreds of millions of pounds in compensation is being paid to people who went through the GRG process, but a similar process has not happened here. Is it possible for that process to happen here?
Gerry Horkan (Fianna Fail)
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So all 2,141 businesses, or whatever the figure is, who went into GRG will all be looked at. They will not have to approach Ulster Bank and say, "We want our cases investigated".
Gerry Horkan (Fianna Fail)
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Can we get a breakdown of those 2,141 cases between mature real estate problems, a mix of real estate caught up with other businesses that were lent money on the back of their viable businesses and then lost their viable businesses on the basis of real estate and pure SMEs that are not tied up in real estate who lost their businesses through the economic process?
Mr. Andrew Blair:
Senator Horkan made a very pertinent point earlier concerning SMEs that acquired real estate from which they operated and for which they overpaid and other types of businesses that acquired real estate. When we break down the book by industry code, it is really difficult to see, without examining each individual case, if the problems that existed for them were due to the underlying viability of the business or the fact that they bought property in a rapidly rising market and subsequently suffered from a downturn both in their business and in the property market, which caused them to get into serious difficulties. We can provide some breakdown and I would be happy to do that. I would caution, however, that when one looks behind those statistics one will find businesses that are allegedly a retail business which, for example, because it geared itself to buy its property ended up in serious difficulty.
Gerry Horkan (Fianna Fail)
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I accept that but I presume if it is a forensic or a fairly detailed review of each case, there is a manager or advisor dealing with all these individual holders or borrowers who will have a fair idea whether it was one or the other. I accept that there is a grey area between one and the other, but one could set up categories that would make it easier for us to understand what happened to these 2,000 or more businesses. As Deputy Doherty pointed out, it is a 5% success rate by the look of things. I am assuming that the other 2,000 did not survive. I suppose they were sold to vulture funds or something and did not survive.
Gerry Horkan (Fianna Fail)
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That is what I am asking Mr. Blair.
Gerry Horkan (Fianna Fail)
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The point was made or suggested that only 100 survived within the book of Ulster Bank, but of the 2,100 some 100 survived within the bank's book and 2,000 were transferred out, dissolved, put into receivership or into liquidation. Can we have a breakdown of that? I accept that Mr. Blair does not know what happened to them after he got rid of them, but how many were not even sold to vulture funds and how many were sold to vulture funds? If he has any knowledge of what happened after they went to vulture funds that would be great, but I am presuming he probably does not know.
Gerry Horkan (Fianna Fail)
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Would it be sensible or logical to assume that some of them survived post-transfer, or were they all just transferred out to be dissolved or closed down by the vulture funds? If so, it was not the bank's problem to get rid of them but they were ultimately closed down. Do we know of some of them that survived after the bank got rid of them?
Rose Conway Walsh (Sinn Fein)
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The reality is that most of the SMEs that face these difficulties were ones connected to real estate. Does Mr. Blair accept that the fact that Mason Hayes & Curran only interviewed five businesses is totally unacceptable? In the process of what Ulster Bank is about to do, would that not happen? Five businesses out of that number will not give any true reflection. In fact, if one picked five business out it will not tell one what one wants, but it could present whatever picture one wanted to present from the bank.
Rose Conway Walsh (Sinn Fein)
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Did Mr. Blair think that five was sufficient to give a picture?
Mr. Andrew Blair:
We gave them a job to do and they made the decision about how many people they wanted to interview, so we did not dictate the terms of how many people or how long it would take. We asked them to conduct a review, which they did. That review gave no support to the allegation that was made, which was that we artificially distressed companies. I personally would take the view that there is no evidence to support that we artificially distressed companies.
Rose Conway Walsh (Sinn Fein)
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Can Mr. Blair comment on the number of just five being sufficient?
Rose Conway Walsh (Sinn Fein)
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Okay, so Mr. Blair is not giving his opinion on the five.
Kieran O'Donnell (Fine Gael)
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I have a couple of quick questions. When does Mr. Blair expect to conclude his review?
Mr. Andrew Blair:
We are working on the analysis at the moment. We will then look at the specifics from that analysis of files that we identify that need to be done. I would be hopeful that in quarter one of next year, we will be in a position to identify a population who may have been affected and make contact with them.
Kieran O'Donnell (Fine Gael)
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When would Mr. Blair anticipate that the bank will pay compensation?
Mr. Andrew Blair:
I really do not know the answer to that question and I am not trying to dodge it. I just want to be fair in putting a deadline on the table that we can meet it.
We still have a great deal of work to do on this, so I would prefer not to give the Senator a deadline. It is not just to avoid the question.
Kieran O'Donnell (Fine Gael)
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Is Mr. Blair interacting with the individual borrowers who are the subject of the review?
Kieran O'Donnell (Fine Gael)
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When does Mr. Blair anticipate that the bank will engage with them?
Kieran O'Donnell (Fine Gael)
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Where was the global restructuring group managed from? Was the restructuring group managing Ireland separate from the group managing the UK or were they both managed under the one portfolio? Does Mr. Blair understand the context as a ruling meant that effectively €400 million in compensation was paid to UK customers?
Mr. Andrew Blair:
The global restructuring business was run on a global basis. The person who was responsible for the operations in Ireland was responsible for the whole of the island of Ireland. They reported both to the chief executive of Ulster Bank and the chief executive of the global restructuring group.
Kieran O'Donnell (Fine Gael)
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Were any Irish customers, be they from Northern Ireland or the South covered by the €400 million?
Kieran O'Donnell (Fine Gael)
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I am talking now about customers from the Republic of Ireland. Is it correct that they were managed separately from the global restructuring group in the UK and Northern Ireland?
Mr. Andrew Blair:
No. Global restructuring in Ireland was run on an all-Ireland basis, just as Ulster Bank was run on an all Ireland basis during that period. The head of the global restructuring group in the Republic of Ireland and Northern Ireland was the same person and reported to the chief executive of Ulster Bank group and to the chief executive of Global Restructuring group.
Kieran O'Donnell (Fine Gael)
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The financial conduct authority in the UK issued a report. I am not certain if the Global Restructuring Group report has been published just yet. Was there any interaction by the financial regulator in the UK with Ulster Bank?
Kieran O'Donnell (Fine Gael)
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Has there been any interaction between Ulster Bank Ireland and the Irish Central Bank, the Irish financial regulator on this matter?
Kieran O'Donnell (Fine Gael)
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What was the type of contact?
Kieran O'Donnell (Fine Gael)
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Have they carried out independent inspections similar to the financial regulator in the UK into the Ulster Bank Global Restructuring group in the Republic of Ireland?
Kieran O'Donnell (Fine Gael)
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How did the engagement of Ulster Bank Ireland with the financial regulator of Ireland come about?
Kieran O'Donnell (Fine Gael)
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In respect of the loans of this group, would bonuses or commission have been paid in respect of advances of the loans to customers during the period of years?
Mr. Andrew Blair:
People were entitled to receive a bonus based on their performance in the round, not just sales incentives. Their performance targets would have included both their performance in terms of customer outcomes, growth of the business, the management of their business and risk. It was not based purely on sales targets.
Kieran O'Donnell (Fine Gael)
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Mr. Blair is probably aware that there is a review of bonuses paid to staff who would have advanced the loans to businesses in this group? Will Ulster Bank Ireland be carrying out a similar review?
Mr. Andrew Blair:
Senator, the first step in the process is to try to deal with the customer side of this. We have not moved on to any consequential steps that might be required as a result of that. It is fair to say that the incentive arrangements that exist are subject to a very different environment today than might have existed in the years 2004 to 2008 in terms of both oversight, clawback and so on.
Kieran O'Donnell (Fine Gael)
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Mr. Blair spoke about the 2,000 customers plus in the Global Restructuring group in Ireland. How many of their loans were sold on to vulture funds? Will Mr. Blair supply the name of the vulture funds?
Kieran O'Donnell (Fine Gael)
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Some 90% of the loans were sold on to vulture funds.
Mr. Andrew Blair:
We sold very significant chunks of our portfolio for a very specific reason. First, we needed to rebuild our business and move on in terms of building a business that was capable of looking after customers, staff, our stakeholders' interest, both shareholders and regulators. One of the key elements is building a sustainable business and non-performing loans are an impediment to that process to the extent that we did sell an to investment fund. We sold to people in circumstances where those funds are now subject to regulation in terms of the service that looks after them, so from our perspective-----
Kieran O'Donnell (Fine Gael)
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What were the names of the vulture funds?
Kieran O'Donnell (Fine Gael)
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Was Goldman Sachs one of them?
Kieran O'Donnell (Fine Gael)
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Business people are coming to us about their loans that went into Goldman Sachs. Many of them are under enormous pressure. Were some of those loans performing loans?
Kieran O'Donnell (Fine Gael)
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As I understand it, there is a global restructuring group, so that people outside would assume that Ulster Bank Ireland was working through these businesses, yet 90% of the loans were flogged on to vulture funds. The term "global restructuring group" is not an accurate reflection of what was happening. Why did Ulster Bank Ireland sell on its loans to the vulture funds? When did it happen?
Does Mr. Blair agree that "global restructuring group" is an accurate reflection of the purpose of the group, because effectively the purpose of that group appears from the outside to be the home of loans that were inappropriate for the balance sheet, and having them hived in, the bank flogged them on as quickly as it could.
Mr. Andrew Blair:
The restructuring group existed long before the financial crisis and it still exists today to look after customers who get into financial difficulties to try to restore them to financial health. That is the primary goal of the organisation. The context is the most extreme downturn in the economic history of the State for the past 70 years. So many customers, who might have been rehabilitated for want of a better word back to financial health in different circumstances just could not be rehabilitated back to financial health. The bank was not in a position where it could transfer loans to NAMA. It was not one of the covered banks, so we did not have that opportunity.
In seeking to restore the financial health of the business for the benefit of our customers and staff and build a business for the future, we needed to deal with the issue of the non-performing loans that we had in the organisation. We did that in full view of the public, the regulator, our shareholder. We did it in a fair and reasonable manner in order to rehabilitate the bank's financial strength and put it in a position where we could support growth in this economy in the future.
Kieran O'Donnell (Fine Gael)
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May I ask the Chairman to communicate with the financial regulator to get an update on their view of this issue?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Okay. The other members who have spoken have asked for various information. May I request Mr. Mallon and Mr. Blair to provide an overview and the details requested by the members, including sight of the report by Mason, Hayes & Curran, if published?
I ask that Ulster Bank provide as much detail as it possibly can on this issue, including on the breakdown of the accounts that were transferred, performing loans versus loans that were in difficulty and so forth. I also ask the witnesses to revert to the joint committee with the specific information requested as quickly as possible.
The joint committee decided earlier to examine in more detail the global restructuring group and the businesses involved, of which there were 2,141. To do this, the committee wants to be properly informed by the banks. We are also seeking information from the Central Bank and other parties involved.
I will correct the witnesses on one issue before I proceed. They give the impression that the various businesses concerned contacted Ulster Bank to ask for money to purchase a commercial property and the bank simply gave the money to them. The businesses in question applied for a loan and the banks had a responsibility in that process to apply a stress test to the proposal. Mr. Mallon placed responsibility fairly and squarely on the person who contacted the bank for a loan. However, Ulster Bank gave the loan when it should have tested whether it was worthwhile to do so. The bank has a responsibility in this process, including to the 2,141 customers involved, notwithstanding that it dumped 1,800 of them into vulture funds. It is an incredible performance on the part the witnesses with respect to the questions asked by members. It is shocking that they do not know off the top of their heads the exact numbers and the general positions regarding these companies. The bank gave the same answer to Deputy Pearse Doherty on the 2,000 tracker cases it is examining. There is an urgency to this for the mortgage holders and the 2,141 businesses involved, behind which there are families and individuals. Mr. Mallon seems to have no care or respect for them, notwithstanding his words of comfort on how he is trying to rebuild the bank.
I ask the witnesses to provide the comprehensive information we are seeking as quickly as possible. I understand the transcripts of this meeting will be published within three days. I ask Mr. Mallon to read them and address every single issue in a comprehensive way in order that the committee can undertake a further review of this matter. I apologise for delaying Deputy Murphy.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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That is fine. I endorse everything the Chairman said. I thank the witnesses for their presentation. On question 20, which asked that Ulster Bank provide in tabular form the number of employees who are on levels of remuneration of upwards of €100,000 per annum, why was this question not answered?
Mr. Gerry Mallon:
Maybe I could say that what we did provide were the disclosures which we have in relation to the remuneration report, which is in our accounts. We fully adhere to all the disclosure requirements which we have as a subsidiary of Royal Bank of Scotland. The disclosure requirements for the primary company, as opposed to the subsidiary, are somewhat different and the disclosure requirements for covered banks are slightly different from a bank such as Ulster Bank, which is not among the covered banks. I apologise if the Deputy finds this unhelpful but it is our intention to be as helpful as possible. What we supplied was the information which is a matter of public disclosure and public record in the best way that we could.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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I understand that but Mr. Mallon chose not to answer the question. Is that a fair comment? He chose to answer a different question and provide again information that is in the public domain when we asked a specific question about the number of employees. I presume the bank has this information but it believes it is not in its interest to release it.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Mr. Mallon is not suggesting that if Ulster Bank went beyond the legal requirements, it would create a legal difficulty because that is obviously not the case. Mr. Mallon would be within his rights to give us the information we seek.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Mr. Mallon give the information now?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Will Mr. Mallon answer Deputy Murphy's question now?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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I am sure it would be easy to gather it if Ulster Bank wanted to do so. That is a matter for the witnesses to consider. In light of the discussion we had on small and medium enterprises and the treatment of people on tracker mortgages and some Ulster Bank staff who face redundancies, is it the case that Ulster Bank is embarrassed to show the extent of high pay among bank executives because it would paint the bank in a very bad light?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Mr. Mallon is not embarrassed by the figures available to us which show that three executive board members received more than €2.6 million between them in 2015, which is an average of €880,000 each, that five non-executive members received €360,000, which amounts to approximately €75,000 each, or that Mr. Mallon's predecessor was reported to be the highest paid banker in Ireland, with a total remuneration of approximately €1.6 million. Mr. Mallon is not embarrassed about that at a time when some of the bank's customers and workers are being treated disgracefully.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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I will move on to the issue of tracker mortgages. I was a little confused by the response to a question posed by Deputy Pearse Doherty. Mr. Mallon stated the media reports that approximately 2,000 accounts were affected is largely accurate. He initially stated in response to Deputy Doherty's question that he did not know how many of these mortgage holders lost their homes. He stated he did not have figures on that and subsequently suggested a figure of 14 or 15. Surely he either has the figures or he does not have them. I do not understand that the bank would not know exactly how many tracker mortgages were affected considering it is on the point of sending out letters and will have done analysis of how many homes were lost.
Mr. Gerry Mallon:
Maybe I can explain because there are important distinctions there. First, what we have not reached is the total number of people who are impacted by this. We are working through the portfolio and when we have gone through it and looked at exactly who was communicated and under what circumstances as well as how those people were treated, we will reach a final number. The number of approximately 2,000 to which I referred is the number that we have arrived at at the moment in terms of the biggest and, we believe, most significant cohorts of the people who were subject to certain conditions and certain communications in a particular way. That was what I meant by not having finally arrived at a figure. It is very much a live situation. It is a complex process of working through each case individually to try to work out what has happened. This number will continue to develop but I hope it will not be a dramatic increase.
Second, I was just trying to respond to the question of who we thought may have lost their homes as a consequence of having been put on the wrong tracker rate. We know out of the identified population that we have either 14 or 15 people among the population that we have identified so far who have certainly and very regrettably lost their homes.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Is Mr. Mallon saying that is the number who, in his analysis, lost their homes as a consequence of the bank's actions?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Why did Mr. Mallon initially state that the did not know the figure?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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If Mr. Mallon looks back at the transcript, he will find that was not the question asked.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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If I am one of those customers who lost their home and the analysis suggests it was as a consequence, what happens to me in the remedial scheme?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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What is Mr. Mallon's reaction to the Central Bank's new rules on first-time buyers' deposits?
Mr. Gerry Mallon:
It is a helpful, but not a dramatic, development. The impact will be twofold. It will simplify the system, particularly for first-time buyers, and it will modestly ease the supply of credit. We are unlikely to see a very significant change in the housing market but those changes will generally be positive in that they will make conditions easier for first-time buyers.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Is Mr. Mallon at all concerned that the interaction of the new rules and the help-to-buy scheme means that some first-time buyers could borrow over 95% of the value of a home?
Mr. Gerry Mallon:
We make a mortgage lending decision on the basis of every individual case and a number of other things, such as the loan-to-value ratio, are important considerations of the risk to the bank and to the individual. We also take into account their income and the serviceability of the debt. The new rules reduce the minimum deposits for some first-time buyers but I would like to think we will continue to make prudent and responsible lending decisions.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Is it fair to say that the bank has a vested interest in property prices increasing, which is a reasonably likely consequence of these two changes and their interaction? The loan-to-value ratio for non-performing loans is 103%, which is a negative equity situation. The bank would benefit from an increase in property prices.
Mr. Gerry Mallon:
Yes. It is clear that an increase in the house price index and broad house price inflation reduce some of the risk overhang that a bank has. However, I do not think it is in anybody's interests, particularly those of banks, for house price inflation to be anything other than sustainable, measured and validated by what is affordable. The macroprudential restrictions in place are a positive thing for Ireland as they constrain overexuberant house price increases and hotspots in a supply-constrained market, which we have at the moment. It would not be in our short-term interests to see rapid house price growth, even though it might make an impact on the balance sheet of the bank.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Most of the banks did not operate in that wise and sensible way the last time around so I will be surprised if they do so this time. My final question relates to buy-to-lets. There were 35 assisted voluntary sales and nine voluntary surrenders or judgments enforced. What has happened to the tenants in those cases? Have the tenants remained in place? I see that 18 rent receivers were in place.
Mr. Andrew Blair:
At the point when we wish to dispose of a property we will seek vacant possession but we will fully respect the rights of the tenant. When the tenants are identified they will be issued with the normal notice period, required under the lease, and once the property is vacant we will seek to sell it. That is an important feature of ensuring we get the best price for a property.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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The rights of the tenants are limited in these circumstances and once the bank indicates its intention to sell they have a notice period. I presume the bank follows the notice period as if the previous landlord was in place.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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They the tenants get evicted and they may be homeless. How many people has the bank evicted over the past six months or year?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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I am talking about cases where the bank sought vacant possession.
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Does Mr. Blair not believe that losing one's home is quite an emotive experience?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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How many people-----
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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Can Mr. Blair give me an estimate of how many people may have lost their homes in this way?
Paul Murphy (Dublin South West, Anti-Austerity Alliance)
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I would appreciate it if Mr. Blair could get the figures for us.
Rose Conway Walsh (Sinn Fein)
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I welcome the fact that the bank has committed to putting the 2,000 customers affected by the tracker mortgage debacle back onto to tracker mortgages by Christmas, or at the latest by early in the new year. The stress caused to customers in these cases contradict the line about the bank's integrity. To send out four letters stating the same things over a 12-month displays an arrogance and disregard for customers who have been loyal to Ulster Bank. This week the bank paid €1.5 billion to RBS and it has 9,183 family homes in arrears. What is the value of those arrears?
Rose Conway Walsh (Sinn Fein)
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The arrears.
Rose Conway Walsh (Sinn Fein)
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The standard variable rates, SVRs, are as high as 4.3%. How much would a 0.3% decrease in that rate cost the bank?
Rose Conway Walsh (Sinn Fein)
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Following the stress tests, one is tempted to ask whether Ulster Bank is not going to be a cash cow for the RBS for the foreseeable future. Will the fact that the RBS failed the stress test lead to more dividend requests from this country? What confidence can Ulster Bank customers have today that, should RBS run into difficulty, Ulster Bank will not be sold off straight away for cash for RBS?
Mr. Gerry Mallon:
I will explain a little about the dividend and the RBS stress test. Ulster Bank has made a lot of progress in recent years in resolving its problem debt and it has shrunk the total size of the lending book. We need to hold capital in proportion to the size of the bank and its lending book and, as a consequence, we have surplus capital. Holding this costs money and, ultimately, the cost could be borne by our customers. We are also profitable and the profits add to our capital. We are adding to it at the moment, rather than depleting it, so it makes sense to us and the regulator to return some of it to our parent and allow it to redeploy it in some other way.
As the capital we hold on our books still counts as RBS's capital overall, it does not matter if it is in Ireland or wherever else. Considering the stress test in the context of the capital repatriation or the payment of the dividend is not necessarily relevant. It will be and it remains a long-term objective that we have a functioning, viable bank, that we produce profits and in the same way that any company that produces profits pays a dividend to its shareholder, we will be in a position where we can continue to do that. We still hold very high capital levels - probably the highest of any Irish bank at the moment. The intention is to continue to work with our customers, to attract more customers, to support them to grow and to earn profit for the longer term.
Would the Senator like me to explain about RBS's stress test and its implications?
Rose Conway Walsh (Sinn Fein)
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I am interested to know if it will have a knock-on effect on Ulster Bank, as it is based here. What protections does Ulster Bank have such that the entity in Ireland will not be forced into a certain position, particularly with the uncertainty around Brexit and what that might mean for RBS even in the next 12 or 24 months?
Michael D'Arcy (Wexford, Fine Gael)
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What about 2008?
Mr. Gerry Mallon:
I think this activity looks at 2008 and magnifies it into a global recession as well. RBS has been improving and continues to improve its capital position overall. The outcome of this stress test was that it modelled RBS as still being solvent and still performing, albeit below the levels of the systemic reference points that it wants to adhere to and that the board would seek to get to. These stress tests were based on 2015 and RBS has already taken steps to improve its capital position subsequent to that. A revised capital plan has now been accepted by the Bank of England. The approach is very much to continue to work through legacy and resolve legacy problem debt, which we continue to do and have been continuing to do. It also has been to look at building a stronger, more efficient and more effective business, which will make more profits. So there is no change in our strategy; it is consistent with what we have been doing in the past and what we will continue to do.
Rose Conway Walsh (Sinn Fein)
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The Central Bank would probably have an oversight there.
I need to move on to a few more questions. Do I have enough time?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The Senator will need to be quick with the questions.
Rose Conway Walsh (Sinn Fein)
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I believe Ulster Bank is in the process of restructuring and downgrading its risk assessment and oversight procedures. I ask Mr. Mallon to confirm that the following points are true. Is Ulster Bank halving the risk-support manager role? As a follow-up, is it getting rid of the team leader in each branch? The team leader was in charge of risk control, compliance and auditing?
Rose Conway Walsh (Sinn Fein)
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Is Ulster Bank halving the risk-support manager role?
Rose Conway Walsh (Sinn Fein)
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The difficulty is that the work of the team leader is being put on the branch manager and the branch manager is judged by sales, which means there is a direct conflict with his or her role, with risk control compliance on the one hand and generating more sales - probably riskier sales - on the other hand.
Mr. Gerry Mallon:
I think it is incumbent on everybody in a leadership role in this organisation and in this industry to have a balanced approach to being able to grow the business and manage risks at the same time, and we require that. We have a balanced approach to assessing performance, involving both risk and growth in the performance of the business. We look at it over the long term, particularly in terms of what people are paid and what subsequently gets clawed back if those risks manifest themselves.
Rose Conway Walsh (Sinn Fein)
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Can Mr. Mallon give me assurances that all the existing Ulster Bank branches will remain open?
Mr. Gerry Mallon:
I think it would be disingenuous of me to give the Senator that assurance. The nature of banking and how customers interact with us is changing over time. The advent of technology means that customers are coming to branches less frequently. That particularly applies to mundane transactions.
Rose Conway Walsh (Sinn Fein)
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So Mr. Mallon cannot give me an assurance that all branches will remain open. Have branches been identified for closure? Has Ulster Bank rural-proofed its plans in terms of its technical innovation drive?
Rose Conway Walsh (Sinn Fein)
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Has Ulster Bank rural-proofed its plans in terms of offering a banking service to rural customers? Obviously, if branches are to be closed it is normally the more rural ones that are closed.
Mr. Gerry Mallon:
We continue to review branches based on what customers demand. We measure what customers demand based on the extent to which they use our branches and how they engage with us. If customers come into a branch much less frequently then obviously its viability decreases. We are incredibly cognisant of the need to support customers in every location. That is why, for example, we have our relationship with An Post. There are 1,100 locations where people can make deposits, cash a cheque, withdraw cash with a debit card and can get a balance. It is about trying to find the right level of support in every location. In some locations, a branch may be viable whereas in other locations, we may look at the service RBS has regarding the mobile branches - the mobile vans. In other cases we also look at An Post; we look at our online capability; we look at our mobile capability and so on. There is investment across the spectrum in all sorts of areas. It is very difficult to give clear guarantees over the long-term sustainability of any individual channel when things are changing so much, particularly in how customers are choosing to use mobile technology.
Rose Conway Walsh (Sinn Fein)
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This is a big issue we will be addressing within our report. I think excluding cohorts of customers particularly in rural areas will form part of it. It seems that Ulster Bank is going along the same lines of other banks in trying to force customer behaviour to maximise profits for the shareholders. That is an observation that we will address in the report.
Seán Sherlock (Cork East, Labour)
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I will lighten the load somewhat for Mr. Mallon. I ask Mr. Mallon to give the perspective of Ulster Bank and that of its parent on Brexit from a macroeconomic viewpoint. He spoke about some headwinds coming down the track regarding Brexit. He spoke about Ulster Bank's strategic position vis-à-visthe parent company, which has inoculated it, for want of a better word.
This committee and the Houses in general are trying to get as many perspectives as possible on the outworkings of Brexit. It would be interesting to get Mr. Mallon's perspective on the significance of Brexit. I do not necessarily expect him to go into the political realm, but there are the permutations of the triggering of Article 50 and the permutations of a hard Brexit. Is Ulster Bank doing any forward planning for a hard Brexit or a soft Brexit with access to the European market?
Mr. Gerry Mallon:
It is difficult to be very precise on what the impact will be because of the enormous range of potential scenarios and outcomes. We are concerned about and focused on the short-term impact on Ireland and our customer base. The move in sterling clearly makes life very difficult for exporters, particularly those in the food sector with such a high proportion of food exports going to the UK. Many of our customers have hedges in place. They have planned and bought forward and so on.
Seán Sherlock (Cork East, Labour)
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Is there significant variance on that point?
Mr. Gerry Mallon:
Many hedges will unwind in the first and second quarters of next year. Those kinds of hedges buy time, but only certain amount of time.
Our focus has been on working with those who are caught to help them plan and work through the issues that come with it. Can they look at broader hedges, for example structural rather financial hedges, such as buying raw materials, relocating, buying another business elsewhere, or ways of putting through price inflation into the markets in which one is selling? I think the UK is bound to suffer from a degree of price inflation, particularly in food. In some ways the UK consumer is already mentally ready for that and they have accepted the fact that their currency has dropped. It is difficult to get through to retailers.
We are also working with customers to look at how they transition away from a reliance on the UK market. It is a difficult period for many but the levels of sterling that we are operating at in the moment are not significantly different from that which existed in the 2009 to 2014 period. It is difficult, it is uncomfortable and it causes some pain but many of our customers are still able to deal with it, albeit with difficulty. Our main focus is looking to support them to be able to do that and help them to think longer term about how they manage. If one were to add tariffs on top of that, it would make the situation extremely difficult. That is one of the other things we are trying to help them on
Seán Sherlock (Cork East, Labour)
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Are the witnesses going into the Treasury lobbying on issues like this or making their views known or expressing concerns along those lines in regard to access to the Single Market and the tariff issue?
Mr. Gerry Mallon:
I am not privy to the detail of the discussion between RBS, the Treasury and various other areas. However, our chief executive and our chairman are very prominent and are well connected in UK business circles. I know our chairman, in particular has talked privately and publicly about the discussions he has had, particularly on the future of the financial services industry and the passporting rights for banks around Europe with a focus on the City of London and the impact of what a disconnect would be on the broader UK economy. I guess there would be ripple effects for all of us, were the UK economy to be in a difficult position.
On a more positive side, the Irish economy was in pretty strong growth mode prior to the Brexit vote, so there is a buffer. We may suffer some decline in our growth rate but we start from a relative position of strength. To the extent that a hard Brexit isolates the UK to some extent from the rest of Europe, I think the consequence would be a flow of investment that would have gone to the UK coming to other parts of Europe, including Ireland. The harder the Brexit the more upside Ireland is likely to see in relation to FDI in particular that may otherwise have gone to the UK. I think there is a net loss of confidence. There is greater uncertainty and that causes a deferral of investment or investment not to happen, that reduces economic growth. It is not good for us, it is not good for our economy. The net impact of Brexit or even the decision of the Brexit vote is not beneficial for the Irish economy in the short to medium term.
Kieran O'Donnell (Fine Gael)
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In regard to the submission by Ulster Bank Ireland to the Central Bank on the mortgage changes, I want to zone in on one specific issue, that is the loan to income ratio. The standard metric measure being used at present is 3.5 times earnings. I note Mr. Mallon's observations that this is not the most precise tool as an affordability measure and may not be the only metric to use in the longer term. One of the issues that is coming to light in recent times is the phenomenon of people in their mid-30s who would have bought a property in the years 2004 to 2006, which is more than ten years ago and now find that the apartment, which is in negative equity, is too small to live in and they end up effectively renting out the apartment and renting a house for their family. The mortgage for the apartment is covered by rental income and they are paying rent on a house, which is effectively a quasi mortgage. In many cases they will not qualify for a mortgage and yet on an affordability basis they can qualify. I believe they are caught in a trap of "almost homelessness", they are effectively paying prohibitive rents on their rental home and are in negative equity on their property. They are utterly frustrated. Has this informed Mr. Mallon's thinking? I note he referred to the customers' other commitments, payment of rent while saving to purchase a property. I think this will become more relevant as time goes on.
Mr. Gerry Mallon:
I thank the Senator. I wish to make two points, first, I will outline what we do with customers who are in negative equity and I will ask my colleague, Mr. Stanley to comment on the options for those customers.
In respect of our submission on loan to income, what we were trying to say, that the loan to income ratio is a coarse tool and does not take cognisance of an individual's commitments. Two people may have the same loan to income ratio, but one person could have a great many other commitments, debt or a second family to support or whatever. To make a sensible lending decision one would need to sit down with a customer and look at their income and look at their outgoing and decide what is affordable and this is too coarse a metric. It might work at a macroeconomic level across an entire portfolio but on a customer to customer basis, it does not really work.
I completely appreciate the Senator's perspective in respect of people who find themselves caught in a negative equity trap and we have an approach to dealing with that, which my colleague Mr. Stanley will outline.
Kieran O'Donnell (Fine Gael)
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I have given an example that is becoming more common as the day goes by.
Mr. Paul Stanley:
In our response to question 11, we outlined our negative equity customer product. We allow full equity to be ported to a new property, with a new loan to value cap on it at 200%. That is obviously subject to normal repayment capacity. That is how we have tried in part to address the issue the Senator has described.
Kieran O'Donnell (Fine Gael)
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In layman's terms, will Mr. Stanley describe what the bank will do for a person who has negative equity in an apartment and they are living in a rented house and paying €1,000 a month, which is not uncommon now. What would the bank do in their case? If the apartment were worth €130,000 and they have a mortgage on it of €150,000 and they identify a family home which they would like to buy for €200,000, what would the bank say to them?
Kieran O'Donnell (Fine Gael)
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Have many of these loans gone through?
Kieran O'Donnell (Fine Gael)
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Chairman, on a point of clarification and I am reverting to a previous point, in respect of the global restructuring group, in which 90% of the loans were sold on to vulture fund. What level of discount would have been given generally on the sale of the properties?
Kieran O'Donnell (Fine Gael)
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Would it be unreasonable-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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In the context of assisting Mr. Blair, Senator O'Donnell is not asking him about a specific sale to a vulture fund but, generally, the kind of discounts that applied to sales.
Kieran O'Donnell (Fine Gael)
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The Chairman took the words out of my mouth.
Michael D'Arcy (Wexford, Fine Gael)
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Chairman, if Mr. Blair gave a cumulative figure for all the loan books it would not be giving anything away.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That is what I am saying, yes.
Kieran O'Donnell (Fine Gael)
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How much did Ulster Bank get for that gross debt?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did Mr. Blair say €14 billion?
Kieran O'Donnell (Fine Gael)
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What was the total level of loans in the restructuring group?
Kieran O'Donnell (Fine Gael)
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Would it be reasonable to say that it was probably in the order of €16 or €17 billion?
Kieran O'Donnell (Fine Gael)
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Of the €14 billion, would it be unreasonable to say that the discount was of the order of 50% or more?
Kieran O'Donnell (Fine Gael)
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From the point of view of the ordinary person looking at these proceedings and the small and medium enterprise, SME, Ulster Bank has a very strong presence in Limerick, where I am from, and it would be fair to say that Ulster Bank would have been pushing SME lending, particularly among the farming community and among SMEs. It would have had a reasonably good track record and brought some competition to the market for the other large mainstream banks. This was a situation where it is clear there was a bonus scheme in place in terms of these loans being advanced, many of them property-related loans. The bank suddenly came along and sold €14 billion of gross loans, which was approximately 90% of the number of customers, clearly at a significant discount rate. Many of those people have been in contact with us. Many of them advised us that they were performing loans. They are now being pursued vigorously by the vulture funds that took them over. Does Mr. Blair believe Ulster Bank had a fiduciary responsibility as the bank that would have advanced these loans for which staff would have got bonuses? First, does Mr. Blair believe Ulster Bank should have worked out those loans? Second, what measures would Ulster Bank have sought to be put in place by the vulture funds that purchased the loans to ensure that the customers were treated in the same terms under which the original loan agreements were signed? The problem here is that in the real world, these people are family businesses. They employ many people. Many of them cannot sleep at night. Mr. Blair speaks about what is best for the bank, but what is best for the bank is best for the customers. Will Mr. Blair outline the thinking around selling these loans, how the bank justified selling them on with discounts and the type of due diligence it would have done in respect of responsibilities to customers in that when they were being sold on, the vulture funds that purchased them would have treated them in the same fashion Ulster Bank was treating them?
Kieran O'Donnell (Fine Gael)
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Would Ulster Bank have got that in writing?
Kieran O'Donnell (Fine Gael)
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Was there a line in the agreement between Ulster Bank and the vulture funds that upheld the rights of the SME's loans to the effect that they would be entitled to the same terms and conditions that were available to them under Ulster Bank?
Kieran O'Donnell (Fine Gael)
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Did the bank get that in writing from the vulture funds?
Kieran O'Donnell (Fine Gael)
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The bottom line is that the way these people are being treated by the vulture funds appears to be in reasonably stark contrast to the way they were being treated by Ulster Bank. The bank did not get it in writing, legally, that the customers would be treated in the same fashion.
Mr. Andrew Blair:
I will add two further points to that. The first point is that in selling to the people who acquired these loans, all of those loans are now serviced by independent parties who are governed by the Central Bank regulations just as we are governed from a conduct of business perspective by the Central Bank since 2015. The way that they are treated and the way they behave is subject to exactly the same form of regulation to which the banks are subject. The expectation is that that would be carried through in exactly the same manner that we would be expected to carry it through from a regulatory perspective. That is a very strong comfort to us in ensuring that when we pass these loans to somebody else, the requirements they are required to meet are the same as the requirements we are required to meet.
To go back to my point earlier, the loan agreement is the loan agreement as it stands. If the Senator is talking about behavioural aspects as distinct from contractual aspects-----
Kieran O'Donnell (Fine Gael)
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Finally, why did Ulster Bank sell virtually the entire global restructuring loan book to vulture funds?
Mr. Andrew Blair:
In regard to our needs to build the business for the future, we did not have the opportunity to dispose of loans to NAMA so our need was to sort out that problem for ourselves. We wanted to build a business that was sustainable. We wanted to build a business for our staff and our customers that would be able to grow in the future. That is why we set about trying to reduce the impact on our balance sheet of non-performing loans. In our case, the way for us to achieve that same disposal of assets that was available to others via NAMA we conducted it ourselves.
Kieran O'Donnell (Fine Gael)
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Would it not be fair to say that in terms of the sale of those loan books, some of those were performing loans?
Kieran O'Donnell (Fine Gael)
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Mr. Blair does not disagree with that point.
Kieran O'Donnell (Fine Gael)
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Why would Ulster Bank sell on performing loans if they are making a return to the bank?
Gerry Horkan (Fianna Fail)
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I would like to develop that point as I had intended raising it. In terms of every loan or customer relationship that was passed on or sold to a vulture fund, is Mr. Blair telling us that if 100 survived and 1,800 went to vulture funds, approximately 200 or 250 must not have gone to vulture funds?
Were there any situations where a stand-alone performing entity was moved to a vulture fund?
Gerry Horkan (Fianna Fail)
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Would Mr. Blair be able to verify after this meeting whether some were transferred because they did not suit the bank's business model, or for some other reason? I have had representations from people who had perfectly performing businesses that were doing nothing wrong but whose debts were transferred to vulture funds. They are finding it incredibly difficult to deal with those funds. They have never missed a payment and have never failed to perform, but the way they are running their businesses is being scrutinised and hampered. They cannot expand or get planning permission to build extensions to their business premises. They had a perfectly good relationship with Ulster Bank but the entities to which the bank has transferred their debts are very difficult to deal with. I am trying to find out why the bank sold off the debts of perfectly performing businesses. Many of those business owners feel that the vulture funds want to get them out of their businesses, take possession and flip them.
Gerry Horkan (Fianna Fail)
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Will Mr. Blair go back and find out if the bank did that? Will he find out if performing entities were sold off?
Gerry Horkan (Fianna Fail)
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What was the discount on the loans that were sold off to vulture funds? Was it 80%, 90%, 10% or 20%? Is Mr. Blair in a position to disclose that?
Gerry Horkan (Fianna Fail)
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That is unsatisfactory. We would like to know what hit was taken.
Mr. Mallon in his opening statement referred to a "challenging regulatory cost environment". What exactly does he mean when he says that a challenging regulatory cost environment is adding between 7% and 9% to the base of the bank's business?
Mr. Paul Stanley:
That statement reflects the fact we have an environment now where there is a regulator in Frankfurt and a domestic regulator. That adds a layer of additional and incremental costs. The various resolution funds that are in place also add to our cost base. The statement reflects all of that added up versus where we were three to five years ago. It is just a fact of life and it has the impact the Senator has just described in terms of our overall cost base.
Gerry Horkan (Fianna Fail)
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Is Mr. Stanley suggesting that it should not be there?
Mr. Paul Stanley:
We are just making the point that the regulatory cost is higher than it was three to five years ago. At the end of the day, that cost feeds into the cost base of the organisation and ultimately has to be reflected in some way as a cost of doing business. Our customers, in some way, pick up that cost as time goes by.
Gerry Horkan (Fianna Fail)
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One could make the point that the bank is still paying its €1.5 billion dividend to its parent organisation, so it is not making the bank unprofitable. It is simply making the bank less profitable than it otherwise would have been.
Gerry Horkan (Fianna Fail)
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Is Mr. Stanley saying that the dividend is a really only a return on investment rather than-----
Mr. Paul Stanley:
It is a return on the position we find ourselves in having gone through the restructuring process and everything else we described. We are now, in effect, the most capitalised retail bank in Ireland. We have significant capital ratios of 30%, and that money costs us and ultimately costs our customers, particularly in a low interest rate environment where excess cash and capital generate a negative return to the bottom line.
Gerry Horkan (Fianna Fail)
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When a company is paying dividends, it can be assumed it is doing so because it has generated significant operating profits. Mr. Stanley is saying that this particular dividend is really a return on capital that is in excess of the bank's requirements rather than a performance related dividend. Is that correct?
Gerry Horkan (Fianna Fail)
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Senator Rose Conway-Walsh referred earlier to the bank's network of 110 branches. Representatives from other banks have been before this committee and have spoken about technology and so forth. Are the witnesses in a position to say that the branch network is unlikely to go below 80 or 60 or 40? Are there ten or 40 branches being examined with a view to turning them into cashless or machine-only branches? How many branches are not viable in the longer term? Many of us have applications on our phones and we do business in different ways now. There is an element of rural proofing in terms of access to broadband, but it is not that long ago that Ulster Bank had very significant IT issues. Will the witnesses elaborate on the bank's branch network and its IT system's robustness? I know of people whose experience was that payments were not going out or coming into their accounts when they should have been. In some instances, people did not receive their salaries. Will the witnesses expand on that?
Mr. Gerry Mallon:
At the time of that serious IT incident I was running a competitor bank and I did my very best to steal as many customers from Ulster Bank as possible. I was ultimately frustrated in that because of the bank's very loyal customer base and the phenomenal performance of the staff, primarily in branches, to help customers. They went above and beyond the call of duty in helping customers. It was primarily the efforts of the staff in the branches, on the front line, that allowed the bank to overcome that crisis. RBS has put a very substantial investment into repairing the IT system and ensuring such a serious incident will not happen again. The technology platform is in a very different position from where it was at the time of that incident.
The branch network is incredibly important to the bank. It is one of the most important channels. Our customers have told us they like talking to people. They like the staff in Ulster Bank. Ulster Bank has managed to differentiate itself from competitors in the market by providing superb customer service at the front line. Having said that, customers are using the branches less and less and they are using them for different things. They are telling us that it is important to interact with our staff when they have an important transaction to carry out, like securing a mortgage or personal loan or when there is some other change in their lives and they need help from the bank. They are using the branches less and less for the more mundane transactions like paying bills or lodging cheques and so forth. The branch network needs to reshape to be able to adjust to the fact that people are doing things in different ways. In the future there will be fewer bank branches in the same way that there are now fewer travel agents and record shops. Consumers have voted with their feet in that context.
As a consequence of that, I cannot give Senator Horkan a definite number. The way in which the technology has evolved makes it incredibly unpredictable. There has been more change in the past five or six years than in the previous 50 or 60. When I started working in the banking industry, there was a 1970s model of banking still in place. Banks were still closing at 3.30 p.m. and not opening before 10 a.m. It was all very manual and paper based, but that has changed completely in the time I have been working in the industry. I cannot forecast how much more that will change over the course of the next few years.
All I can say is that we do two things. The first is that we keep everything under review in order that we ensure we are giving customers what they need. Second, we take extreme cognisance of the position of customers or particular cohorts of customers. We take cognisance of rural customers and the impact of any proposed changes on them. We also take cognisance of elderly or other vulnerable customers and try our very best to ensure that where we cannot keep unsustainable branches open, we at least protect them or mitigate the effects in every possible circumstance.
We cannot do that in the long term, but we will consider where to protect and mitigate in every circumstance.
Gerry Horkan (Fianna Fail)
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I saw a reference. Mr. Mallon was with Danske Bank previously. It had cashless branches in the Republic.
Gerry Horkan (Fianna Fail)
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Will Ulster Bank go in that direction? Is it still an all-Ireland bank or is Mr. Mallon the director of Ulster Bank (Republic of Ireland)?
Gerry Horkan (Fianna Fail)
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That was not always the case.
Mr. Gerry Mallon:
No. It has only been the case since October of last year. Danske Bank made a decision to move to cashless branches. I was running the business in Northern Ireland at the time and not the Republic. I did not believe it to be the smartest strategic decision and I never made the decision to implement that kind of model in Northern Ireland.
Gerry Horkan (Fianna Fail)
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Mr. Mallon does not envisage Ulster Bank going cashless.
Gerry Horkan (Fianna Fail)
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Ulster Bank will not do it in the short term.
Gerry Horkan (Fianna Fail)
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I thank Mr. Mallon.
Michael D'Arcy (Wexford, Fine Gael)
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The idea that a bank does what the customer wants does not sit well with me after spending two years in a windowless room on the banking inquiry. I do not intend to be mean.
Ulster Bank sold a number of projects - Oyster, Aran, Nadal, etc. - for as much as 14 billion. Is that €14 billion?
Michael D'Arcy (Wexford, Fine Gael)
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Beyond the standard practices - the threshold, for example - that are guaranteed by the Central Bank or legislation, does Ulster Bank have criteria that protect the interests of the borrower?
Michael D'Arcy (Wexford, Fine Gael)
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I am not referring to those. Specifically, if someone has a complaint, he or she can advance it to the Financial Services Ombudsman, but only if the business is below the €3.5 million threshold. Has Ulster Bank considered, or will it consider in future, inserting specific clauses to protect a borrower's interests if he or she is over that threshold?
Michael D'Arcy (Wexford, Fine Gael)
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Would the board consider it, please? I wish to cite a scenario without naming anyone. If a bank holds a body's loan, it is different than a vulture or investment fund. Investment funds can package loans and put their interests ahead of the interests of the borrower. They meet the letter of the criteria, but not their spirit. For any company that is over the €3.5 million threshold, its only recourse is to a court of law. It does not have the faster prospect of the Financial Services Ombudsman. When can the witnesses revert to us and when can they bring this policy proposal to their board?
Mr. Gerry Mallon:
It is difficult to give a specific time commitment because I am not familiar with the background and the broader conduct or legal consequences associated with it. I am also not familiar with any previous consideration that we may have had in this regard or any knock-on ramification, but we will take the proposal and examine it.
Michael D'Arcy (Wexford, Fine Gael)
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Has Mr. Mallon or Ulster Bank been made aware of circumstances of this nature? I am referring to people who have borrowed from Ulster Bank in good faith and the bank packaged and sold their loans to an investment fund. Has it been brought to the witnesses' attention that there has been sharp practice?
Michael D'Arcy (Wexford, Fine Gael)
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Mr. Mallon?
Michael D'Arcy (Wexford, Fine Gael)
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I understand. Mr. Stanley?
Michael D'Arcy (Wexford, Fine Gael)
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I might make some documents available to the witnesses. This committee must consider whether the investment funds, while adhering to the letter of the law, are not adhering to its spirit. The potential for someone's asset along with the borrowing to be packaged without his or her consent if certain circumstances are met has been brought to my attention. It happens to relate to the gentlemen's institution. It is important that they speak to the investment fund in question - Goldman Sachs - using the documentation that I will provide and then inform us of what they have done.
How many projects comprised the €14 billion?
Michael D'Arcy (Wexford, Fine Gael)
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Oyster, Aran, Nadal, etc.
Michael D'Arcy (Wexford, Fine Gael)
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Could the witnesses provide the breakdown to us? I am sure that they have it.
Michael D'Arcy (Wexford, Fine Gael)
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Information on the amounts would also be helpful.
This is Mr. Mallon's first time before the banking inquiry. I am sorry.
Kieran O'Donnell (Fine Gael)
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Good man, Deputy.
Michael D'Arcy (Wexford, Fine Gael)
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Senator O'Donnell is here and Deputy McGrath is sitting beside me.
Michael McGrath (Cork South Central, Fianna Fail)
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We have not scattered far.
Michael D'Arcy (Wexford, Fine Gael)
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This is Mr. Mallon's first time before the finance committee. He touched upon the future of the branch network and we understand that technology is moving in a particular way. How many branches has Ulster Bank?
Michael D'Arcy (Wexford, Fine Gael)
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In the Republic of Ireland.
Michael D'Arcy (Wexford, Fine Gael)
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Has Ulster Bank conducted an analysis of how many it expects to have in five or ten years' time?
Michael D'Arcy (Wexford, Fine Gael)
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How many of those branches are outside the main urban areas of Dublin, Cork, Limerick and Galway?
Michael D'Arcy (Wexford, Fine Gael)
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In terms of the analysis, I must declare an interest, in that I am an Ulster Bank customer. As a customer, I have never been asked for information or to engage in an analysis of its services. I am not complaining and I am satisfied with the service that I am provided, both in business and personally. Do the witnesses anticipate that the bank will undertake a customer analysis of what is available, should be available and has been available previously but been removed?
Michael D'Arcy (Wexford, Fine Gael)
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I did not say "content".
Kieran O'Donnell (Fine Gael)
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What is the Deputy looking for?
Mr. Gerry Mallon:
We conduct extensive customer satisfaction surveys. I mentioned us wanting to be No. 1 in customer service, trust and advocacy. The advocacy aspect is important to us and we measure it primarily through a net promoter score. We use extensive surveys of our customers and customers of other banks to understand what proportion of those are happy, unhappy, the differences between the two, how we stack up against other banks and where we need to work harder. A great deal of analysis is being undertaken to understand what we can do better. We conduct follow-up surveys among customers who visit branches in which we ask them for specific feedback on the activities that they have undertaken with us and how well we have done.
These are done on a sample basis rather than everyone being surveyed. It is probably only a matter of time before everyone is surveyed.
Michael D'Arcy (Wexford, Fine Gael)
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I will finish with a question to Mr. Mallon. Does he believe Ulster Bank has any obligation to former customers - I am trying to use the correct term - in respect of whom the bank has forwarded or sold on the loan book and their assets?
Michael D'Arcy (Wexford, Fine Gael)
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Does the bank have an obligation subsequent to the loan book sale?
Michael D'Arcy (Wexford, Fine Gael)
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To the customer. I am referring to the person who went to Ulster Bank, borrowed from Ulster Bank and who subsequently has the loan packaged and sold on as part of a loan book sale project. Does Ulster Bank have any obligation to those people in the future? Is the bank out?
Mr. Andrew Blair:
If the question relates to our economic interest, we have sold it. There may be other issues. We may have another obligation which may realise when a customer wishes to raise a complaint, for example, subsequent to the loan sale. We may be obliged to deal with it and we would deal with it.
Michael D'Arcy (Wexford, Fine Gael)
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Let us suppose a loan is sold from Ulster Bank to a vulture fund and there was a complaint. The person affected should go to Ulster Bank first. Is that what Mr. Mallon is saying?
Michael D'Arcy (Wexford, Fine Gael)
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No, I am talking about when the bank has sold the loan. What happens when the loan book has been moved from the books of Ulster Bank to an investment fund? Does Ulster Bank have any subsequent obligation to the person who borrowed the money from Ulster Bank initially?
Michael D'Arcy (Wexford, Fine Gael)
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I do not quite understand. What does Mr. Mallon mean by a nuance? Either the bank has an obligation or it does not.
Mr. Andrew Blair:
It is to do with the difference between a legal interest and an economic interest. If the committee wishes I could spend the next ten minutes trying to explain the difference between a legal interest and an economic interest. Where we retain a legal interest, we have obligations and we continue to meet them.
Michael D'Arcy (Wexford, Fine Gael)
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What if the legal interest has been transferred with the loan book?
Michael D'Arcy (Wexford, Fine Gael)
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That is the position for the customer who went to Ulster Bank, sought a loan and took the loan from Ulster Bank initially. Once Ulster Bank has sold the loan, the bank is out. Is that correct?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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They have just thrown 2,141 customers under the bus with the restructuring. We can deduce that their interest is the bank.
Michael D'Arcy (Wexford, Fine Gael)
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I know Mr. Mallon was questioned at length about the global restructuring group issue earlier. I read online that Mr. Mallon said he does not perceive the need for a Central Bank investigation. The Governor, Professor Lane, has indicated to me in a letter that the Central Bank is engaging with Ulster Bank on the issue. Can Mr. Mallon clarify what that means? What is the engagement between the Central Bank and Ulster Bank on the issue of the GRG?
Mr. Gerry Mallon:
We brought to the attention of the Central Bank the nature of the actions which RBS was due to take in the United Kingdom. Our consideration was that we should undertake exactly the same actions in respect of customers in Ireland. We have updated the Central Bank in terms of the work we have under way to understand the extent to which customers may have been impacted by the equivalent issues that have been diagnosed in the UK. We have promised a further update in the new year for the Central Bank in respect of the analysis we are undertaking and what it is indicating to us about the next steps.
Michael McGrath (Cork South Central, Fianna Fail)
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It would be fair to say there is ongoing contact.
Michael McGrath (Cork South Central, Fianna Fail)
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Ulster Bank has put a figure of approximately 2,000 customers in respect of the tracker redress question. Has the bank provided a breakdown between Ulster Bank and First Active?
Michael McGrath (Cork South Central, Fianna Fail)
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Does Mr. Mallon have any indication of it?
Michael McGrath (Cork South Central, Fianna Fail)
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The bank indicated it would start writing to customers this month. Has a decision been made on the rate that customers are going to have reinstated?
Michael McGrath (Cork South Central, Fianna Fail)
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It will be the tracker rate that applied at the time. Is that correct?
Mr. Paul Stanley:
ECB rates have moved over the period. Therefore, it will be the margin over the ECB rate that applied at the time the customer took out the loan. The ECB reference rate is the underlying rate that drives the tracker rate, but if there was a margin of 1% or whatever on the ECB refinancing rate that has moved since then, that 1% margin will apply.
Michael McGrath (Cork South Central, Fianna Fail)
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It will be a rate of that order. Is that correct?
Michael McGrath (Cork South Central, Fianna Fail)
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It will not be a rate of 3% or 4%.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That concludes this part of the meeting. Thank you for your attendance this morning. I remind you again of all the information requested by members. Presumably, we will talk to you again on the global restructuring group and its activities. Please give all the replies directly to the clerk.