Peter Mathews (Dublin South, Independent) | Oireachtas source

I thank Deputy Pearse Doherty for bringing forward the Bill. It was alluded to by Deputy Stephen S. Donnelly and a few other Members that, as elected representatives, we owed it to people to be concerned about the crisis. I am shocked that there is not one other person from the Government parties present, except the Minister of State, Deputy Paschal Donohoe. It is shocking. A total of 175,000 people across the country are in deep mortgage distress and just over 30,000 face legal action and dispossession, not repossession. The people who borrowed the money own the houses.

I ask the Minister of State if he appreciates the shame of this. I did something I should not have done, and I apologise through you, a Leas-Cheann Comhairle, to the protocols of the House. I wanted to be helpful to the Minister for Finance, Deputy Noonan, when he was taking Leaders' Questions and the Order of Business yesterday. I have here a paper that shows - from the balance sheets of all Irish-owned banks and building societies back in 2008, combined with the mathematics of limitation through fractional reserve banking and carrying that through the process of the creation of money - that the credit crisis that occurred may have been caused by the boards of directors of the banks, and probably to a lesser extent by the regulators. That is the reality. The boards of banks have a fiduciary duty to carry out a fractional reserve policy with the funds that they are licensed to take from depositors. The question is why. If one does not keep the creation of loans to within 100% of the deposits one takes in, with the addition of derivatives and other financial instruments, one creates limitless credit - a Ponzi scheme. Directors who participate, knowingly or unknowingly, in that are guilty of it. Asset price bubbles cannot occur without credit bubbles. It is physically impossible. One cannot make bread without flour, and one cannot make an asset price bubble without credit or cash. If one goes to the printing presses one gets the Weimar Republic. That is why this paper is so important. There are four pages in it, and I am glad they are in the hands of the Minister for Finance, Deputy Noonan. The Minister quips about a lot of things. The newspapers quipped that he had passed the paper over to one of his officials, saying "Put that in the bottom drawer." I suggest that he change that instruction and get it right on top of his desk. I will also present the Minister of State, Deputy Donohoe, with a copy of the paper afterwards.

It can be shown that the weighted average loan-to-deposit ratio of Irish-owned banks in 2008, when the music stopped, was 173%. The two big banks were, respectively, Bank of Ireland, at 158%, and AIB, at 155%. They provide most of the weighting in the 173% figure. One does not get to that position in the click of a finger; it takes a few years. Given the result, the boards of banks must not have had any fractional reserve policy. The loan-to-deposit ratio of 158% in the case of Bank of Ireland exceeded 90%, which is the time-honoured and time-tested anchor - the healthy position - by 68 percentage points. Sixty-eight percent as a proportion of 90% - the anchor - is 75%. Therefore, it is mathematically evident from the balance sheet that Bank of Ireland had 75% responsibility for creating the asset price bubble.

The credit that was advanced to the 175,000 customers with mortgages from the banks, including Bank of Ireland, went into a pyramid or Ponzi scheme - a credit bubble and an asset bubble. It was not their fault when the music stopped and the asset price collapsed by 50%. Seventy-five percent of that 50% collapse is for the account of Bank of Ireland. In the case of AIB, on the same basis, it is 72%. That is not my opinion; it is a fact. This paper was handed to the previous Government on 17 September 2009, the day after the NAMA listings for the different banks were produced in this House. I know that because I provided them and had been working on an analysis of the six banks' balance sheets at that stage.

One may ask how this is relevant to the 175,000 people hurting or the 30,000 facing letters from their banks. The problem is that, to use an analogy, they are like the leaves on the trees. They are scorched, distressed, in pain and in some cases taking their own lives. In addition, their children are taking their own lives. We read about the problem of bullying on Facebook, which happens when there is stress in households. It does not occur in healthy, stress-free households. I am not talking about privileged people with advantages and middle-class existences. When that healthy situation disappears because of the destruction of asset prices with the residual debt still there, one has distress in households which may once have been calm and composed. It is often those children who are doing the Internet bullying who take their lives. It is all part of a societal atmosphere.

I am mentioning these matters because I was not afforded time to do so at the hearing of the Joint Committee on Finance, Public Expenditure and Reform yesterday with Bank of Ireland. I put this to the bank's representatives and gave them this paper to consider. In light of this truth, what would their parents think of some of the decisions they are making on a case-by-case basis? I am helping out some people and I know that in some cases the banks are entirely incompetent in dealing with what they call a sustainable solution. I have 20 years' working experience in recoveries and restructuring, so I know what is involved. In each case, as with a sickness or disease, there is really only one answer. At the committee hearings the bank representatives said they had several options for each individual case, but there was only one correct option. In the case of a sick person, there is usually one - or maybe two - antibiotics that will address the situation.

The Government took this the wrong way around and did not measure the scale of the problem. Back in September 2009, I warned everybody to watch out. I said there would be losses of €65 billion on commercial land bank and development property investment holding loans. I also said there would be another €35 billion of losses in mortgage loans. That is a total of €100 billion. Yet they laughed at me and a few others. Because I had been doing this sort of work, I knew it was discernible that there was a credit bubble building up if turbo-charged lending in six Irish banks rose from a level of €200 billion in loans, which is what they had had three and a half to four years earlier, to €400 billion in 2008. That was €200 billion of turbo-charged lending in a credit and asset price bubble, so it was a certainty that €100 billion would need to be written off. That is when the grown-ups should have said "We must get a handle on this."

I will cite an example that I mentioned to Mr. Richie Boucher yesterday. At the joint committee yesterday I was given five minutes out of four hours because I voted according to my conscience on a different Bill, so I lost my position on the committee. I ask the Minister of State to please get me reinstated on that committee, because there is too much stuff that needs to be contributed in a meaningful way. To be given five minutes at the end of four hours is nothing short of absurd. The previous day, I got five minutes at the end of three hours.

I know all the witnesses who attended yesterday's meeting, including Mr. Richie Boucher, Mr. Fergus Murphy and Mr. David Duffy, from my professional background. They wondered why I was only given a five-minute contribution at the end of four hours, so I explained why that was the position. They would have expected me to have at least an equal amount of time to others on the committee. It is just not right.

I will finish quickly with a few things. Bank of Ireland has a provision of 8.8% against its total loan book of €92 billion. Ulster Bank's losses and provisions are 32%, while AIB's are 18.5%. We are led to believe that Bank of Ireland is tickety-boo.

It is public knowledge that on 31 July 2011 Mr. Wilbur Ross and his associates invested, along with others, €1.1 billion into Bank of Ireland for 35% of the bank. Given that it was 10 cent per share this meant every 1% of the bank at the time was worth - I have the figures before me and I will be quick - €31 million. Each 1% that they bought cost them €31 million. Recently, Wilbur Ross and Prem Watsa sold 6.4% of their holding, which cost them €201 million. An amount of €31 million by 6.4% in shares comes to €201 million. The sale proceeds were €690 million, representing a profit of €489 million. They were left with 12.8% of the bank, which cost €402 million. I do not believe the market value but the market price is based on small numbers of transactions. Anyway, the market value is €1.38 billion. The valuation uplift of their remaining shareholding is €978 million or, let us say, €1 billion.

See this speech in context