Tuesday, 20 April 2010
On 30 March, the Minister for Finance, in speaking in the House on the financial crisis, said that the banks of this country had played fast and loose with the economic interests of Ireland. He went on to say that senior people in banking had made appalling lending decisions which, in his words, the taxpayer would have to pay for years to come. We now have the revelations from the Irish Nationwide Building Society and the comment by the new chief executive that its reckless lending practices were outrageous, resulting in losses of €2.5 billion last year and 120% mortgages given out, with no guarantees sought in many cases. This appalling behaviour and light touch regulation was overseen when the Taoiseach, Deputy Brian Cowen, was Minister for Finance.
Bank of Ireland published a report last week. This bank is a covered institution which has been the recipient of €3.5 billion from the Irish taxpayer to date, and the transfer to NAMA will be of the order of €12 billion in respect of loans. In the report last week, this bank agreed, proposed and approved a top-up pension payment of €1.9 million for the chief executive. The chief executive in this case is not a new entity; he was an insider who came from Ulster Bank and who led the charge for a vigorous property development process within Bank of Ireland.
The Minister for Finance has said senior people in banking circles in Ireland made appalling lending decisions. I pointed out to the Taoiseach in the House previously that, under section 50 of the guarantee scheme, where this scheme is being brought into disrepute, the Minister for Finance may require certain obligations of the scheme to be adhered to and he may specify in writing to the covered institution in question what those obligations might be. Hundreds of thousands of people in our country are out of work and many thousands, as we speak, are scrabbling to put the few cent together to meet the increased rate in variable mortgage repayments, yet we have a situation where Bank of Ireland, a covered institution, has approved a €1.9 million top-up in pension for its chief executive and the Taoiseach and his Government stand idly by, despite the fact the Minister for Finance said that senior bankers had made appalling lending decisions.
At a time of economic crisis for many thousands of our people, is the Taoiseach happy that Bank of Ireland approves a €1.9 million top-up for its chief executive? Is he prepared to invoke the section of the guarantee scheme which gives the Minister for Finance authority from Government and in law to intervene, specify in writing and have this decision reversed? Is he happy to sit idly by in the knowledge that he can intervene and can have this reversed on the instruction of the Minister for Finance?
We have set up a banking inquiry to look into all issues related to lending practices and other things that have been happening in the retail banking sector and the building society sector. That will be dealt with as we set it out and that is the place where we can deal with all of those issues.
On the specific matter of the Bank of Ireland, the facts of the situation as I understand them are that a €1.49 million contribution was made by the bank to the Bank of Ireland pension fund and was not made to Mr. Boucher personally.
I understand he is not receiving any additional pay or pension entitlements.
Contrary to how this is being portrayed, this is a payment into an overall fund that provides for pensions for most Bank of Ireland staff. If it was not made, the fund would be short of resources to meet its obligations to all Bank of Ireland pensioners and staff who will retire in future. It is a payment that is being made to the bank staff pension fund to sustain the agreed pension of the chief executive, a pension based on his salary, that is now controlled by the Government under the Covered Institutions Remuneration Oversight Committee. The payment is into the pension fund because, unlike public service pensions, it must be pre-funded and is to cover the contractual arrangements, allowing Mr. Boucher to retire when he is due to retire. This payment is as required. Contrary to speculation, it does not undermine the salary cap imposed by Government on the sector's executives and directors of the covered financial institutions that was introduced by Government last year.
The subscription agreement for recapitalisation provided that no pension enhancements would be awarded without prior consent. This is not an enhancement but the ongoing application of existing rules for chief executive officers. The oversight committee recommended pension arrangements for senior staff in the Bank of Ireland should be broadly similar to the generality of its staff and a significant review of the overall scheme is under way at present. Those are the facts of the matter in that situation.
The salary was capped at a very well remunerated level, although it is less than what the gentleman was on when he was head of retail banking. I do not hold any brief for that; I am explaining that the portrayal of this as a direct payment to Mr. Boucher is incorrect. It is a payment to the pension fund to ensure the pension already agreed under his contract is paid, as with other pensions in that fund for staff.
That reply is a complete and utter whitewash and the Taoiseach knows it. The Covered Institutions Remuneration Oversight Committee, which was set up by the Government and reported on 27 February 2009, warned the Government of what could happen here. Its report contained the following:
We consider that pension arrangements for top management should be reviewed. We have become aware of a practice in which cash allowances were paid to compensate for the effects of the "pensions cap" imposed by the Finance Act 2006. Pension schemes should reflect public policy and tax law and it is unacceptable that arrangements should be put in place which would be inconsistent with the intent of the relevant legislation.
The Taoiseach did not mention that the chief executive in question is getting €123,000 per year as a top-up in addition to what is happening here in respect of his pension. While the chief executive is receiving this €1.9 million top-up in his pension, the generality of the staff in Bank of Ireland are expected to take pension reductions and the rest of the public are expected to work years longer to pay off the debts of these banks, while thousands of people are scrabbling around to meet the repayments on their mortgages.
In addition, the oversight committee, set up by the Government for the purpose of advising it, stated: "Pension arrangements for senior executives in each institution should... be at least broadly similar to those applicable to the generality of the staff of the institution." The Taoiseach has acted outrageously here. At a time of economic crisis, this bank, a covered institution we have put €3.5 billion into, and about which public watchdogs may or may not have reported to the Taoiseach, expects the public to wear a situation where the chief executive gets a top-up of €1.9 million to his pension. It is outrageous and an affront to every person in this country. If the Taoiseach has any courage and gumption, he will invoke section 50.
The Minister for Finance agreed with these recommendations when he said they were appropriate. What is appropriate for the Minister for Finance is irrelevant to the Taoiseach when he says he will allow the board to top up the chief executive's pension by this order when the rest of the workforce is expected to take pension reductions and the population at large is expected to bow down under the crucifixion imposed by reckless and, as the Minister for Finance said, appalling lending decisions that the Irish taxpayer will be paying for in the years ahead.
Is the Taoiseach prepared to intervene and see that this top-up, which amounts to a pay rise, is reversed?
The facts of the situation are contrary to how the Deputy is asserting them. I understand the public perception and I hold no brief for the Bank of Ireland pension fund. I am just setting out the facts of the situation.
From the Government's point of view, we have capped the salaries and we have ensured no bonuses are being paid. There can be no enhancements of pension entitlements relating to existing pension entitlements under the contracts for CEOs in that institution. It is not a payment to Mr. Boucher directly but a contribution to the Bank of Ireland pension fund to ensure there are sufficient funds in the pension fund to sustain all pensions, including the pension the CEO will receive when he retires.
I hold no brief; I just want to give the facts of the situation. I have also stated clearly that the subscription agreement provides for no pension enhancements to be awarded without prior consent. Since this is not an enhancement, although I can understand the situation, it does not require prior consent so the idea of intervening does not arise in that respect.
The Taoiseach makes it sound as if this top-up to the pension fund is for the bank's porters and tellers. It arises directly from the change in the contractual arrangements that were made for the chief executive of the bank.
Under the terms of the credit institutions legislation, did the Government or the Minister for Finance approve this top-up arrangement? Does the Minister for Finance intend to exercise his powers under the credit institutions arrangements whereby it can control these matters?
I also wish to raise the issue whereby 2,000 times the top-up of the chief executive's pension has already been committed to Irish Nationwide Building Society by way of recapitalisation - €2,700 million. This building society is transferring €8.7 billion of its loans to NAMA from a total loan book of €10.5 billion. Yesterday, we were told that the building society incurred losses last year alone of €2.5 billion. It was giving out 120% loans for property speculation here and in Britain. This was a building society and its principal job was to give mortgages to people to buy their houses, but it was involved in lending for property speculation that we must all now pay for.
Whatever might be said about other financial institutions, it was widely known there were problems in Irish Nationwide. It was well known that bad practices were going on there, with the enrichment of some of the top people in Irish Nationwide arising from those practices. That was going on for some time before we heard about Lehman Brothers and the bank guarantee that was given on 29 September.
The Taoiseach was Minister for Finance between 2004 and 2008. During that period did the Financial Regulator, the Registrar of Friendly Societies, the Governor of the Central Bank or anyone in the Department of Finance give him a report or bring to his attention the bad practices that were going on in Irish Nationwide which have now been made public and for which the taxpayer must pay?
Concerning what has arisen in regard to Irish Nationwide, I do not believe it was ever brought to my attention that such a problem existed. A Building Societies Act was passed in 2006, before which discussions took place about how the legislation would be brought forward but there was no indication of this situation. This is one of the problems in regard to the regulatory system we have had. It was received wisdom at the time, in the early part of this decade, that we needed an independent regulatory system that would deal with all such situations. We had the Central Bank and the Financial Services Authority of Ireland was set up. The fact is it did not serve its purpose well, as we now see. The facts are as they are and we must investigate all of that. Serious questions have to be asked in this regard and they will be asked in the course of the inquiry. Reports will be before the House at the end of May and subsequently there will be a commission of investigation.
Concerning whether it was brought to my attention that this sort of problem existed in Irish Nationwide Building Society the answer is that it certainly was not. Regarding the other issue reported today, namely, that reports regarding lending practices that were prepared at the time were sent to the regulator which received them in the years in which they were prepared, my understanding is that is not what the present chief executive officer says. Reports were forwarded recently by the new management to the Financial Regulator, some of which go back to matters that arose in the mid-2000s. The suggestion this morning, as I understood it, was that there were reports at the time which were handed over to the regulator at the time. My understanding is that this is not the case; it is not what the chief executive officer said yesterday. Regardless of that, clearly there were corporate conduct and governance issues that must be addressed and investigated in full and that is the Government's intention.
Regarding the previous question on the Bank of Ireland, I stated already to Deputy Kenny that since the scheme does not involve an enhancement of existing pension provision for chief executive officers no prior consent was required of the Minister in that respect. We are talking about ensuring that from a trustee's point of view there are sufficient funds in place to meet these pensions in the future. That is the point I make.
I find that reply concerning the pension issue remarkable. As I understand it, the enhanced payment to the pension fund arises directly from the fact that the retirement age of the person in question is to be reduced from 60 to 55. By any standards, an early retirement arrangement of that kind is generous and, I would think, somewhat exceptional, at a time when the Government is talking about not paying the old age pension to people until they are 67 or 68. Apparently bank executives are being facilitated to retire at 55 but the Taoiseach says that is not an enhancement of their pension arrangements. It is extraordinary logic.
Regarding the Irish Nationwide issue, I find what the Taoiseach said remarkable, namely, that he was not given any report about anything amiss or strange happening in the society, given the fact that in 2006 the Government prepared legislation and brought it to the House one night. It was at night, the day before the House rose for the summer recess in 2006. The Government put the legislation through the House in one night, legislation that was tailor-made for the enrichment of Mr. Fingleton. I find it strange, given that this legislation was introduced by the Government and approved by the Taoiseach when he was Minister for Finance, that he had no report, as he tells the House, from the Financial Regulator or the Registrar of Friendly Societies who had responsibility for building societies, the Governor of the Central Bank, or anybody else, to say that anything was amiss.
I draw to the Taoiseach's attention what one Opposition Deputy said in the House that night. He referred to Deputy Ahern who was then a Minister of State.
Why does the Minister of State appear unconcerned that the management of a building society, which until recently used practices described by an ombudsman ruling as being invalid and unlawful, may be substantially rewarded as a result of the demutualisation process?
Referring to a particular section, he asked:
What input did the board of Irish Nationwide have to a particular section of the Bill which is tailored to allow the speedy demutualisation and sale of Irish Nationwide and in the process to enrich the corporate management at the expense of the membership?
The Deputy continued by saying that late the previous year-----
The question is that these issues could be raised by an Opposition Deputy, issues such as, for example, Irish Nationwide and its management having been, for years, the subject of accusations, some substantiated, of bad business practices, lack of accountability and failing to pass on interest rates. He went on to draw attention to things the Ombudsman had to say in that regard.
If those issues could be raised by an Opposition Deputy on 5 July 2006 when the Bill to enrich Michael Fingleton was introduced by the Government and put through the House in one night, how can the Taoiseach tell us that as Minister for Finance at that time he apparently had no knowledge of any of this, did not know anything of what was going on in Irish Nationwide and had no report from any of the regulatory bodies? The situation now is that we were told yesterday that Irish Nationwide has lost €2.5 billion, had been giving out loans at 120% of the value of properties and so on. There may be more to come but to date the taxpayer has been asked for €2.7 billion to pay for all that folly yet the Taoiseach knew nothing of it.
I made the point to Deputy Gilmore because he asked specifically about this matter. I said there was no information then that the difficulties that have arisen now were about to arise in Irish Nationwide. That is a fact. He made a point about the legislation and characterised it as an effort to enrich individuals. It was about providing an opportunity for building societies as to whether they wished to stay mutualised or to demutualise.
-----apart from Deputy Rabbitte's interruptions, I make the point that the legislation was brought forward to provide both for the retention of mutualisation and for demutualisation if a building society so required. Whether building societies demutualised was a matter for the membership of those societies to decide. It was not a question of forcing anything through the House but of facilitating those building societies that wished to demutualise-----
The debate on the Bill is in the record of the House. The purpose and objective of the legislation are set out and were there for some time in regard to their preparation.
To answer Deputy Gilmore, the fact is there is no question from our point of view but that the banking inquiry should ask all necessary questions in regard to these matters and get full accountability for them. That is what we intend to ensure will happen. However, I also wish to make the point that it was not the case that there was any idea that such losses were imminent or that people were suggesting that this would take place during the time I was Minister for Finance.