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Thursday Newspaper Review - Irish Business News and International Stories - - May 09, 2013
By Finfacts Team
May 9, 2013 - 7:19 AM

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The Irish Independent reports that parents were left in fear of more cuts to child benefit after Education Minister Ruairi Quinn indicated he would spend the money elsewhere.

The minister sparked anger in the Coalition by raising the prospect of further cuts, and his comments caused worry amongst Irish families.

Mr Quinn said he wanted to start a debate about providing a second year of free pre-school care by using some of the €2bn spent on child benefit every year.

His comments prompted disbelief in government circles, because it has heightened fears of a child benefit cut by putting the issue on the agenda.

Although Joan Burton and Frances Fitzgerald have spoken about reforming child benefit and providing more childcare services, neither were as specific as Mr Quinn.

Government figures were taken aback by Mr Quinn's behaviour, some saying they had "no idea" what Mr Quinn was talking about and why he decided to raise the issue.

Parents accused Mr Quinn of "robbing Peter to pay Paul" if child benefit payments were cut and the cash then used to fund pre-school care.

And a government source said: "There is no problem having a philosophical conversation (but) there is no cost structure. How do you pay for it?

"Cost the debate, and start from there. The notion is fine, but quite premature. He's about 10 steps ahead."

Labour TDs are not keen on further cuts, having already come under fire for breaking their election promise to protect child benefit in the last Budget.

And Mr Quinn's department also had to admit that he got his figures wrong on the current cost of child benefit during a radio interview. He put it at €20bn, but that is the entire social welfare budget, with the cost of child benefit being around €2bn.

There was an immediate backlash to Mr Quinn's remarks from campaign groups and women's representatives.

Parents Against Cuts to Child Benefit spokeswoman Niamh Ui Cheallaigh said: "He's robbing Peter to pay Paul. It won't be very welcome to hear this for a lot of families, they will be horrified, to say the least."

And the National Women's Council of Ireland director Orla O'Connor said child benefit had already been cut enough.

There is no appetite in the Government to implement a further child benefit cut in the forthcoming Budget in October.

Dilemma

Labour TDs face a dilemma as they favour providing the extra pre-school year, but are not keen on funding it with further cuts to child benefit.

Labour Louth TD Ged Nash said the issue of providing a second pre-school year by cutting child benefit would be a "medium to long-term decision".

Another senior Labour TD said he did not think that going after child benefit again would be a "runner".

"It would be very hard to tell a mother to take a cut in child benefit if she wasn't going to get the second pre-school year for her child," he said.

However, despite all the caution from within the party, Mr Quinn said he had already raised the issue of using part of the child benefit budget to pay for an extra pre-school year with Social Protection Minister Joan Burton and Children's Minister Frances Fitzgerald.

He said: "Could we spend it in a more effective way so that the benefits of early education and pre-schooling for young people stay with them for the rest of their lives and long after they have been entitled to receive child benefit? That's a debate I think that we need to have."

He was speaking at a children's education conference in Dublin, where Oxford University educational researcher, Professor Pamela Sammons, told delegates that research had shown that a "quality" pre-school education is worth more to a child than a family income boost of €12,000.

And despite the concern in Government circles, Ms Burton and Ms Fitzgerald supported Mr Quinn's intervention in the child benefit debate.

However, Fianna Fail children's spokesman Charlie McConalogue criticised Mr Quinn for "kite flying".

"It cannot be at the expense of supports for older children from lower-income families who will miss out on this direct investment," Mr McConalogue said.

The Irish Independent also reports that the Central Bank is to launch a pilot project to force credit unions to take a financial hit when distressed mortgages are restructured, despite failing to get agreement on a deal.

Credit unions have been resisting attempts by regulators to force them to take a financial hit when mortgages are restructured.

Regulators want the credit unions and other unsecured lenders to accept losses, with warnings that they will be forced to make higher provisions if they resist the move.

Head of banking supervision in the Central Bank, Fiona Muldoon, has headed up talks between banks and credit unions in the past few months in a bid to work out what is called a "burden-sharing" deal.

The talks have been deadlocked, with credit unions refusing to accept they should face having to write down most of loans they advance to those in mortgage distress.

Credit unions claim irresponsible lending mainly emanated from the banks.

In a bid to unlock the stalled process, Ms Muldoon has proposed a pilot project be run to see how much various lenders lose when a hundred mortgages are restructured.

Close to 100,000 residential mortgages are in arrears for three months or more.

Ms Muldoon said: "I expect that lenders participating in the pilot scheme will include the main retail banks and many credit unions as well as other unsecured lenders. The Central Bank will be closely engaged and will oversee the pilot."

But the Irish League of Credit Unions has not endorsed the new pilot project and said it was considering its position.

The league is known to be considering launching a political campaign to oppose what it considers an unfair policy of forcing mortgage losses onto the community lenders.

Last month the new regulator for credit unions, Sharon Donnery, warned credit unions that they will be forced to push more reserves aside if they do not agree with banks on losses when there is a shared borrower in arrears.

Credit unions have to put aside 10pc of a loan into their reserves at the moment if payments on that loan are not being met. But Ms Donnery suggested at the annual general meeting of the league that much higher levels of reserves could be demanded by the Central Bank if the householder is in arrears on the credit union loan.

Central Bankers are concerned that many in mortgage arrears are prioritising paying back the credit union over repaying their mortgage. This is because they fear they will have no access to credit if they default on the credit union loan.

The Irish Times reports that  overstretched borrowers could receive a write-down or write-off of some of their debt following an agreement struck yesterday by the Central Bank between secured and unsecured lenders.

Starting next month, a pilot scheme will seek to agree arrangements with a sample of 750 borrowers to restructure their debts. These are people who are not technically insolvent but who have significant debts with multiple lenders.

Sustainable goal

The pilot is designed to provide a sustainable outcome for borrowers and would see repayments being made to the various lenders to reflect their credit exposure to an individual and level of loan security.

The new framework follows weeks of intensive and difficult negotiations brokered by the Central Bank between secured and unsecured lenders. Photograph: Brenda FitzsimonsThree-month pilot scheme to provide relief for debt arrears

Borrowers will be able to deal with the lenders through a third-party service provider. This will propose a restructuring arrangement.

The framework is designed to allow borrowers to remain in their homes, although in hopeless cases repossession and bankruptcy is provided for as a worst-case scenario.

A range of solutions will be offered to borrowers depending on their debts. This will range from six months’ grace on their debts to loans being extended in time with reduced interest rates.

Mortgage repayments could be extended out to age 65 to have the principal amount repaid in full.

In some cases, “significant mortgage restructure” options will be considered, including split mortgages, where part of the loans is warehoused; negative equity tradedowns; and “other solutions”.

In these scenarios, secured lenders could allow the repayment of other loans on a proportionate basis for a two-year period. After the two years are up, the remainder of the unsecured loans could be written off in certain circumstances.

This is where lenders could apply write-downs or write offs. In a worst-case scenario, borrowers will be moved towards insolvency or bankruptcy or have homes repossessed.

This framework does not apply to buy-to-lets or business-related loans.

The Irish Banking Federation said its members would engage “constructively” in the scheme and it had “considerable potential” for those in arrears.

Impact analysis

Kevin Johnson, chief executive of the Credit Union Development Association, said there was “merit” in the pilot study. “There has been significant pressure from vested interests to provide solutions in this area without carrying out some form of impact analysis,” he said.

“We believe the pilot will go some way to providing the necessary impact information, before we return to the talks to see if we can agree a formula that is genuinely helpful for credit union members who find themselves in multilender difficulty.”

The Irish Times also reports that investment vehicle TVC Holdings is to return €50 million in surplus cash to shareholders as part of a special dividend of 49.5 cent per ordinary share.

The move was prompted by what the Dublin-listed company said were the “very limited number of investment opportunities” and a review of its strategic and financial options to enhance shareholder value.

The group generated an annual return on its portfolio of €9.3 million for the year to the end of March on the back of a successful asset sale and a general rise in the value of its remaining investments

Its figures were boosted by the disposal of its stake in software developer TAS Group for €7.4 million last August, which realised a gain of €3.9 million.

The company said profit before tax for the year was €6.6 million.

TVC said net asset value per share stood at €1.21 at the end of March, compared with €1.14 a year previously, representing a 6 per cent increase.

Cash and government bonds increased by 9.5 per cent during the year from €72.6 million to €79.5 million.

The board said it had decided, subject to shareholder approval, to return €50 million of surplus capital to shareholders in the form of a special dividend of 49.5 cent per ordinary share.

After adjusting for the payment of the proposed dividend, TVC’s net assets would be €72 million.

This included stake in media group UTV, valued at €32 million; three unquoted investments valued at €11 million; and cash of €29 million.

“Against a backdrop of continued economic uncertainty, for the fourth consecutive year the Company’s NAV per share has grown, driven by the sale of our investment in The TAS Group, realising proceeds of €7.4 million, and unrealised value growth in our investment portfolio,” said executive chairman Shane Reihill.

“We believe that our selective investment approach is the correct strategy. TVC will continue to look for value enhancing investments and to manage its existing portfolio in order to maximise value for all our shareholders”.

The Irish Examiner reports that Mostly loss-making tracker mortgages continue to weigh on the profitability of the banks. The Government had proposed to “warehouse” the trackers in a special asset management unit, which would be funded by the ECB.

Mr Noonan noted there was a similar proposal outlined in a German newspaper last week.

“It is an option we will continue to explore.”

Mr Noonan appeared before the committee to brief members ahead of the meeting of eurozone economic and finance (EcoFin) ministers next tuesday. Top of the agenda will be proposals for a banking union.

Fianna Fáil TD Michael McGrath wanted to know how proposals for a common resolution regime would impact on Irish banks.

The minister said a lot of details still have to be agreed. But he wants Tuesday’s meeting to improve the seniority of depositors in the event that a bank’s creditors are bailed in.

The plan would be for ordinary shareholders to get hit first, then junior bondholders followed by senior debt and then depositors, he added.

The minister drew a distinction between insolvent banks and banks that would need to be recapitalised following a stress test. Rules on whether and when a bank could be recapitalised through the ESM or a common resolution fund still had to be agreed and how that would apply to the Irish banks.

Replying to a question by Fine Gael TD Peter Mathews, Mr Noonan said no date had yet been agreed for the stress tests. However, the banks are very well provisioned for bad debts and he did not believe that they would have to be further recapitalised.

The extension on the EU loans as part of the bailout programme, agreed at the informal EcoFin meeting in Dublin last month, will be formally ratified at the EcoFin meeting in June. The NTMA will have to “sit down with the relevant funds” to work out a reprofiling of the debt.

Senator Sean Barrett wanted to know was there any link between the proposed financial transaction tax and the exodus of some banks from the IFSC. Mr Noonan said there was no link.

Over the past few years the pendulum may have swung from regulation being too light-touch to being too onerous for the IFSC.

“I don’t believe that it has, but I will ask the Central Bank to look into it.”

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