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News : Irish Last Updated: Feb 21, 2013 - 8:39 AM


Thursday Newspaper Review - Irish Business News and International Stories - - February 21, 2013
By Finfacts Team
Feb 21, 2013 - 8:28 AM

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The Irish Independent reports that families will get a reprieve from child benefit cuts, planned as part of a radical overhaul, for at least two years.

And the politically unpopular recommendations of an expert report will possibly be long-fingered beyond the next general election. The report's recommendations would cost middle-income families at least €22 and possibly €53 a month.

Social Protection Minister Joan Burton is indicating a preference for a top-up child benefit payment system, kicking any reform of the system well down the road.

Following the controversial €10 cut in child benefit, the extreme delay of almost a year in publishing a report is seen as a sign that Ms Burton has no appetite to tackle the issue.

"I don't think it's any coincidence this didn't see the light of day for 11 months," said a Coalition source.

"By the time of the next Budget, it will be well buried. After last year, she has no intention of revisiting child benefit any time soon."

A two-tier child benefit payment, with extra money for low income families, would take at least 18 months to implement – far longer than taxing child benefit.

But the report says the two-tier model would be "preferable".

The delay would mean the change would not be implemented until the year before the general election.

Despite up until now talking about taxing child benefit for high earners, Ms Burton (inset) is set to snub a recommendation that taxation would be "feasible".

But the report also says there would be legal difficulties to overcome, which would need either a referendum or an overhaul of the tax system to ensure married couples were not discriminated against.

Government sources say this obstacle will be used to end the taxation argument, and the two-tier system would take years to implement, with no decision in sight.

"This report will kill off discussion on taxation," said a senior government source. "Administratively and technically it can be done. In terms of social policy, it is not the right way to do it.

"Once you go with taxation, the only way you can touch it is through the tax rates."

The Irish Independent also reports that credit unions and credit-card companies are to be told by regulators to stop giving out loans to people who are in mortgage arrears.

The move comes as banks have started to ramp up their efforts to get financially distressed households to prioritise paying their home loans.

Central Bank officials are concerned that credit unions, in particular, are extending loans to people who are months in arrears on their mortgages.

A letter is to be sent out in the coming days telling all lenders not to provide additional lending to customers in mortgage arrears where they do not have a repayment agreement in place with the mortgage bank.

Regulators are concerned that credit unions are supporting long-standing customers even though these people have stopped paying their mortgages.

Subprime lenders, banks and credit-card providers will also be told to be more prudent in their lending.

"If someone is 12 months in arrears on their mortgage, should they be getting a new loan?" one source asked.

Unsecured loans are being repaid ahead of mortgage debt as some of those in arrears think they cannot lose their homes because of the provisions of the Central Bank's mortgage-protection code and a High Court judgment by Ms Justice Elizabeth Dunne that has blocked repossessions.

But this action is putting the ownership of the house at risk.

One regulatory source said: "Credit unions, in particular, are increasing lending to customers in arrears, so are putting the house at risk."

There is huge concern that arrears here are far higher than in most other countries experiencing a financial crisis. Some 11.2pc of residential mortgage accounts are 90 days, or more, in arrears.

In Spain, 3.5pc of accounts are in arrears, despite unemployment of 26pc.

One source said borrowers are benefiting from a lack of operational capacity in banks for dealing with mortgage arrears. This has meant many people in trouble have been left on interest-only deals for a long time.

The Government has promised the troika that it will produce legislation to overcome the Dunne judgment by the end of March.

And a review of the Central Bank's mortgage-arrears code is expected to remove protections from repossessions for those who are not co-operating with their mortgage lender.

Repossess

This is likely to see banks moving to repossess homes of those who not co-operating with mortgage lenders.

Financial adviser Karl Deeter of Irish Mortgage Brokers accused lenders of acting irresponsibly by giving loans to those who are over-indebted.

"It is a shocking example of mis-selling to put insolvent people deeper into debt." he said.

In the past fortnight banks agreed a new protocol that will see them temporarily reduce mortgage payment for a while to allow families get back on track. In return, some unsecured debt could be written off.

The Irish Times reports that Ireland will face continued surveillance by European authorities, including up to two country visits a year, after it emerges from the bailout, under plans agreed in Brussels yesterday.

Consensus was reached on a key piece of legislation, the “two pack”, which paves the way for greater European surveillance of national budgets.

While the legislation proposes greater economic monitoring of most member states in the euro zone, it also includes specific proposals for countries emerging from a bailout programme. This includes regular review missions to the country to assess its economic situation.

The European Commission and European Central Bank will report back to a European Parliament committee every semester and assess corrective measures. While Ireland is monitored each quarter by the troika, countries such as Latvia and Hungary, which have emerged from a programme, are reviewed twice a year.

Budget day shift 

Ireland is likely to shift its budget date from December to October to facilitate the new legislation. Under the proposals, governments are obliged to send their draft budgets to the commission before October 15th each year for examination.

A Department of Finance spokeswoman said the Government is “considering the implications of these provisions for the budgetary process and timeline in the near future”.

The measures are the latest in a series of legislative changes that have increased the role of European authorities in national budgetary decisions. The six-pack rules and the fiscal compact introduced last year solidified the Stability and Growth Pact, allowing for greater co-ordination of economic policy across the zone. The legislation, which specifically applies to the euro zone, is another stage in this policy of greater economic co-ordination.

Under the proposals, which are expected to be signed into law next month, countries exiting a programme will be subject to the enhanced surveillance until a minimum of 75 per cent of the funds they received is paid back. However, this period can be extended if there are “persistent risks on the financial stability or fiscal sustainability of the member state”.

EU economics and monetary affairs commissioner Olli Rehn described the agreement as a “breakthrough” that will allow “a further significant strengthening of economic governance in the euro area”.

The Irish Times also reports that Bank of Ireland has launched a major review of its staff defined benefit pension funds to tackle a near €1.6 billion deficit in group schemes.

This follows a quadrupling of the deficit in 2012 due to weak bond yields and technical issues as to how the bank is now required by regulators to account for its pension deficit.

In a memo to staff yesterday, Bank of Ireland chief executive Richie Boucher said “difficult choices and decisions” would be required to deal with the deficit in its pension schemes in 2013.

“Our first step will be to define what options are open to us,” Mr Boucher told staff. “I know how important your pension is to you, and we will keep you well informed and involved in what is happening.”

The crisis comes just three years after a number of significant changes to the pension schemes were introduced. This had the effect of reducing the deficit from €1.5 billion to €400 million by the end of 2011.

12,000 staff affected 

The pension issue affects about 12,000 staff in the bank.

Mr Boucher’s note did not outline the options that might be investigated but other defined benefit (DB) schemes have had to look at increasing staff and/or company contributions, and/or reducing benefits to tackle their deficits.

The main scheme within the group is the Bank Staff Pension Fund, which involves employees making a contribution of 2.5 per cent of their salaries. This is some way short of the contributions to DB schemes by most private sector workers.

Deficit ballooned 

Mr Boucher told staff there were three main reasons why the pension deficit ballooned last year. Falls in bond yields in recent years had “contributed significantly” to the increase in the deficit. Another factor was “more stringent regulation” to protect pension schemes against market volatility. This has lowered potential returns and reduced the bank’s ability to provide pension benefits.

In addition, changes to international banking regulation, Basel III, mean the deficit will directly impact on the group’s capital position. “The changes will also restrict the group’s ability to return to profitability,” Mr Boucher added.

He acknowledged it was “very disappointing” that the bank has to address the pension issue again.

The Irish Examiner reports that despite the liquidation of IBRC, regulators are still planning to go ahead with an investigation into Ernst & Young’s behaviour as auditor of Anglo Irish Bank

The Chartered Accountants Regulatory Board is investigating Ernst & Young for its role while auditors to Anglo Irish Bank.

KPMG has since been appointed as the special liquidator to IBRC, the entity which took over the winding down of Anglo Irish Bank.

In response to a parliamentary question from Sinn Féin’s finance spokesperson Pearse Doherty, Finance Minister Michael Noonan confirmed that the liquidation of IBRC will not interfere with the investigation into Ernst & Young’s actions as Anglo Irish Bank’s auditor.

“I have been advised that the liquidation of IBRC will not affect disciplinary action being undertaken by the Chartered Accountants Regulatory Board, in accordance with the bylaws of the Institute of Chartered Accountants in Ireland, in relation to Ernst & Young in respect of their former role as auditors of Anglo Irish Bank,” Mr Noonan said.

A spokesperson for the board said that its investigation into Ernst & Young began in 2011 but that the investigation had been put on hold until the Director of Public Prosecutions finishes criminal investigations into Anglo Irish Bank.

“In Sept 2011, further to a report by the special investigator, John Purcell, formal complaints in relation to Ernst & Young were referred by the board’s complaints committee to its disciplinary panel,” the spokesperson said.

“The disciplinary hearings in respect of the formal complaints are being deferred at the request of the Office of the Director of Public Prosecutions to avoid prejudicing any criminal proceedings arising out of the circumstances giving rise to the board’s investigations into various matters in relation to Anglo Irish Bank.”

A date for when the investigation might resume and when findings can be expected remain unclear as the DPP is unwilling to comment on any ongoing cases.

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