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News : Irish Last Updated: Feb 27, 2013 - 9:01 AM


Wednesday Newspaper Review - Irish Business News and International Stories - - February 27, 2013
By Finfacts Team
Feb 27, 2013 - 8:57 AM

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The Irish Independent reports that Ulster Bank is demanding that more than 1,000 customers pay back around €30,000 each after a blunder involving under-charging on mortgage accounts.

The error involves at least 1,300 customers from whom a total amount of around €41m was not collected from their accounts over a period believed to span between three and four years.

Those who have already been notified are reported to be "distraught" while it is thought that many of the customers have not yet received notification.

It is the latest scandal involving Ulster Bank, which caused widespread disruption in the middle of last year when its IT systems went down for weeks on end, leaving many people without wages or cash.

When contacted by the Irish Independent, Ulster Bank refused to reveal how many customers were affected, over what period the error had occurred, or what amounts were involved.

A brief statement said: "Ulster Bank self-identified an under-payment error affecting some mortgage accounts.

"All impacted customers are being contacted, given time to make repayments and (can) choose from a number of repayment options."

The bank also refused to say whether it would be charging interest on the repayments it is now seeking.

The underpayment errors arose from the transfer a few years ago of First Active mortgage customers to Ulster Bank.

Affected customers had taken out mortgages, mostly during the boom years, opting for products which offered a front-loaded capital-repayments "holiday" of over three years.

During this time, they would repay interest only. After the "holiday" expired, they agreed to pay interest and capital repayments.

However, in most cases, the bank did not seek the capital repayments after the "holidays" expired.

The sums now being sought are these non-deducted payments.

Personal finance consultant John Lowe said he has "several clients" who have been sent letters demanding the return of large sums.

"They are not too happy. The letters say: 'We are sorry to tell you that we have undercharged you by X, please can you repay X.' They then list four or five payment options. However, 'can't afford to repay' isn't on the list.

"There is, however, an argument here that customers who took on a capital-payments holiday should have realised when that period was due to run out and contacted their bank when it didn't.

"So perhaps the customers aren't entirely blameless but of course it doesn't say a lot for Ulster Bank."

Problem

The Central Bank confirmed it had been made aware of the problem.

"The Central Bank was notified by Ulster Bank Ireland of an under-collection error and is working with them to ensure that all impacted consumers are treated fairly.

It said it believed the problem related to "around 1,300" account holders.

The office of the Financial Services Ombudsman said the problem had not yet been brought to his attention, and added that consumers are usually obliged to adhere to the terms of the contracts they had originally signed.

Dermott Jewell of the Consumers' Association said few bank customers keep tabs on their accounts. "They pay what they're asked to pay. That's how it works."

He said the association would be demanding the bank does not charge interest rates to customers to enable them to profit from their own error, and added that it would be seeking the facilitation of repayments "over very prolonged periods to ease the pain of the consumers involved."

The Irish Independent also reports that the European Investment Bank (EIB) expects to make €600m in low-cost loans to projects and companies in Ireland this year, its new vice-president Jonathan Taylor has told the Irish Independent.

Mr Taylor and senior officials from the EU-controlled bank are in Dublin for a series of meetings, with the hope they can drum up interest in the bank's loans.

The team from the Luxembourg-based EIB are today meeting separately with the three main economics ministers, Michael Noonan, Brendan Howlin and Richard Bruton

The news comes as the Government announced a €300m package of funding to suppport high-end scientific research.

Identifying sectors where there are investment gaps that could be funded through the EIB, and removing any regulatory obstacles to investment are understood to be among the topics on the agenda.

Visit

It is also Mr Taylor's first visit to Ireland since he took over as vice-president at the bank, where he is directly responsible for Irish lending.

Last year the EIB and the Department of Finance set up a joint working committee to coordinate investment activity.

Officials from the EIB are also holding talks with the National Asset Management Agency (NAMA) and the banks, as well as with representatives from the private sector.

Last year the EIB loaned €505m to projects in Ireland, mainly working with state-owned companies.

That included financing schools construction, energy and water infrastructure, and working with AIB and Bank of Ireland to boost lending to small and medium enterprises (SMEs).

Mr Taylor said his agency was in Ireland seeking more lending opportunities with the public and private sectors.

The EIB can lend to any borrower if the project involved meets the agency's criteria, including promoting growth, he said.

The bank typically co-invests in deals alongside a joint venture partner on a 50:50 basis.

Traditionally, the bank is most associated with funding infrastructure but can back a range of sectors, including support for financial ventures or support for research and development (R&D).

It can lend to businesses regardless of who owns them or where a corporation is headquartered, as long as the relevant project is in the EU, he said.

In the UK, the bank backed development of an electronic car by the local subsidiary of Japan's Nissan in 2011.

EIB officials are also hoping to re-open public sector partnership deals that see private investors working alongside state entities to finance projects.

Meanwhile, the Government and Science Foundation Ireland announced a new €300m R&D package to be funded by a combination of state and academic finance and by the private sector.

The funding is aimed at boosting the profile of academic research here and attracting foreign investment.

The Irish Times reports that AIB, Bank of Ireland and Permanent TSB will no longer have to pay up to €1.1 billion a year to the Government in fees for the bank guarantee scheme following the announcement yesterday that it will end on March 28th.

The Minister for Finance Michael Noonan said the “time was right” to end the controversial guarantee, which was introduced on September 30th, 2008, to prevent the collapse of the Irish financial system.

He said this decision, which had been well flagged by the Government, would help the three banks to “get back to normal”.

About €73 billion of liabilities is currently covered by the scheme, including €55 billion in deposits.

Mr Noonan said the ending of the Eligible Liabilities Guarantee Scheme (ELG) would enable the banks to return to profitability, which in turn would boost the value of the State’s shareholdings in them over time.

Mr Noonan said it should also reduce the State’s borrowing costs and assist with our exit from the EU-IMF bailout programme at the end of this year.

The Minister said he did not expect a flight of deposits from the three banks as a result of the guarantee ending.

“We don’t believe any capital will move,” he said.

The guarantee had already been removed in relation to about €12 billion in eligible deposits in the UK with “no adverse impact”.

Biggest beneficiaries 

AIB and Bank of Ireland will be the biggest beneficiaries from the ending of the scheme.

AIB paid €488 million in fees to the State in 2011. It has yet to publish the figure for 2012 but it paid €215 million for the first six months of last year.

Bank of Ireland paid €449 million in 2011 and had contributed €1.2 billion in total by the end of June 2012.

Its chief executive Richie Boucher has made no secret of his desire for Bank of Ireland to exit the scheme.

Mr Boucher has the strongest hand to play given that the State owns just 15 per cent of Bank of Ireland, compared with about 99 per cent in the cases of both AIB and Permanent TSB.

The Government earned €3.8 billion in fees from the guarantee up to the end of 2012.

It expects to receive €430 million this year and there will be residual payments over the next five years as various liabilities reach maturity.

Liabilities up to March 28th will be covered subject to a maximum of five years.

Mr Noonan said the loss of the fees from the scheme were worked into the arithmetic for last December’s budget and would have no “negative impact” on the country’s finances.

“We have been planning for this since late last year,” he said.

Bank of Ireland “welcomed” the ending of the guarantee.

In a statement, David Duffy, chief executive of AIB, said: “The ELG was introduced as a measure to stabilise the financial system at a time of unprecedented market turbulence, which is no longer evident.

“We welcome the announcement and expect this move will have a positive impact on the operating performance of AIB over time as the bank returns to long-term sustainability.”

Permanent TSB also backed the Minister’s decision.

A spokesman for the bank said: “This is a further sign that the Irish banks – including Permanent TSB – are now able to fund their ongoing activities in the market without the requirement for Government support and that’s to be welcomed by all.”

‘Normalisation’ 

The Irish Banking Federation said the Government’s decision “marks a further significant step in the normalisation of our banking system”.

The decision to end the guarantee will not affect the vast majority of deposit holders at the three covered banks.

These are protected by a separate deposit guarantee scheme, which applies to funds of up to €100,000 per institution for individuals and double that amount for joint accounts.

Almost 98 per cent of depositors at AIB, Bank of Ireland and Permanent TSB come within that threshold.

Q&A 

What was the Eligible Liabilities Guarantee Scheme (ELG)? 

Better known as simply the “bank guarantee”, it was introduced in controversial circumstances on September 30th, 2008, by the previous Fianna Fáil-led coalition to guarantee the liabilities of Ireland’s banks when our financial system was on the edge of collapse at the height of the global credit crunch.

It was one of a series of decision that led to the taxpayer spending €62 billion bailing out Irish-owned banks.

In simple terms, it was a blanket guarantee that the State would meet the obligations of the banks to depositors and bondholders in the event that they couldn’t meet their liabilities.

It was initially for a period of two years but was subsequently extended. The current scheme will be closed to new liabilities from midnight on March 28th.

Liabilities will continue to be guaranteed until their next maturity, subject to a maximum term of five years.

What was covered by the scheme?
 

It currently covers all deposits held by Bank of Ireland, AIB and Permanent TSB and certain bonds issued by the banks.

The State is currently covering about €73 billion in liabilities, of which €55 billion relates to deposits and the balance to bonds.

What does the ending of the guarantee means for retail depositors?
 

The deposit guarantee scheme (DGS) covers funds up to and including €100,000 per depositor, per credit institution. Double that amount is covered in the case of a joint account.

Credit union funds were never covered by the ELG scheme. However, members’ savings in credit unions are covered by the terms of the DGS.

How much were the banks paying in fees to be covered by the ELG scheme? 

Last year, the three banks paid €1.1 billion to the exchequer for the guarantee.

How will the State now make up this shortfall? 

The ending of the ELG was worked into the arithmetic for last December’s budget so there will be no nasty surprises for taxpayers as a result of it ending.

The State expects to receive €430 million this year in fees from the banks and there will continue to be some residual payments as the guarantee winds down over five years.

Minister for Finance Michael Noonan said yesterday that the ending of the ELG would benefit the State via lower borrowing costs on capital markets as the risk of a sovereign default lessens from no longer having to guarantee these liabilities.

It would also enhance the value of the State’s shareholdings in the three banks over time as they would now be able to move to profitability more quickly by not having to pay the fees associated with the scheme.

The Irish Times also reports that the proposed sale of the right to harvest trees in State-owned forests could cost 2,500 jobs and close the Republic’s sawmilling industry, a new report claims.

Government agency New Era is due to report to Minister for Agriculture Simon Coveney next month on the proposed sale of the right to harvest trees in forests owned by State company Coillte.

Asset disposals 

The sale, which it is estimated could raise between €400 million and €600 million, is part of a programme of State-owned asset disposals proposed by the Government a year ago in a bid to raise a total of €3 billion.

Yesterday, the Irish Timber Council, which represents the sawmill industry, published a report which warns that the move could force the closure of the Republic’s 10 sawmills, with the loss of 2,500 jobs in mainly rural areas.

Raw material 

Coillte supplies 80 per cent of the logs milled by the organisation’s members. Its chairman, Pat Glennon, explained yesterday that it believes there is a risk that a buyer could choose to export the bulk of the harvest, leaving the mills with almost no raw material.

Alternatively, a buyer could choose to drive up prices by withholding or controlling supply, particularly as they would have no commercial imperative to supply the mills at regular intervals, which Coillte does.

“There is no room for sawmill operators to absorb any level of price increase and the consequence is that sawmills could close with important employment being lost in rural areas,” Mr Glennon said.

The Minister has suggested any deal would involve some level of guarantee for the sawmills. However, Peter Brennan, managing director of EPS Consulting, which produced the report, said this could depress the price at which the trees could be sold.

The Irish Examiner reports that  Ireland will post a healthy export performance over the next 17 years — helped by rising trade with China, which is expected to become the fourth biggest destination by 2030, according to HSBC’s global trade forecasts.

“Although Ireland’s main export markets of the UK, USA, and Germany will remain the top three destinations, the main growth areas for its exports lie in emerging Asia,” said HSBC.

“This is evidenced by forecasted growth in exports to China of 11% per annum in the period 2016-2030.

“Alongside China, the forecasts also show India and Vietnam as the fastest-growing export markets to 2030, with Malaysia and Indonesia also becoming increasingly important.”

Ireland’s overall export performance is expected to be relatively favourable compared to its Western European peers. (HSBC appears to be confused by the Irish data. About 94% of exports to China are made by foreign firms, not indigenous Irish firms - - Finfacts)

Growth in merchandise exports from Ireland is, for example is expected to outstrip the UK, France, and Germany in the period 2021-2030, the bank added.

Exports to Turkey and the Middle East will also become more important.

Exports will be driven by chemicals, pharmaceuticals, scientific apparatus, and IT equipment.

Ireland has a good foothold in all of these sectors on the back of healthy flows of foreign direct investment over the past few decades.

Managing director and Ireland head of HSBC corporate banking, Alan Duffy, said: “Exports continue to play a key role in Ireland’s GDP growth and whilst our traditional export markets remain vital to this, it is increasingly important to look beyond them.

“Emerging markets are developing at a phenomenal pace and are set to reshape world trade patterns over the next 20 years.

“Understanding which sectors are growing in which markets delivers huge opportunities for businesses as they plan for the future and aim to capitalise on these trends.”

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