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News : Irish Last Updated: Mar 13, 2013 - 10:08 AM

Wednesday Newspaper Review - Irish Business News and International Stories - - March 13, 2013
By Finfacts Team
Mar 13, 2013 - 10:02 AM

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The Irish Independent reports that the Government is to force banks to increase the number of deals they do with mortgage borrowers who find themselves in genuine distress.

The six main banks -- AIB, EBS, Bank of Ireland/ICS, Permanent TSB, Ulster Bank and KBC Bank -- will be given common targets for dealing with mortgage arrears.

Banks yesterday met the Central Bank and the Cabinet was briefed about the new strategy, details of which are revealed for the first time by the Irish Independent.

Taoiseach Enda Kenny is set to outline at a press conference today that:

- Banks will have to offer deals that last years -- rather than just putting those behind with their payments on the likes of interest-only deals for a few months.

- The deals will include split mortgages and long-term, interest-only deals for those in serious arrears.

- But there will be no debt write-offs, informed sources have indicated -- the mortgage will have to be repaid in full.

The main lenders will target homeowners they feel are deliberately withholding mortgage payments under the new Government strategy.

The banks could get back powers within days to threaten repossessions of residential and buy-to-let investors who they suspect are not paying their mortgages even though they can.

A High Court decision in 2011 and various Central Bank rules on mortgage arrears have convinced some people that they cannot lose their homes.

As a result, Department of Finance and Central Bank officials fear money that could be used to pay mortgages is being diverted to pay other bills.

As part of the deal to give banks back the power to threaten repossessions, the lenders will be forced to start offering thousands of distressed homeowners more long-term deals. But no mortgage debt will be written off.

If the banks have not shown that they have met the new target of restructuring at least 20,000 mortgages a month, they will be forced to put aside extra capital, as new rules on provisions will be introduced in 2014.

The strict rules in the mortgage arrears code, operated by the Central Bank, will be changed to help banks move against those who are deliberately not engaging with lenders.

This will include relaxing the limit on the number of unannounced contacts banks can make each month with those who won't engage with them.

Deputy Central Bank governor Matthew Elderfield briefed the Cabinet on the new mortgage plans yesterday.

Separately, banks also had the plans outlined to them in the Central Bank.

One of those who has been briefed said: "The Government is not forcing the banks to write down one cent of mortgage debt.

"Instead, people in mortgage trouble will be offered to have half of the debt parked, or the term of the mortgage will be elongated, or the interest rate will be reduced.

"But the full burden of the debt will stay on people's backs."

Some 186,000 residential mortgage-holders are either in some form of arrears or have had a short-term deal – such as interest-only repayments – put in place with the agreement of the bank.

Another 50,000 borrowers with buy-to-let mortgages are in trouble.

Fewer than 80,000 residential mortgages have been restructured, but half have ended up back in arrears.

Department of Finance and Central Bank officials fear many people are strategically defaulting.

Professor of Finance at NUI Maynooth, Gregory Connor, recently estimated that up to a third of mortgage-holders who are in arrears are deliberately not paying. This works out at close to 40,000 residential and buy-to-let mortgage-holders who can meet their payments but are choosing not to.

They may be using the money to pay other bills.


However, Prof Connor's figure is considered too high by state officials.

Some experts briefed yesterday feel the push to get banks to offer split mortgages and lower interest rates to those in mortgage distress is an attempt to stem the numbers seeking personal insolvency deals.

The new personal insolvency process is due to be up and running by the summer, allowing people to have debt written off.

Up to 25,000 people are expected to avail of the insolvency procedures in the first 12 months of the new service.

But bankers fear they will eat up any spare reserves they have if too many people seek debt deals under the new rules.

David Hall of the Irish Mortgage Holders Organisation said the key question was how to define a mortgage restructure.

"Is it putting someone on interest-only? If so, the banks will meet their targets in four months," he said.

The Irish Independent also reports that public servants earning less than €100,000-a-year who face a pay cut under the new Croke Park deal will have their wages restored in three years.

But those earning over €100,000 face a permanent reduction in their salaries.

A new Department of Public Expenditure and Reform document outlines how the pay cuts will hit "high earners".

Those earning between €65,000 and €100,000 will take the pay cut of over 5.5pc for three years. But they will eventually get back on their current salary scale when the deal runs out.

In contrast, those earning over €100,000 – including assistant secretary generals in government departments – will not see their pay restored, because their pay increments will be permanently reduced by the pay cut. The pay cut ranges from 5.5pc on the first €80,000 of earnings, to 10pc on amounts over €185,000.

As well as pay cuts for higher earners, the new deal will mean reductions in overtime and premium pay, and an increase in working hours, if ratified by state employees.

Meanwhile, four unions opposing the deal said it is not acceptable that other unions should be voting on pay cuts for their staff.

"This would be an unprecedented development in Irish trade union history and one that no union member should accept," said the unions.

They are the Irish Nurses and Midwives Organisation, the Irish Medical Organisation, the Civil, Public and Services Union, and UNITE.

They claimed the proposals to extend the Croke Park deal will unfairly penalise women and workers on low incomes.


The unions said the deal also means there can be involuntary redundancies for the first time in a national agreement, due to "draconian" new redeployment measures.

However, the largest public sector union, IMPACT, insisted that compulsory redundancies are not in the deal.

The four unions, who are calling for a 'no' vote on the deal, expect up to 1,000 people to attend a meeting in protest at the proposals in Cork City Hall tomorrow. The meeting is the first in a nationwide campaign against the proposals.

Meanwhile, the Civil, Public and Services Union will begin balloting on the deal today.

The union yesterday overwhelmingly endorsed its negotiators' decision to walk out of the Croke Park talks last month.

SIPTU meets tomorrow to decide whether it will recommend the deal to members, after IMPACT and the Public Service Executive Union (PSEU) recommended a 'yes' vote.

The result of the ballot of all 19 public service unions on the proposed agreement will be revealed on Wednesday, April 17.

If accepted, the Government plans to roll out the payroll cuts from July 1.

The Irish Times reports that energy group ESB today reported profits of €194 million for last year, saying it intended to pay a €78 million dividend to the exchequer.

In its annual report, ESB said it had invested €765 million in infrastructure projects during 2012 .

The investments included a €466 million upgrade of Ireland ’s transmission and distribution network designed to accommodate increases in wind generation and maintain the resilience of the network.

During the year, ESB said it raised €1.1 billion through the issue of bonds, predominantly to European investors, which will support its ongoing infrastructure investment programme.

A total of ¤600 million in project finance facilities were raised to fund the construction of Carrington power station in the UK.

The company also noted that two prominent credit rating agencies Standard & Poors and Fitch had both recently upgraded their outlook rating for the ESB from negative to stable.

“This reflects ESB’s successful funding and robust financial performance, as well as Ireland’s overall progress,” it said.

Electric Ireland, ESB’s energy retail business, returned to profitability last year while customer numbers have increased by 80,000 between electricity and gas.

ESB chairman Lochlann Quinn said a financially strong ESB could ensure “continued investment in important infrastructure in Ireland.”

Chief executive Pat O'Doherty said: “Many of our customers are experiencing considerable hardship and we continue to work sensitively with them to help them manage their bills, there was a reduction of 33 per cent in disconnections over the last two years.”

“The group business strategy positions ESB as Ireland’s foremost energy company competing successfully in the converging Ireland/Great Britain electricity market,” he said.

The Irish Times also reports that
Minister for Finance Michael Noonan has directed Bank of Ireland, AIB and Permanent TSB to reduce their staff remuneration costs by 6 to 8 per cent to aid their return to profitability.

The reductions are to be introduced by cuts in payroll and pension benefits, and new working arrangements and structures to deliver efficiency gains. The banks will be expected to begin delivering the cost reductions in 2014.

This direction comes on foot of a report on bankers pay for the Government by consultants Mercer.

Mr Noonan said the remuneration cuts were “essential” for the banks to achieve a ”return to profitability” and “repay the State’s investment through a return to private ownership”.

He said “other options and measures” would be introduced by the Government to achieve the cost reductions in the event that the banks do not effect the savings that are being sought.

The report shows that salary levels at Irish banks are behind European averages for most grades. Since 2008, total remuneration at Bank of Ireland, AIB and PTSB fell by 6 to 11 per cent but rose by 1 per cent at Irish Bank Resolution Corporation, which largely reflects a premium paid to staff of that bank to compensate for the fact that it was in wind up mode prior to its liquidation by the Government on February 7th.

The Irish Examiner reports that the ISME Quarterly Bank Watch Survey found that 52% of applications are being refused by the banks and that, even when loans are granted, it takes an average of five weeks to secure a decision from the bank.

ISME called on the Central Bank to investigate the length of time it is taking for businesses to get a lending decision.

ISME chief executive Mark Fielding said the results of the survey showed that the banks were not working in their own interest and were killing the economy.

“The results of this survey demonstrate, quite categorically, that the banking system for SMEs is not working, despite the vulgar and misleading advertising by the bailed-out banks,” Mr Fielding said.

“While it may suit the administration to believe the bankers’ fiction, the truth of the matter is that banks are deleveraging through curtailing SME lending, thereby sabotaging the economic recovery through pure self-interest.”

The survey of more than 1,000 companies found that 95% stated that the Government was having either a negative impact or no impact on SME lending.

Mr Fielding said the Government cannot continue to leave banks to draw up their own codes to help provide businesses with funding.

“The experiment of ‘leaving the banks to their own devices’ and expecting voluntary codes to solve the problems must now cease,” he said.

“Government must take a much more hands-on approach or bankers will continue to distort statistics, delay reform and feel free to terrorise small and medium businesses, in their never-ending drive to maximise their own profits.”

However, a spokesperson for AIB said that the bank was already lending above the rate that the Government had targeted.

“AIB approved €4.8bn in SME lending in 2012, 37% ahead of the Government target of €3.5bn. AIB’s SME Government lending target for 2013 is €4bn,” the spokesperson said.

“In November 2012, AIB launched an initiative allowing SME loans of up to €25,000 to be decided within 48 hours at branch level.”

Mr Fielding described the banks behaviour as being like Jekyll and Hyde. “Credit lines are being restricted, deadlines missed, decisions delayed, while the banks themselves continue their Jekyll and Hyde act of ‘open for business’ while refusing more than half of all genuine SME credit applications,” he said.

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