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News : Irish Last Updated: Apr 25, 2013 - 11:38 AM

Thursday Newspaper Review - Irish Business News and International Stories - - April 25, 2013
By Finfacts Team
Apr 25, 2013 - 7:53 AM

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The Irish Independent reports that tens of thousands of homeowners will be hit with a hefty increase in their monthly mortgage payments after banks hiked rates – just days ahead of an expected cut at European level.

News of the rises at AIB and EBS emerged as shareholders at Bank of Ireland sanctioned the €843,000 pay packet of chief executive Richie Boucher.

The decision came after the bank lost €2bn last year and Taoiseach Enda Kenny pleaded for top bankers to share in pay cuts requested by the Government.

AIB has been accused of launching a "sneaky" attack on its own customers after it confirmed it would be raising variable mortgage rates in the summer.

The decision affects borrowers who have variable mortgages with AIB, EBS and Haven and swings into effect from June.

A hike of up to 0.4pc in variable rates will mean a customer with a €300,000 mortgage will face an extra €66 a month in payments from June 1. This will amount to an extra €800 over a year.

Other banks are now expected to follow the lead – in a move that will affect a total of 300,000 mortgage holders.

Bank of Ireland and ICS would not rule out a similar increase, and said they were keeping their rates under review.

This is despite the European Central Bank (ECB) preparing to cut its interest rate to record lows of just 0.5pc next week. The ECB cut will benefit customers fortunate enough to have a tracker mortgage, but those with variables are unlikely to see any concessions made by the banks here.

Even if the banks do pass on a portion of the cut to variable customers, those with AIB, EBS and Haven will still be paying more come June. Brokers said the move will push up arrears.

Rates on variable mortgages with Irish banks are now almost double the level of rates on trackers, creating an inequitable system of haves and have-nots.

Banks are tied into following the ECB rates for tracker mortgages – which are losing them money – but can set their own variable rates, leading to accusations of cynical profiteering.

AIB is state-owned but Department of Finance officials admitted their hands were tied when it came to preventing another rise in mortgage costs.

This newspaper reported in February comments from AIB boss David Duffy that the bank was preparing to increase its variable rates, but the scale of the increase will shock many mortgage holders. AIB's variable rate for residential customers will rise 0.4pc to 4.4pc.

At EBS the owner-occupier rate will jump 0.25pc to 4.58pc. And Haven's rate goes up 0.25pc to 4.6pc – one of the highest variables in the market.

A 0.4pc rise at AIB means an extra €22 in monthly repayments for for every €100,000 borrowed.

Rates for 'loan-to-value' residential and buy-to-let mortgages are also going up by between 0.25pc and 0.4pc. The variable rate for investors at AIB will hit 5.35pc.

AIB's Fergus Murphy said: "Prior to this increase, AIB had the lowest standard variable rate in the market, but now regrettably must move more in line with market competitors."

But financial experts said the bank was hitting variable-rate customers because it cannot touch those on trackers or fixed rates. It was relying on the fact that many of its variable-rate customers were older, and have equity in their properties. It was hoping that these people would not go into arrears.

Head of the Irish Brokers Association, Ciaran Phelan, was scathing. "It seems somewhat sneaky of AIB to impose this increase ahead of the anticipated ECB rate cut," he said.

Already about one in 10 of the AIB group's residential mortgages are three months or more in arrears. And close to 18pc of buy-to-let mortgages are three months or more in arrears.

Despite the fact that the bank is 99.8pc state-owned, a Department of Finance spokesman said it could not intervene.

An agreement had been signed stating that the Government would not interfere in the day-to-day decisions of the state-owned banks, he said.

"While this decision by AIB is regrettable it is strictly a commercial decision by the board of AIB. The Irish taxpayer has invested over €20bn in AIB and it is essential that the bank is run in a commercial manner and in the best interests of the shareholder – the Irish taxpayer," it said.

The European Central Bank's governing council meets next Thursday when rates could be cut from 0.75pc to a record low of 0.5pc.

The Irish Independent also reports that two financial services groups have become the latest to announce the closure of their defined-benefit schemes as funding pressures and strict rules mean more companies are turning their backs on traditional retirement schemes.

Permanent TSB is to stop paying into its defined-benefit plans – which means three schemes with 2,000 members will be wound up. The deficits amount to €300m.

Staff will be moved to a new defined-contribution (DC) scheme from June 1, the Irish Independent has learned.

The bank is to contribute 12pc of staff salaries into the new DC plan. The move to stop contributions to the defined benefit (DB) scheme will save it €10m a year.

A letter to the UNITE union from the bank states: "Based on actuarial advice, the group has come to the conclusion the DB schemes are no longer viable, given its inability to meet the minimum funding requirement of the Pensions Act."

Insurance company Aviva also plans to close its defined-benefit pension scheme in Ireland next month with the backing of union UNITE. Staff will move to a new DC pension from the start of next month, an Aviva spokeswoman confirmed. Promised benefits under the DB scheme will be reduced.

The scheme had been closed to new staff members since 2001. The plan had a £371m (€436m) deficit at the end of last year.

Some 93pc of UNITE members voted to close the plan, Aviva said.

Earlier this week, the Organisation for Economic Co-operation and Development (OECD) criticised the the fact that employers can "walk away" from their pension-scheme deficits with no financial consequences.


It recommended that employers should not be able to walk away from the deficits unless assets cover at least 90pc of the liabilities. The OECD said that it was not acceptable that profitable employers could pass on the deficit to employees.

Defined-benefit schemes promise to pay a set level of pension, depending on the years of service. But the promises have become impossible to keep because people are living longer and investment returns have been too low.

Eight out of 10 defined-benefit plans are in deficit, while pensioners have first call on the assets in schemes.

Bank of Ireland said yesterday that talks were ongoing on reducing its pension deficit, which has trebled to €1.2bn at the end of 2012.

AIB's pension deficit ballooned to nearly €800m last year, despite the bank pumping more than €1bn into the scheme.

Benefits are being reduced or schemes are shutting at AIB, Independent News and Media (the publisher of this newspaper) and Grafton.

Retailer Arnotts told the trustees of its DB pension scheme that it would cease making contributions to the plan.

Social Protection Minster Joan Burton is considering changing the rules where at present pensioners have first call on all the assets of schemes that wind up.

The OECD has called for a fairer distribution of the assets to existing workers and deferred members.

The Society of Actuaries and the Irish Pensions Funds Association have presented proposals along these lines, that would also have the effect of easing the funding standard for schemes that are not winding up.

The Irish Times reports that a Dublin family doctor has earned more than €700,000 from the HSE for treating patients subsidised by the State under the medical card schemes.

Dr Andrew Jordan, who runs practices in Tallaght and Terenure, was paid €729,485 for seeing medical and GP card patients and in practice supports in 2011, according to the HSE. Dr Jordan also topped the list of contractor payments in 2010, when he earned €846,517.

Six other doctors earned more than €600,000 for their practices in 2011, according to the latest figures published by the HSE yesterday. The second highest earner was Dr Catherine Coleman, who runs the Berkeley Street Clinic in Dublin’s north inner city, and was paid €671,599. Dr Anthony Crosby in Raheny, north Dublin, earned €662,335 and Dr Anthony Delap in Bunbeg, Co Donegal, was paid €640,178.

GPs have warned that existing cuts as well as those proposed for this year are leading to the running down of general practice.Analysis: Primary care practitioners insist cuts have consequences


In total, the HSE paid about €2.5 billion to contractors – doctors, dentists, opticians and pharmacists – in 2011, representing about 20 per cent of its total spend. Fee cuts have seen reductions in payments for many professionals but this has been ameliorated by a rise in the number of people qualifying for medical cards.

The figures quoted represent gross payments to practices, before the cost of premises and employing staff is deducted. The Irish Medical Organisation last night criticised the HSE’s practice of publishing the figures “in isolation” as “farcical”.

“It gives no account of the number of health professionals and support staff working in a practice, the volume of patients seen or the expenses incurred in operating a modern GP practice,” said Dr Ray Walley, chairman of the IMO’s GP committee, who was paid €348,251. “General practice in Ireland has been proved to be the most cost-effective element of the health services - as is the case internationally.”

Fine Gael TD

The list includes Fine Gael TD for Wexford Dr Liam Twomey, who is listed as having received €51,382. Former Fianna Fáil minister Jim McDaid, who retired from politics in late 2010, earned €195,639.

The highest earning dentist was Dr Shane Cadden in Castlebar, Co Mayo, who was paid €274,010 in 2011. He was followed by Dr Shane Barnes in Ballyfermot, with payments totalling €254,042. Eleven dentists were paid more than €200,000 in respect of their medical card patients.

“Significantly reduced payments to dentists reflect savage cuts in services to patients holding medical cards and explain the large rise in redundancies and practice closures,” said Fintan Hourihan, chief executive of the Irish Dental Association.

Eleven pharmacists were paid more than €600,000. The list here was topped by Akti Ltd in Dublin southwest, which earned €692,287. It was followed closely by the Hickey Pharmacy Group in north Dublin, which earned just €44 less.

A spokesman for the Irish Pharmacy Union said the figures were gross figures out of which pharmacists had to pay substantial operating costs, including staff, insurance, and premises. The figure also reflected a growing volume of dispensing under the medical card schemes as increased unemployment led to wider eligibility for medical cards.

The Specsavers chain of outlets accounted for eight of the 15 top-earning opticians. However, the list was headed by Patrick Flanagan of Homecall Opticalcare in Dublin, with earnings of €360,545.

The Irish Times also reports that the Government is expecting senior bankers to make a “substantial contribution” to reducing the cost of their pay and pensions, Taoiseach Enda Kenny has said.

He told the Dáil yesterday that a response by the banks was expected in the next few weeks.

Responding to questions on the issue of Bank of Ireland chief executive Richie Boucher’s €843,000 pay package, Mr Kenny said Minister for Finance Michael Noonan had commissioned an independent analysis of the pay scales and pension packages of bankers.

The Irish Times takes no responsibility for the content or availability of other websites.

“The Minister has also made a recommendation on behalf of the Government that banks reduce their cost base by between 6 per cent and 10 per cent. He expects to receive a response in this regard in the next couple of weeks.

“As I said, it is expected that it will include a substantial contribution from the leadership of the banks,” said the Taoiseach.

He added it was important that everybody understood the banks were an important part of Ireland’s economy.

‘Squeeze the banks’

“They are not making money and would not be in existence but for the taxpayer. It is important that the Government squeeze the banks and require them to reduce their cost base,” said Mr Kenny.

Government sources refused to speculate later on what kind of pay reductions Mr Kenny was expecting bankers to come up with, but the annoyance expressed yesterday by Bank of Ireland shareholders was described as “perfectly understandable”.

Shareholders vented their anger about the remuneration of Mr Boucher and the bank’s chairman, Archie Kane, at the company’s three-hour annual meeting in Dublin’s Burlington Hotel yesterday.

Independent TD Shane Ross criticised Mr Kane’s €490,000 package for what he called a “part-time” role . Mr Ross reminded the board that most shareholders in the room had seen their stock fall in value, had been paid no dividends, and had “no hope of recovering their money”.

“Nobody [among the board of directors] has taken a beating at all,” Mr Ross said. “Everyone out here has taken a beating for five years.”

The Irish Examiner reports that A bankruptcy judge has been asked to order a Swiss bank to hand over documents and make a representative available for interview as a trustee continues to investigate Seán Dunne’s complex global finances.

A lawyer acting for the trustee, Richard Coan, wrote in a motion that he believes “Credit Suisse has information relevant to the assets of the debtor and/or transfers made by the debtor”.

Credit Suisse helped to finance the 2008 purchase of a Geneva apartment bought in the names of Mr Dunne and his wife, Gayle Killilea-Dunne.

Mr Dunne and Mrs Killilea Dunne were originally named as joint owners but the developer gave up his share to his wife just months before it was sold in 2010, according to documents filed in Switzerland. The developer has said his name was on the title purely to satisfy Swiss residency rules.

Mr Coan’s probe into Mr Dunne’s finances is happening as he works to put together full details of his affairs ahead of an Apr 27 deadline. A lawyer for Mr Dunne applied for an extension, arguing the finances were so complex more time was needed.

In a separate move, the lawyer James Berman asked for a hearing before Judge Alan Shiff to discuss his client’s overdue filing of financial details.

The Geneva apartment was the subject of much legal back and forth in the civil action Nama took against Mr Dunne, his wife, and others in Connecticut, where the couple moved to in 2011.

Mr Dunne asked for the case to be dismissed, largely on the basis that Connecticut had no jurisdiction over a transaction in Switzerland. Nama, pursuing a €185m judgment, sued the developer in the US, claiming he tried to hide the fact he benefited from the sale of two properties in Connecticut and the Geneva apartment.

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© Copyright 2011 by Finfacts.com

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