Central Bank of Ireland investigation into ‘unfounded’ European Bank Authority stress test claims

THE Central Bank has received allegations from one of its own officials that Irish bank stress test data it processed was ‘doctored’ before being passed on to Europe.

The official claims the Central Bank did this to ensure Irish banks passed European Banking Authority stress tests in July.

The allegation, which the Central Bank has dismissed as unfounded, has been the subject of a secret internal investigation.

The investigation was launched about two months ago after the claim was made by the official, who had worked on stress test data prior to it being sent to the EBA.

The official claimed to have worked on data that was then deliberately ‘dressed-up’ to ensure AIB, Bank of Ireland and Irish Life & Permanent passed.

The whistleblower has also claimed to have repeatedly flagged problems with the data that was submitted to the EBA – which has yet to receive details of the Central Bank’s internal investigation.

A Central Bank spokesman said last night: ‘In response to an employee’s complaint expressing a concern over the way in which the EBA stress testing procedure was applied in Ireland, Central Bank management commissioned an investigation.

‘This investigation was conducted by the Bank’s Internal Audit Department under the Bank’s “Speak-Up” policy.

‘Based on the report of this investigation, which has been accepted by the employee, Central Bank management is satisfied that, while the complaint was made in good faith, there is no reason for concern with the figures provided to the EBA.’

Oireachtas Finance Committee member Stephen Donnelly said last night: ‘I would like the Finance Minister to come back into the Dail with sufficient information about these allegations so Dail members can see whether further information is warranted.

‘Then perhaps the Financial Committee could look into these allegations on behalf of the Dail.

‘In particular, it could see whether or not inappropriate pressure was applied and to see what impact this might have had on the final EBA stress test results.’

The Wicklow Independent TD added: ‘It is not appropriate for the Central Bank to be the only body investigating serious allegations against it by one of its own employees and especially on such a serious issue as the bank stress tests.’

A spokesman for the European Banking Authority said last night: ‘We are not aware of this at the moment.

‘We have not been informed by the Central Bank.

‘If the Central Bank of Ireland has information like this, we are waiting for them to inform us.

Economist Constantin Gurdgiev last night called for an independent investigation into the allegations.

‘The fact that allegations of this nature have been made is a very serious and worrying development,’ he said.

‘With all due respect to the Central Bank, they should not be the only organisation investigating these allegations.

‘It is fair enough for them to deal with them internally as a matter of course, but there needs to be an independent examination of the allegations.

‘If anybody at the Central Bank had any kind of pressure put on them to deliver a certain set of results then that puts the entire banking process into question.’

Of the 91 banks assessed, the EBA awarded stress test pass marks to all but eight of Europe’s major lenders.

Those who passed were deemed capable of sustaining theoretical drops in stocks, bonds and property prices during a two-year recession.

As far as Irish banks were concerned, AIB, Bank of Ireland and Irish Life & Permanent all passed.

Had any one of them failed, they would have had just two months to come up with a plan to deal with their short-comings.

They could have also ended up having to return cap-in-hand to the government for more bail-out money.

News that there has even been an investigation – not to mention allegations – related to Central Bank stress-testing data comes at a worrying time for banking across Europe.

Just last month, analysts at US firm Goldman Sachs warned that more than half of Europe’s biggest lenders are likely to fail the EU banking watchdog’s latest health checks.

The Wall Street giant has warned that the region’s weak banks could be facing a shortfall of as much as £260bn if the EBA forces lenders to raise their capital buffers to 9pc of their total loan book.

Under pressure from critics, the EBA is re-working its widely derided examination of the EU’s banking system that was conducted in July.

But so far, at least one of the European banks that passed –  Dexia – has run into trouble.

It had to be rescued a few months later by the German and French governments.

Indeed, the whole issue of stress-testing has already been undermined in Ireland because AIB ended up needing a bail out despite passing stress-testing in 2010.

Despite the EPA’s decision to publish 3,000 points of data about each bank in its last round of stress tests, there has been a feeling that there was little real clarity about dangerous banking exposures that may still be lurking in the system.

In Ireland’s case, this could well relate to bad residential mortgage debt.

As the Irish Daily Mail revealed last year, AIB staff – according to a staff whistleblower – alone account for around €3billion of the bank’s debts.

That figure emerged before AIB announced its intention to shed more than 2,000 staff.

There has also been criticism that the July 2011 stress tests did not take into account the chances of a Eurozone company collapsing and defaulting on its debt.

With Greek teetering on the brink of financial oblivion and Italy now becoming more of an issue, these scenarios look ever more plausible.

At the time, ratings agency Standard & Poor’s had suggested the tests could have been much more severe.

And Francis Fitzherbert-Brockholes, a banking and capital markets partner at law firm White and Case, added: ‘Although the tests are apparently more robust now, they still do not assume a sovereign debt default, only a sovereign debt downgrade.’

Have you got a whistle to blow about Irish banking? Call 087 919 9113 or email contact @ irishwhistleblower.com.

AIB bow to ECB interest rate cut pressure

AIB has bowed to political pressure over its decision not to pass on the European Central Bank’s 0.25 per cent rate cut.

Last night, the bank issued a brief statement announcing it would pass on the rate cut to its mortgage holders.

But Bank of Ireland refused to say if it would follow suit.

Just after 7.30pm, an AIB spokesman stated: ‘Following the meeting between AIB, members of the Government and the Economic Management Council, the board of AIB has decided to implement a 0.25% interest rate cut to its variable rate mortgages.’

The decision comes a day after the bank’s bosses were hauled in for a meeting with Enda Kenny and Michael Noonan to explain why the rate cut had not been passed on.

Bank of Ireland and Ulster Bank bosses were also summoned to the meeting of Wednesday’s Economic Management Council meeting.

But when the bank bosses emerged on Wednesday, they infuriated the Government by saying they would not be cutting their interest rates.

It was a major humiliation for the Taoiseach and Finance Minister. It led to calls yesterday for the boards and public interest directors of AIB and Bank of Ireland to be sacked.

But AIB’s move is said to follow a lengthy phone conversation between AIB officials and Kenny earlier in the day.

Eamon Gilmore was pilloried and branded ‘pathetic’ in the Dáil yesterday for taking a soft stance with the lenders, which have been propped-up with billions in taxpayers’ cash.

The Tánaiste insisted he had been ‘very clear’ with the banks when they were summoned before the Government’s Economic Management Council on Wednesday.

AIB’s decision to pass on the rate cut is likely to bring an end to the demands for sackings.

The focus will now shift to Bank of Ireland, which was still offering no commitment to cut its mortgage rates.

When asked last night if it was going to follow AIB’s move, a spokesman told the Irish Daily Mail: ‘All the bank’s rates of interest are under review.’

Of the Government’s Economic Management Council meeting, Mr Gilmore said: ‘The representatives of the three banks who attended the meeting yesterday told us it was not their intention to pass on the reduction to their borrowers.

‘We made the Government’s view very clear to them, namely, that the interest rate reduction made by the ECB should be passed on.

‘People with mortgages need the reduction.’ Fianna Fáil deputy leader Éamon Ó Cuív described the refusal to pass on the reduction to domestic and business borrowers as ‘absolutely scandalous’.

He asked: ‘Will emergency legislation be introduced in the House next week to give the Financial Regulator the power to force the banks to pass on the ECB interest rate reduction?

‘Will the Government replace forthwith all public interest directors who are now not acting in the public interest?

‘Will it seek an immediate emergency general meeting of the guaranteed banks to remove the remaining directors?’

‘It is time the Government walked the walk rather than just talked the talk.’ Sinn Féin TD Caoimhghín Ó Caoláin noted that Junior Minister Brian Hayes had described the response of bank executives as ‘pathetic’.

The Monaghan TD said the word would be better applied to the failure of the Government to take on the banks.

He said: ‘In response to their polite request that the banks pass on the recent interest rate reduction, they were told, no.

‘The Government will have to take the decision to stand up and confront the banks to protect the interests of ordinary mortgage holders.’

While brushing off calls to lower rates earlier this week, AIB’s executive chairman David Hodgkinson said: ‘We have cut rates in EBS [now a subsidiary of AIB], but we are the lowest in the market and we will remain that way.

‘Because we didn’t increase our rates, we’re not going to decrease them.’ Customers affected are those with standard variable rate mortgages. With tracker mortgages, any changes in the ECB rate must automatically be passed on to the customer.

However, with standard variable rate mortgages, the banks have discretion.

AIB to cut 2,500 staff jobs

AIB bosses are finally about to start slashing an estimated 2,500 jobs.
And sources within the bank say an announcement about the cuts could be made as soon as Tuesday morning.
This is when, at the bank’s HQ in Dublin’s Ballsbridge, its delayed annual results will be published.
It is believed that AIB CEO David Hodgkinson will then make his first public statement on the future for 15,000 bank workers in Ireland and the United Kingdom.
He has already warned staff about job cuts and said that for the bank to survive ‘it will require change of a magnitude never before undertaken by AIB’.
The bank is believed to be looking to make just over 2,500 job cuts but is hoping the majority of them will be voluntary redundancies.
A behind-the-scenes restructuring process has already concluded the cuts to staff are necessary if the bank is to survive, whether or not it ever merges with the EBS.
The bulk of the cuts are expected to be made between now and the beginning of next year. As well as staff jobs going across the board, the bank is also expected to close branches.
An AIB spokesman last night refused to comment about job cuts, or on speculation that €500,000-a-year Hodgkinson will make a statement about them on Tuesday.
A source who asked not to be named said last night: ‘There is an indication that as many as 2,500 jobs will go mainly from its Irish-based operations.
‘Hodgkinson is deliberately keeping his cards very close to his chest on this one, but his recent warning to staff has set alarm bells ringing.
‘We are all expecting a massive round of cuts.
‘Most will involve people losing their jobs outright, while others just won’t work for the bank anymore and will instead be left to the mercy of whoever buys AIB subsidiaries that go up for sale.’
They added: ‘The staff are sick and tired of the constant wait for news and some have heard this is likely on Tuesday.’
Last night, a spokesman for the finance union IBOA said last night: ‘IBOA is seeking agreement from the bank that any redundancies will be implemented on a voluntary basis.
‘And we would want this to be with full negotiation on severance terms with the union.
‘IBOA also wants an agreement on the terms and conditions of staff who will remain with AIB including any transfers and redeployment required under the restructuring of the Group.’
In an email to staff last month, Hodgkinson warned: ‘While there will be job losses, most will be brought about on a phased basis throughout the organization.
‘Our preferred approach is that most redundancies will be achieved on
a voluntary basis.’
Hodgkinson also told staff the bank’s ‘strategic review’ was in its final stages – having been passed to the AIB board.
Department of Finance officials are also believed to be in possession of the report into the review’s findings – and decisions about the bank’s future operations.
Hodgkinson warned that for the bank to survive its current crisis ‘it
will require change of a magnitude never before undertaken by AIB’.
Despite reports last year speculating on the amount of jobs cuts, the bank had always maintained no definite decision about the scale of cuts would be made until after bank stress tests were completed.
Those are now finished, with the Central Bank revealing on March 31 that AIB, Bank of Ireland, EBS and Irish Life & Permanent need an extra €24billion.
AIB will need €5.2billion, this is on top of the €3.5billion it received from tax-payers in 2009 as well as last year’s €3.7billion.
AIB is one of three Irish banks undergoing a new round of European stress-testing.
The other two being stress-tested by the London-based European Banking  Authority are Irish Life & Permanent and Bank of Ireland.
Although results are due in June, it’s worth noting that both AIB and Bank of Ireland passed their EBA stress tests. Two months later they needed to be bailed out again.
IBOA General Secretary, Larry Broderick said at the time that the contents of Hodgkinson’s email had been news to staff and the union.
‘This announcement comes as a surprise to both the staff and to the Union since at no stage in our recent engagement with the Bank has there been any indication that the plan was at such an advanced stage,’ he said.
The Union has been involved in preliminary discussions with the Bank under the auspices of two respected mediators.
‘But at no time ‘were either we or the mediators made aware that the bank was about to submit a comprehensive restructuring plan to the board and to the Government.’
Speculation about job cuts has been rampant since the beginning of the
banking crash in 2008.
AIB confirmed last Friday that the State now owns a 92.8% stake in the bank. This follows the completion of the sale of its Polish businessesBank Zachodni WBK and BZ/WBK AIB Asset Management.to Santander in Spain.
Despite upping its stake from 49.9% with last December’s €3.7billion bailout, the Government agreed to wait until the sale was finalised to formally declare its stake holding.
It has also finished converting the 10.5million convertible non-voting shares it received in return for the €3.7million in December into ordinary stock.

AIB staff owe the bank €3billion

THE full extent of AIB’s recklessness became apparent last night when it was revealed that its own staff owe the bank more than €3billion.

Just over €2.5billion of the huge figure is made up of mortgages and home-related loans, while at least €500million consists of other types of credit from their employer.

Shocking as the figures are, bank sources have admitted the sums involved could be even BIGGER.

And as AIB considers redundancies to reduce its costs, the exercise could prove futile, if not impossible, with so much debt tied up with its employees.

One AIB insider last night claimed that around 1,000 employees – out of a total of 12,000 – account for an astonishing €1billion in unpaid mortgage debt.

Some staff on salaries of less than €35,000 reportedly have debts of more than €500,000, thanks to the bank’s profligacy during the boom.

Another employee said: ‘As a member of staff, you were entitled to an almost automatic €20,000 a loan gold credit card, car loans, home improvement loans, overdrafts and, of course, a mortgage.’

The revelations are bound to fuel anger among taxpayers already incensed at being saddled with a €3.7billion bailout over and above the €3.5billion the bank received in public funds in May.

Speculation about the true state of the bank’s finances was raised to new heights last week when Finance Minister Brian Lenihan used the powers vested in him under the Credit Institutions (Stabilisation) Act in making his application to the High Court for the controversial €3.7billion cash injection.

The provision allowed him to exclude the media from the hearing, effectively screening the bank’s massive problems from the public which, some critics believe, is simply being asked once again to throw good money after bad.

Pressure on bank finances has intensified this month after it made a loss of €5.5billion in the sale of €9.3billion of propery development loans to the National Asset Mangement Agency at a 59 per cent discount.

Meanwhile, staff last night alleged that in addition to their perks, they were able to secure further credit from their branch, which would be unaware of what individual employees had received at staff level because of the way separate departments within the bank worked.

Last night, an AIB spokesman said: ‘We cannot comment on staff mortgages or other loans.

‘Staff who are customers are treated the same as non-staff customers.’

But with the bank still needing to raise a further €6.1billion by next February, the fact that such a large chunk of its debt is staff-related will shock many.

And it could prove to be crucial when the Department of Finance and AIB chiefs meet early next year to finalise details of the much-publicised redundancies at the bank.

The December 23 bailout by Mr Lenihan effectively nationalised the bank, in which the State initially has a 49.9 per cent control until the sale of AIB’s stake in Poland’s Bank Zachodni WBK.

Once the deal is completed, the State will end up with 92.8 per cent of the bank, which is to de-list from the main markets of both the Irish and
the British stock exchanges.

With AIB’s mortgage book valued at €27.1billion, insiders at AIB say staff exposure would be ‘in the region of seven to ten per cent’.

One AIB staffer said of the boom times last night: ‘You could pretty much have whatever you wanted. There were few checks done and many of us were able to get multiple mortgages, multiple car loans as well as personal loans.

‘It’s all been tightened up now but people have no idea just how much cash was swilling around in the good times.’

One of the perks the bank admitted to last year was the availability of 100 per cent mortgages for staff members who were first-time buyers.

The mortgages – condemned by TDs as inappropriate at a time of growing economic uncertainty – were being offered as part of a ‘special package to staff ‘.

UCD economist Morgan Kelly has warned that Irish banks could end up ‘drowned’ by the losses on mortgages.

Bank workers’ union the IBOA is so concerned about the increasing ‘anecdotal’ evidence of its members’ debts that it ordered a survey earlier this month.

The Financial Regulator has received a number of complaints about the way the bank is dealing with staff debt.

An anonymous AIB whistleblower has lodged complaints with both the regulator and the Department of Finance, and a string of serious allegations are now being investigated.

They include a claim that staff have been allowed to have mortgages more than 20 times their salary.

An IBOA spokesman said: ‘We are very concerned and feel it’s now time to get a better assessment of the problem.’