Bank of Ireland refuse to pass on ECB interest rate cut despite tax payers’ bail out

BANK of Ireland bosses are still refusing to pass on the European Central Bank’s 0.25 per cent base rate cut.

Despite receiving a hefty bailout from taxpayers, the bank’s bosses are continuing to ignore a call by the Government to change its rates in line with the ECB’s surprise 1.25 per cent rate.

Last night, a BoI spokesman repeated the same statement given on Thursday after AIB’s belated decision to pass the cut on to variable mortgage holders.

He said: ‘All our rates are under constant review.’

Ulster Bank, which has not been bailed out by taxpayers, is also refusing to pass on the reduction.

A spokesman said: ‘We keep all our products and services under continual review, having regard to our cost of funds.

‘Therefore, if the cost of funds goes down we would pass on those rates.’

Because it is not one of the bailed-out banks, Ulster Bank has not attracted as much anger as Bank of Ireland and AIB.

AIB had initially refused to cut rates. But after attending Wednesday’s meeting of the Economic Management Council with Enda Kenny and Eamon Gilmore, its bosses finally gave in to mounting pressure.

However, there been no contact between officials from Bank of Ireland or Ulster Bank and the Taoiseach since then.

People Before Profit TD Richard Boyd Barrett said last night: ‘The arrogance of Bank of Ireland is extraordinary and utterly scandalous.

‘It is a complete outrage that a bank that was bailed out and would not be in existence if it wasn’t for public taxes should still refuse to give taxpayers’ relief.

‘They are only interested in the bottom line.’

Government press secretary Feargal Purcell said: ‘We’ve had the meeting with the banks and it’s down to them to consider it.

‘There has been a very clear message sent from the Government by the Taoiseach to the banks.’

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.’

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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.

€4 billion Mortgage loans risk

BILLIONS OF euros worth of mortgage loans are at risk because of ‘irregularities’ Bank of Ireland officials have discovered in mortgages they have sold.

They have become so concerned about the still unspecified irregularities that they have called in the Garda Fraud Squad.

And, the Irish Mail on Sunday can reveal, the probe has been extended from BoI loans to those provided by most of the country’s major lenders.

More than 120 ‘suspect’ mortgage deals worth an estimated e30m have been identified so far, and all are due to come before the courts.

In documents due to be published later this year in the Official Irish Law Reports, a High Court judge warns there is ‘serious risk’ to the entire mortgage system in Ireland.

The astonishing remarks were made by Judge Mary Laffoy in a High Court case last November – but came to light only last night.

The issue Judge Laffoy adjudicated on involves a Bank of Ireland Mortgage Bank customer who defaulted on a e250,000 mortgage for a property in Cork.

As a result, officials began examining the files on the agreement and discovered that despite issuing the mortgage cheque, they didn’t – and still don’t have – any legal charge over the property.

The case highlights the fact that of the estimated e28.8bn in mortgages issued in 2006 alone, mortgage lenders do not actually have the necessary paperwork to back any legal claim on mortgages worth an estimated €4bn.

This is partly to do with ongoing delays at the Land Registry. The delays become an issue only if banks need to call in their loans.

During her summing up, Judge Laffoy drew particular attention to the significance of the undertakings made in lieu of documentation.

She said: ‘I am very conscious of the serious risk to the integrity of the lending system in relation to residential mortgages which this case has exposed.

‘The evidence is that the Bank of Ireland Mortgage Bank has advanced in excess of e2.2bn on residential mortgage loans, such as the loan to the borrower in this case, in the financial year to August 2006.

‘In practically all of those cases, the loan cheques were issued to the borrowers through their solicitors on foot of, and in total reliance on, undertakings in the Law Society approved format.

She heard that BoI discovered ‘irregularities in the mortgage transaction at issue and other mortgage transactions, the applications for which had all been introduced to the bank by the same mortgage broker’.

The court was told that this individual was a member of a panel of brokers and valuers approved by the Bank of Ireland itself.

The bank had sued a prominent solicitor who had given it an undertaking so that the mortgage cash could be released. The property in question was purchased in 2001 for e90,000, valued at e295,000 in 2003, and a mortgage issued in September of that year.

However, the first instalment was not paid for three months and by the following March, bank officials had identified the ‘irregularities’. After a further 17 missed instalments, the bank called in its loan in December 2004.

It was only after the property was valued two years later by an independent firm of valuers that the bank discovered that the actual valuation on the property they granted a e250,000 mortgage on was e140,000.

The bank’s claim against the solicitor failed but is under appeal. At no stage in the case do any of the parties involved appear to have played any role in any fraudulent activities whatsoever.

Compliance consultant Peter Oakes said the case could have a knock-on effect on the property market: ‘It’s overvalued enough, prices are already falling and the last thing the banks need is a big fat question mark over the value of their investments.’