As Ireland’s five main home lenders issued a flurry of press statements on Wednesday on how they planned to draw a line under a tracker-mortgage scandal almost a decade in the making, the newest banking chief executive in Dublin put herself at the heart of the message.
Francesca McDonagh (42), who took over as chief executive of Bank of Ireland from Richie Boucher less than four weeks ago, headlined the group's release saying she was "personally" committed to resolving the issue as quickly as possible.
She also sent a message to the bank's 11,200-strong workforce, seen by The Irish Times, directing them to read the bank's plan to refund and compensate 4,300 overcharged mortgage customers by the end of the year, while prioritising a review of whether others should be included in the compensation process.
“As you are aware in the media, and heard from customers, family and friends, there has been a lot of focus on the issue of tracker mortgages and how the banks have responded to impacted customers,” McDonagh wrote.
“I can assure you that the bank is fully committed to addressing this issue and ensuring every last impacted customer is compensated. How we handle this crisis will define the customer-centric culture we aspire to.”
Insiders in the bank and Government officials see McDonagh’s hands-on approach to the tracker controversy, receiving daily reports and personally reviewing some files, as marking a step change for Ireland’s only bank to escape State control during the financial crisis.
Legalistic approach
"The penny's dropped with Bank of Ireland, which up until now has taken a particularly legalistic approach to the issue," said a source with direct knowledge of the bank's strategy, who asked not to be identified.
Few have received the full blow of legal argument as much as 1,800 current and former Bank of Ireland staff, whose contracts were worded ambiguously and who have so far been denied inclusion on the compensation scheme.
The bank is understood to have generally conceded in favour of outside borrowers on similar contracts, even if its legal advice is that it would win a court challenge. However, it has argued that staff members should have been financially literate enough to know what they were signing up to, according to sources.
So far, Bank of Ireland has put aside €25 million to deal with the problem, which "looks light in contrast to peers", according to Eamonn Hughes, an analyst with Goodbody Stockbrokers.
While the bank was forced in 2010 to put an initial group of 5,100 customers back on rates linked to the European Central Bank benchmark, Hughes said that it's "difficult to be certain" about the final cost for the company, following McDonagh's commitment to search for other affected customers.
Investec analyst Owen Callan estimates that Bank of Ireland's provisions for dealing with the controversy may have to rise to as high as €150 million, bringing the total cost to the industry to as much as €750 million, compared with about €600 million currently.
Still, he said any incremental costs that banks have to account for “would be relatively immaterial to current valuations [of Irish bank shares],” said Callan.
“The sector had cheapened significantly over the last two weeks on the headlines related to the issue, and we think [Wednesday’s] statements should provide a floor for any concerns in relation to this issue,” he added.
Shares in Bank of Ireland, AIB and Permanent TSB rallied on Thursday, following drops of as much as 10 per cent, 7.6 per cent and 1.6 per cent respectively, over the previous two weeks.
While Minister for Finance Paschal Donohoe admonished the heads of the top five lenders when he called them into the Department of Finance earlier in the week, investors have taken comfort from the fact that the Government has deferred taking any action against the banks, as he concluded that the "majority" of affected customers would receive redress and compensation payments by the end of the year.
Unreservedly apologies
The chief executives of the five main banks “have made statements unreservedly apologising to their customers adversely and shamefully impacted by the tracker-rate scandal,” Donohoe said on Wednesday night at the closing of a Dáil motion on the matter.
“They have committed to a resolution for affected customers and I, the Government and the Central Bank will be keeping a careful eye on them to ensure that there is no slippage.”
Government threats of tax or levy increases for banks, imposing more reporting requirements on banks or taking an “activist” role in relation to its remaining stakes in AIB, Bank of Ireland and Permanent TSB remain on hold – for now.
However, critics believe bank customers can derive less comfort than their investors from the banks' fresh commitments, resulting from a political storm around the issue in recent weeks that peaked when the Oireachtas finance committee heard from four victims of mortgage overcharging who waived anonymity to tell of their personal stories.
“The bankers who caused this will sleep well tonight,” Michael McGrath, Fianna Fáil’s finance spokesman, said during the Dáil debate on Wednesday. “There’s no question about it, but the people whose whole lives they’ve devastated in some cases will continue to have sleepless nights because their nightmare continues.”
“Looking at the statements from the banks, the Minister and the Central Bank, I have no confidence that we’re not going to be here this time next year still dealing with the fallout from this issue.”
One of the biggest capitulations on the tracker controversy this week came from KBC Bank Ireland, which, in disclosing figures for the first time, revealed that as many as 1,661 of its mortgage customers may have been hit by overcharging.
The lender, whose Belgian parent, KBC Group, affirmed its commitment to the Irish market earlier this year after two years of speculation about its future, said on Wednesday that it had "rectified" 571 customers in 2010, while a further 490 had been identified under an industry-wide examination which began in 2015.
However, KBC also said it anticipated that up to an additional 200 to 600 borrowers may be affected.
It is understood that an update by KBC Bank Ireland to the Central Bank in September had initially indicated that fewer than 100 borrowers had been identified under the current review.
“KBC expects to have concluded the identification of the vast majority of customers impacted by the tracker examination by the year end,” it said.
“Payment and redress for customers identified so far will commence in early November. For straightforward cases, which we expect to be the majority, we expect to complete payment by the year end.”
Elsewhere, AIB said it had identified 3,416 customers, as of the end of September, who had been wrongly denied a tracker mortgage and that 91 per cent of these have received redress and compensation to date. The bank said it aimed to complete remediation on these customers by the end of the year.
However, the bank, led by chief executive Bernard Byrne, also said it estimated that a further 170 further cases would be found by the end of the year, and that payments to these would not be finalised until the end of March.
Meanwhile, AIB disclosed that as many as a further 1,016 customers were charged a higher rate than agreed on their tracker mortgages. Just over half of the 736 confirmed cases have been redressed and compensated to date. This will rise to 100 per cent by the end of December, AIB said.
While AIB has characterised itself as having been among the most responsive banks to the crisis, its remediation plan excludes potentially thousands of borrowers who started off about a decade ago on fixed-rate loan contracts, with the option to move on to trackers once the fixed-rate periods were up. However, the bank did not allow any such customers to transfer to a tracker rate after it pulled this mortgage product in October 2008.
Permanent TSB
Meanwhile, Permanent TSB said it had returned to the right rates 98 per cent of the 1,971 customers found to have been denied tracker mortgages, and had paid redress and compensation to 73 per cent of them. It plans to have all of the customers on the correct rates by the end of October and make remediation offers to the remaining borrowers by the end of December.
Ulster Bank, which is part of Royal Bank of Scotland, said it had returned all of its 3,500 impacted customers to the right rates and had made redress and compensation payments to 100 of these.
It said that 1,000 customers will have received payments by the end of the year, rising to 2,500 by the end of next March and the remainder completed by the end of June 2018. Ulster Bank borrowers found to have lost their homes as a result of the overcharging will receive an initial €50,000 payment.
As politicians in Dublin debate whether the Government has done enough to bring about a resolution for affected borrowers across the industry, Fine Gael MEP Brian Hayes has submitted a formal complaint with European Commission competition authorities, asking them to investigate whether banks colluded to intentionally deny customers their correct mortgage rates.
Central Bank governor Philip Lane said last week that his officials had not come across any indications of cartel-like behaviour in its examination. Still, he said that he remains "open-minded" and would report any such evidence, if found, to the Garda.
Back at Bank of Ireland, McDonagh has allocated additional staff to the company’s tracker-mortgage examination team and promised to issue a further update in mid-November on whether additional cases of overcharging have been found.
“I am really proud to have joined the Bank of Ireland where the integrity, talent and skill of its people is central to supporting our customers,” she said in the internal email. “This is more important than ever as we deliver on our commitments to those who are impacted [by the tracker issue].”
McDonagh’s actions will be watched most closely by the 1,800 current and former bank employees who have been left in limbo.
