Madam, – When the banks decide to only repay 10 per cent, or potentially far less if junior bondholders fail to comply, it is called “burning the bondholders”, and appears to be acceptable in the current economic crisis. Yet “burning the banks” is not an option for the masses of innocent individuals who owe large sums to those very same banks, many of whom are unable to pay mortgages on their homes due to the job losses and negative equity that, again, those very same banks have heaped upon this nation.
Master of the High Court Edmund Honohan (Home News, May 12th) should be commended on his efforts to force banks to face up to the reality of their actions and introduce debt forgiveness. This would be a welcome start to ending the unbelievably hypocritical injustice of bailing out banks that care little for the people saving them. – Yours, etc,
Madam, – The Master of the High Court has confused accounting terminology such as “debt provision” with the commercial issue of “recoverability”. Banks are obliged to make prudent conservative provisions against their debts, and in some cases will make a 100 per cent provision against a loan. However, we have seen many cases where the borrowers’ fortunes subsequently improved, and borrowers were able to repay all of the loans. It is therefore a mistake to say that banks should not take legal steps to recover debts just because they have fully provided for them.
The real practical issue is the banks’ increasing over-reliance on legal solutions, rather than business solutions. The banks simply do not have enough experienced “grey-haired” bankers who understand the complex interactions of psychology, bankruptcy legislation, debt enforcement procedures, tax legislation and the companies Acts to negotiate solutions.
This lack of experienced staff has led the banks to effectively outsource these issues to the lawyers. If you ask a lawyer for a solution to a business problem, you will be provided with a legal solution, rather than a business solution. As one banker said to me recently, “I will not get a P45 if I rely on my legal advice.” Such an attitude generates unnecessary litigation.
In some cases, the best solution for a bank would be to issue legal proceedings to improve their prospects of recovering debts. However, in some cases it is equally clear that a negotiated solution would produce a much better outcome for the bank, and the borrower. The real skill is knowing when it is necessary to initiate proceedings.
One solution to the massive problems facing many borrowers is for the Government to bring forward the promised reform of the personal bankruptcy legislation, as advocated by the Law Reform Commission. – Yours, etc,