Wednesday, February 08, 2012
DISPROVING the truism that there’s no such thing as bad publicity, one of Ireland’s leading bankers, in an effort to rehabilitate the banks’ public image, decided to impart some of his sage advice this week.
In a lengthy interview in the Sunday Business Post, the new president of the Irish Banking Federation John Reynolds railed against Government plans to allow consumers write down mortgage debt, contained in new personal insolvency legislation.
Anyone reading the piece and expecting a modicum of self-reproach from the spokesperson for those financial institutions that managed, with the help of our previous incompetent Government, to bankrupt this once sovereign republic, was soon sorely disappointed.
Betraying a lack of sensitivity that would startle even the most jaded cynic, the banker began by lecturing readers on the dangers of bankruptcy — conveniently forgetting that most of the disgraced institutions he now represents would no longer be trading were it not for the deranged altruism of the last Government.
"There needs to be a recognition that being made bankrupt is a bad thing. That these sort of engineered, contrived, smart-arsed bankruptcy tricks that rich people do don’t offer the same happy vista for an ordinary decent person," he sniffed, in a patronising sop to struggling mortgage holders.
So, while "smart-arsed" developers who owe the Irish State tens of billions of euro race each other to the UK to avail of that jurisdiction’s lenient bankruptcy laws, Mr Reynold’s considered advice is that "ordinary decent people", usually a euphemism for mugs, should remain in the auld sod and continue breaking their backs trying to repay the gargantuan debts on their negative-equity ghost-estate hovels.
Slick lawyers, hotshot consultants and savvy accountants may all be telling the wealthy to flee Ireland’s antiquated bankruptcy laws but, according to Mr Reynolds, struggling mortgage holders, drowning in a sea of debt, should remain valiantly swimming against the tide until they inevitably go under. Think of it as an act of selfless patriotism.
Evidently missing the irony gene, Mr Reynolds next raised the awful spectre of moral hazard, suggesting people would default on their mortgages en masse given half the chance, before proceeding to express his horror that banks could be used for anything as cynical, and potentially damaging as social assistance.
"If you’re driven by a concern that there should be a quick fix to a social problem, chances are you’ll be driven to something that might get you quick results, because crucially it will give people an escape clause, but who’s going to pay for that?
"If you try to deal with it with a quick fix you need to have a big cheque and we don’t have a big cheque," he explained.
Of course, this last statement is complete nonsense. We know for a fact the banks have a big cheque. Why? Because the taxpayers of this country wrote it and we still possess the stub — two, in fact, one for Nama and one for the banks, which read; "€100 billion and counting".
Evidently, Mr Reynolds’ main gripe is that the Government’s mooted plan will likely achieve exactly what it’s supposed to — namely, offer people in dire financial positions the opportunity to some day crawl out from under a mountain of debt — because, instead of offering a helping hand, banks would rather kick their customers while they’re down.
That’s despite the fact that Irish banks have, according to the finance minister, not just been recapitalised but "overcapitalised" by the Government to cover any losses that could arise in any stress, or worst-case, scenario. Essentially, included in the bailout was the requisite level of funding to cover the inevitable losses that will arise when mortgage-holders default but banks simply don’t want to use this money for its intended purpose — which Mr Reynolds casually dubs "a wasteful bloodbath".
"The purpose of the capitalisation should have been to establish the banks as viable enterprises for the future, not to indulge in some wasteful bloodbath of accentuated losses. That’s a really dumb way to invest in a bank. You put money into a bank to make money. It’s a decadent form of investment," he said.
Of course, he doesn’t have to tell the Irish people that their underwriting of the entire Irish banking system in 2008, and the subsequent bonfire of the tens of billions of euro that have been shoveled into banks in a desperate bid to keep them afloat long enough so their bondholders can be repaid, was decadent. Or dumb. That’s long been established.
Perhaps Mr Reynolds is suffering from some kind of acute amnesiac condition, but he has clearly forgotten that the State’s shoveling of money into its banks was more akin to blackmail than investment and came about after his buddies visited Government buildings and threatened to sink the country unless they were given a blank cheque as a dig out. Furthermore, "the wasteful bloodbath" he’s referring to actually comprises switching a light on at the end of a very long and dark tunnel for tormented homeowners, many of whom are now unemployed, who were extended huge loans for properties that are now worth a fraction of their purchase price. Speaking last year, that’s exactly what AIB’s executive chairman, David Hodgkinson, said the bank would be doing with the money. He said, following State intervention, AIB was "one of the best-capitalised banks in the world" and promised to use the money "as firepower" for "longer-term solutions to business and homeowners under stress".
Perhaps Mr Reynolds, the chief executive of Belgian-owned KBC Bank Ireland, is concerned because his institution didn’t receive any assistance from the Irish State — although, the Belgian government did write its parent bank a €7bn cheque at the height of the crisis — and, according to its latest figures, 15% of its €16.8bn Irish loan book is nonperforming, in arrears for 90 days or more.
KBC is not alone. According to a Finfacts study, in 1995 the average first-time buyer took out a mortgage equal to three years’ average industrial earnings to buy a house that cost four years’ earnings. However, by late 2006 the average loan had risen to eight times average earnings for a house that cost 10 times average earnings — or, an incredible 17 times average earnings in Dublin. Is it any wonder that today more than one in ten mortgages are in arrears after house prices fell by over 50%?
While nobody forced these people to take out these exorbitant loans, the reckless banks who leant the money, and blew up the property bubble until it eventually exploded, must share some of the pain if this economy is ever to return to anything resembling growth in the near future.
Mr Reynolds would prefer if the homeowners took the hit because, as he puts it, "the banking system has to do banking things" but let’s not let the banks walk away from the mess that they were instrumental in creating. And, perhaps, we should have a moratorium on bankers pontificating in interviews — at least until the banks have repaid all the money that was so generously extended to them by the people of this state.
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