Pulling up floorboards fails to unearth real answers

Political Editor Harry McGee says questions of who, how and why still persist.

ACCORDING to AIB chief executive Michael Buckley, the bank has spend the best part of the last two months “intensely tearing up the floorboards”.

And what have they found? The stash of stale cheese we all knew was there. A couple of other miscellaneous bits and pieces that we didn’t.

But, so far, no sign of the rodents. It seems they haven’t even set the trap for them yet. Can’t tell us yet if they were there in the first place. Nope, nothing to report on that yet. That will come later. How much later is anybody’s guess.

Buckley is as impatient as everyone else, he told us yesterday. He wants to find the culprits, if any. He wants to get to the bottom of questions such as who was behind the decision not to notify, was there a cover-up, how many senior people in the bank were aware of the irregularity and why the situation was allowed to persist for so long.

The only new disclosure yesterday was an up-to-date assessment of the overall quantum involved. The bank estimates that the total cost of reimbursing customers for foreign exchange overcharging is €25.6 million. In addition, its own internal inquiry unearthed a further €8.1m of overcharging across eight categories not related to foreign exchange. The two main ones were a variable rate mortgage product (€3.6m) and the overcharging of 34,000 students to the tune of €1.4m.

But as far as getting to the nub of the affair, it was all a bit of a damp squib. Yesterday, was about figures and process. The substantive issues will not be dealt with until the second phase of the bank’s investigation concludes at some indefinable point in the future.

Coming down the tracks too will be the potentially more embarrassing findings of the various inquiries (including one by the Revenue Commissioners) into the offshore investment vehicle, Faldor, set up for the benefit of former senior executives at AIB. Some of those have contended it was done without their knowledge. In all of this debacle, the most intriguing - and crucial - question is what individual or individuals made the key decision to set this scheme up?

Buckley and chairman Dermot Gleeson did not shy from apologising in the fullest yesterday. Earlier, opposition parties and the Consumer Association had railed at the bank, for not including the words ‘sorry’ or ‘apology’ in its statement. They charged that the bank had learned nothing from the episode and had glossed over as ‘errors’ and ‘oversights’ what IFSRA had described as “failures”.

According to Fine Gael’s Richard Bruton: “The overall tone of the response from AIB smacks of complacency and a failure to understand the level of public frustration that needs to be addressed. The AIB statement is 1,800 words long, but the word regret appears only once, in the final paragraph.”

Labour’s Joan Burton said the biggest unanswered question was “why these practices went on for so long within AIB and why nobody seemed to do anything about it”.

Both AIB executives, however, were upfront at the conference about the failures.

“We apologised and we have apologised to our customers. We have apologised to the regulator,” said Buckley.

Gleeson put it more bluntly: “When a bank messes up like this, it’s appropriate that contrition be demonstrated.”

But all that was qualified by what seemed like self-serving Jesuitical justifications. The gist of it was that the bank had, technically, overcharged, but had not really overcharged. The distinction was a subtle one. Yes, the rates were half a percentage point higher than that notified as required by S149 of the Consumer Credit Act. But yet, the bank had not overcharged in comparison with its competitors, both men contended. Its problem was that the charges it notified to the regulator were too low.

It was the classic argument of the guy who’s caught speeding by the cops and as his ticket is being written out, he looks forlornly at all the other cars speeding by.

AIB argued that, in the round, its culture is strong and not fundamentally flawed. It did admit, however, to some legacy issues. One of those relates to why the whistleblower who exposed the irregularities went to RTÉ rather than bring it up internally.

“There’s too much self-censorship in the bank,” admitted Buckley. “That goes back to the whistleblower ... We need to get rid of self-censorship.”

He said that, secondly, when problems such as these arise the bank needs to deal with them in “a crisper and clearer way than we have in the past”.

AIB Q&A

Compiled by Seán McCárthaigh

Q. What is this investigation by the Irish Financial Services Regulatory Authority (IFSRA) into AIB all about?

A. It is an inquiry conducted by former Comptroller and Auditor General Lauri McDonnell into AIB’s foreign exchange charges as well as a general examination of all 625 individual charges operated by the bank.

Q. What prompted such a major exercise?

A. In April, an internal whistleblower reported overcharging issues by AIB to the financial watchdog IFSRA. Details about the controversy subsequently emerged in the media in May.

Q. So what is all the fuss about?

A. The IFSRA report has determined that AIB customers were overcharged a massive €34.2 million going back over a number of years. The total consists of €25.6m relating to foreign exchange charges, €0.5m for notification breaches and €8.1m relating to 24 other categories of charges including student banking, mortgage top-ups and overdraft fees.

Q. For a financial institution, AIB doesn’t seem to be very good at doing their sums, do they?

A. Indeed. The bank’s original estimate of how much they had overcharged their customers was only €14m.

Q. Am I correct in thinking this isn’t the first time that someone in AIB has, figuratively speaking, been caught with their finger in the till?

A. Quite right. It was at the centre of one of the biggest scandals in financial history two years ago when it was discovered that John Rusnak, a trader at AIB’s US subsidiary, Allfirst, was responsible for losses of €580m.

Q. Has AIB come out with its hands up as a result of the latest inquiry?

A. It didn’t really have a choice. The company has only provided limited and vague information about what has happened within the bank and only at a point when it could no longer remain silent.

Some people in the bank were clearly aware of overcharging issues for a considerable period of time before last May but said nothing in public.

AIB is now trying to claim some brownie points by arguing that while it is not legally obliged to repay the €34.2m to customers, it will do so anyway.

AIB has also snubbed numerous invitations to appear before the Oireachtas Committee on Finance.

Q. How does AIB explain what happened?

A. It blames most incidents of overcharging on “errors which arose from over-reliance on manual systems to apply product benefits and discounts”.

Q. So increased computerisation should sort things out?

A. Hmmm! Recent overcharging by Vodafone and O2 resulted from, surprise, surprise, technical errors.

Q. Will heads rolls as a result of the investigation?

A. IFSRA chief executive, Liam O’Reilly had indicated that there was “some sort of cover up” by the bank in its failure to notify the relevant authorities of problems with its charging structures. How high up the management chain the issue goes remains the biggest talking point in financial circles.

Q. Will anyone go to jail?

A. Unlikely. IFSRA has admitted that because AIB had, strictly speaking, not overcharged customers in relation to the biggest single issue - foreign exchange rates - there is no question of criminality. The position is less clear in relation to the other categories of charges.

Q. What happens next?

A. IFSRA, in conjunction with AIB, will issue further reports in late autumn. One report will detail why the overcharging took place, how it went undetected for so long and who actually knew about it. It will also examine the audit system and other internal controls within the bank.

A separate report will examine how its subsidiary, AIB Investment Managers (AIBIM) used an investment trust for a British Virgin Islands-registered company called Faldor to operate special deal practices for five senior bank executives. It is also expected to explain how other staff including former chief executive, Tom Mulcahy, had “tax issues”.

Q. Will that be the end of the matter?

A. Far from it. The Office of the Director of Corporate Enforcement is also investigating AIBIM over potential tax evasion matters in relation to Faldor, while Revenue is also investigating. The Oireachtas committee also intends to quiz AIB officials in detail.

Q. No more threats of overcharging by AIB then?

A. If only. Try asking Cobh shop owner Denis Murphy, who last week successfully sued AIB for €20,000 for overcharging him between 1999 and 2001. He refused a €35,000 settlement offer by AIB that would not have got any publicity.

Worryingly, the overcharging did not relate to any issue uncovered by the IFSRA report.

Q. Is legislation sufficiently adequate to ensure such overcharging controversies won’t re-emerge in the future?

A. IFSRA would claim the new Central Bank and Financial Services Authority Act 2004 allows it to impose maximum penalties of €5m on wayward financial institutions. The new law also grants IFSRA the power to order banks to pay refunds to customers. Unfortunately, protection for whistleblowers is non-existent.

Q. Will we get our money back?

A. All customers identified by the bank as having been overcharged will get a refund. AIB estimates that it can trace clients accounting for €30.8m of the overall total. Anyone with queries can contact a special information helpline on 1800-787564.

Q. How serious is this for AIB?

A. Depends on who you ask. It’s certainly deeply embarrassing for the State’s largest bank. Although, the amount of overcharging is large in pure monetary terms, it is still only a small fraction of the €1 billion profits that AIB generated last year. It, therefore, poses no threat to the group’ stability.

Ironically, the controversy has had no negative impact on AIB’s share price which has increased slightly since the overcharging scandal first emerged.

Q. What does AIB stand for now?

A. AIB will presumably suggest it stands for the future of Irish banking through the provision of high quality financial services for its customers, once it gets its house in order.

Consumers could be forgiven for thinking it stands for Automatic Institutionalised Burglary.