NOTHING HAS CHANGED - JOBS FOR THE BOYS!

There were three stories that I found particularly worrying at the end of last week. Each story, by their own right should cause consternation but the collaboration of all three spell out loud and clear, how so little has changed post Global Financial Crises. It is still very much cover up, scapegoat, incompetence and jobs for the boys.  All of which, combined got Ireland to where it is today and the like of which we never should have seen post bailout. Unfortunately, its very much business as usual.

The stories. 'Banking Crises documents are missing', 'Irish Water spend €50m on consultancy fees' and 'Collaboration and poor governance at RSA'.

We've learnt that two out of eight documents concerning the bank guarantee are missing. For those in the Department of Finance who struggle with maths, that's 25% of the documents. Pretty impressive by any standards and indicates that when these trials and tribunals actually start, they will be littered with statements such as 'I can't remember', 'the files are not available' or the classic 'it wasn't me'. Already it reeks of cover up with criminal cases starting this year!

In RSA (Royal Sun Alliance) headquarters, Price Waterhouse Coopers (PWC) were commissioned to write a report into the losses at their Irish counterpart. In short, the report could not have been better written if RSA had written it themselves. Ask yourself one simple question 'How much do PWC receive in fees from RSA worldwide each and every year? How much do they expect to earn in the future?'. The number is far from inconsequential. The report focuses on the collaboration of certain members of staff in Dublin and poor governance at the Irish subsidiary. Sound familiar? It’s easy to pick on the runt of the litter but governance is something that both policy and execution is set from the top. Suggesting that one spoke of the wheel acted independently is no longer acceptable. This is pure whitewash and scapegoating in the name of the on-going harmonious relationship between RSA and PWC. Remember Arthur Andersen, Enron and Worldcom, conflict of interest is everywhere!

Irish Water have spent €50m on consultancy fees! Very nice work if you can get it, but rest assure you couldn't get anywhere near it. It’s nothing short of a cartel, the banking, insurance, government, consultancy network is far from independent. Why would it be, as the jobs get passed around in the corridors of power, no one is going to rock the boat. It has always been the case and will likely not change in the future, usual suspects and jobs for the boys.

We are where we are  because of practises such as this in the past. What’s the appetite for change like? I'd suggest its huge outside of Dublin 4, not even under consideration there.

Where's the next cover up? Lawrence Tomlinson has written one of the most damning reports into modern day banking.  It is bang on the money. The abuses contained therein, as there really is no other word for them, are highlighted as being systematic and institutional, not good when you think that a subsidiary of the main bank operates widely on these shores. Lawrence is one of the two Entrepreneurs in Residence at the Department of Business Innovation and Skills in the UK. The most important area of his work has been access to finance and specifically why the banking environment was having a negative impact on many businesses. In carrying out his investigations he became aware of the often brutal way in which finance was being removed from business' by their banks and the devastating impact of this. A trend soon arose in respect to Royal Bank of Scotland's Global Restructuring Group (GRG) that lead to the publication of the Tomlinson report last November. An investigation has now started into these activities.

Hopefully this investigation remains independent. If not, don't worry RBS have initiated their own review. You'll find it in the Fiction part of any good book shop, it should be hilarious!

2014 - THE YEAR TO SORT YOUR DEBT PROBLEM

There is no doubt that the Irish banks have been in a terrible mess for a number of years. They have all been slow to deal with the large number of mortgage arrears that have been at unprecedented levels, they all have different methods of dealing with the arrears but very slowly they are all stepping up their game. A number of foreign banks have exited these shores and handed their loan books to third parties who will run them down. The Irish banks have been under strict supervision from the Central Bank, IMF and Troika to ensure that the matter is given proper attention. Some are trying harder than others, some are just trying.

I wrote many years ago in my book 'Back from the Brink', published in 2005 about the problems with credit card debt. The fact that a certain amount of default is written into every credit transaction and it is only, when that default becomes widespread that the banks become worried. The same is true with mortgage arrears, a certain amount of default is priced into each and every loan transaction and as long as it falls within certain parameters, it is business as usual. So with the mortgage arrears at record levels, the problem being endemic across the country, there remains a window of opportunity to improve your debt profile. The window is wide open at some banks, slightly ajar at others but there is most definitely an opportunity. The banks have targets to meet and unusual times call for unusual measures.

Banks are making proposals to re-base loans like never before. This is a proposal that I have seen recently from one of the pillar banks (not one of our clients).

Mr Smith has crystallised losses of €550,000 through a number of buy to lets that have been sold. His family home (wife and three children) is in an affluent part of town, valued at €500,000 with a mortgage of €300,000. His work conditions have deteriorated somewhat over the years.

The banks solution is to add a principal sum of €70,000 to the existing mortgage, the maximum that is allowed based on his reasonable living expenses. €100,000 is placed on a zero coupon bond for ten years which if repaid within the time line will result in the contingent sum of €380,000 (550k -70k-100k) being written off. The offer comes with the usual 20 day acceptance requirement and the threat of legal action if not accepted.

On the face of it, it looks a very good deal. You remain in the family home, the mortgage repayment is achievable and the amount of write down at the end is significant. For the bank, it ticks all the right boxes, a sustainable (?) solution right now within the guidelines. From a risk perspective, the bank are giving nothing away – they retain the security of the house in an affluent part of town which will likely increase in value, achievable payments are being made throughout the period and the option remains to either repossess or take judgement for the full amount in ten years if the 100,000 is not repaid.

Whilst this proposal settles the banks requirements of sustainability, for me its sustainable with a ten year hangover. It requires that general economic conditions improve and that your personal situation improves somewhat for you to be able to repay the €100,000 in year ten. None are guaranteed, employment health and the family situation must at least maintain a status quo. More worrying interest rates must remain constant. I don't have a crystal ball but there is not a chance of this happening for the next ten years so whatever strain you are under now, this is only likely to increase over the period. This proposal looks good and will see most people looking to sign on the dotted line, there are still better options out there. I wouldn't be able to recommend this proposal to anyone as it currently stands, I'd be looking for something that is sustainable right now and into the future.

There are two things that I can safely predict.

Firstly that property prices will rally from current levels in the future - (they may fall before they rally, could oscillate over time but ultimately push positive) due to the severity of the crash as prices fell in some areas more than 50%. Secondly, interest rates will rise from these historically low levels that we currently experience. Both put the best cards in the hands of the banks.

The time to solve your debt issues is now. The window of opportunity is open right now but as the banks slowly get their affairs in order, that window is slowly closing. All of the banks are being pushed to get their mortgage arrears under control, there will come a time in the future when someone will consider that they are back within an acceptable level. The external pressure on the banks to present solutions will dissipate and it will be back to business as usual. In the future, business as usual will see far more repossessions than ever experienced in the past. The advice is simple, get your affairs in order before the window of opportunity closes. That time is now!

Nick Leeson

INTEREST RATE HEDGING PRODUCTS - HAVE YOU BEEN MIS-SOLD?

First ask yourself four simple questions:

1.         Did you take out a new facility with your bank on or before 1 December 2001?

2.         Does your facility letter use any of the following words…Swaps, Caps, Collars or Structured Collars?

3.         Are these facilities less than £10 million pounds?

4.         At the time you took out your facility, did your company have:

i. Turnover of more than £6.5 million; or

ii. Balance sheet total of more than £3.26 million; or

iii. More than 50 employees.

If you have answered yes to any of the above, chances are you have been mis-sold a product by your lender. Redress may be owed to you and in some cases you may even be entitled to additional compensation.

Get in touch with GDP Partnership today to see if we can assist.

HOW SAFE IS YOUR PENSION?

I think the vast majority of people would answer that question with the answer 'Completely safe'. Unfortunately they would be wrong!
Wherever you travel, from jurisdiction to jurisdiction, there is a general assumption that whatever may happen, no one can touch your pension. Many believe that whilst other assets can be targeted by creditors, the pension remains off limit. That is not the case.
In these difficult times where insolvency is more the norm than the exception it is vitally important that everybody realises this and understands the type of pension that they have, as there are very distinct differences.

In law, your pension is an item of property and is an asset of a member, just like any other asset. It is treated as a current right to a future payment. It is possible to use them as security or assign them to a third party unless there are specific rules to the contrary governing their use. In pre and post Celtic Tiger Ireland, charging pensions as security at the banks to access the sums on offer became quite common place.  In this regard there is a huge difference between an occupational pension and a personal pension and it makes a
substantial difference to you.

Occupational Pension.

By far the better type of pension to hold if you are experiencing serious financial difficulty. An occupational pension is one established by an employer for the benefit of the employees. An employer would neither expect or allow for such a pension to be used as collateral for borrowing or be available to discharge the
liabilities of the employee. You will typically find that occupational pensions include a provision that the benefits of the pension will be forfeited in certain circumstances. These would include any attempt to assign the benefit of the pension if the person entitled becomes bankrupt. In those circumstances the benefit of the pension falls back into the general pool and if the rules permit the trustees can pay the benefit to another class of beneficiary which may be one of the member's immediate family. This will only occur if the rules do so provide and the trustees exercise their discretion in that manner.

Personal Pensions.

Unfortunately these are viewed very differently. A personal pension is subject to contract and typically there are no forfeiture clauses protecting the pension benefit. For this reason, entitlements due under a personal pension are open to attack from creditors.
Many people often think they can ride out the storm as the pension will only be paid out in the future. That hope is largely in vain. The example of re L Bankrupt is a case where no forfeiture clause was available in the pension. A Solicitor took out a retirement annuity contract in 1982. In 1990 a bankruptcy order was made against him and he was subsequently discharged from bankruptcy in 1993. A year later in 1994, he retired and sought the benefits of the policy. The trustee in bankruptcy claimed the benefits under the pension and succeeded in his claim.  Also never forget that the Revenue have significant powers of attachment where a debt is due to a taxpayer. Under the Tax Consolidation Act 1997 the revenue can require that the amount of tax outstanding is deducted from the debt and paid to the Revenue instead.

SUMMARY

These are the details that nobody thinks about when they are planning a pension, nor why should they. It's really only in times such as these that it becomes considerably more important. Everyone, at least should know what type of pension that they have, whether or not it has been preferred or assigned as collateral and most importantly whether or not there is a forfeiture clause. These are the essentials.

A pension is in place to ensure that you have a reasonable standard of living after your retirement. At least this is what we all believe. As the future remains so uncertain in Ireland, it is more important that you have the right type of pension in place and seek the necessary advice.
Were you to be declared bankrupt, a personal pension is liable to attack by your creditors. If you hold an occupational pension, on maturity any lump sum payment can be at risk and possible ongoing attachments to income based on your living expenses.

If you require any further information please contact GDP Partnership

Better to be safe than sorry!

ICELAND AHEAD OF THE GAME

Iceland’s government has announced that it will be writing off up to 24,000 euros ($32,600) of every household’s mortgage, fulfilling its election promise, despite overwhelming criticism from international financial institutions.

The measure was introduced by the country’s prime minister, Sigmundur David Gunnlaugsson, the leader of the Progressive Party which won the late-April elections on a promise of household debt relief. According to the government’s website the household debt will be reduced by 13% on average. 
Citizens of Iceland have been suffering from debt since the 2008 financial crisis, which led to high borrowing costs after the collapse of the krona against other currencies.  

If you are an Irish person reading this, what are you thinking?  As the Irish debt crisis continues to escalate with no let-up in sight anytime soon, surely a measure such as this by the Irish government would be on everyone’s Christmas wish list.  The mortgage crisis and household debt problem in Ireland is reaching critical stage with more than 100,000 mortgages in 3 months arrears or more.  The banks have been ordered by Central bank to deal with the issue as opposed to their approach to date with kicking the can down the road.  Are they actually dealing with it now – well the jury is out on that one?

Former President Bill Clinton said on a visit to Ireland on October 2011, that the country will not recover until there is debt forgiveness.  I whisper that quietly for fear of arrest as those two words are forbidden in Ireland – why? Because the banks says so.  It’s very clear now that the banks are ruling the roost, and continue to drag their heals over any kind of reform.  With the recent publication of the Tomlinson report, where it highlights the practises of RBS/Ulster Bank in the past couple of years, and the other stories coming out of banks across the globe – I don’t hold out much hope that as far as banks go, anything will change regarding how they conduct their business.

It is the government of each country that makes the laws and at the end of the day is responsible for the overall well being of any nation?  You cannot help but admire the courage and foresight of the Icelandic government with this debt forgiveness move for its people – looking around the world right now, it would appear that they are the only set of rulers who actually have the balls to help the people who elected them into power.  Well done Iceland!

Conor Devine MRICS

NAMA – THE STATES DRAGONS DEN

When Frank Daly the NAMA CEO and his team were pitching his business plan to the Irish people in 2008 to bail out the banks, like every investment, you cannot really analyse it until you get a better understanding of the actual return on your money. 

If my memory serves me well, the return on this investment after the 10 year period 2010 – 2020 was earmarked to be in the region of €6bn.  Considering the investment in the project by the Irish people was upwards on €32bn that would equate to just over a 18% return on their money. Not terrific considering the huge sums and the risk involved, but not bad all the same, considering the times we were in globally.  The other important point to consider was the benefits of the business plan namely that by bailing out the banks, the country would return to growth as the balance sheets of the banks would be repaired enabling them to start lending again.  Note there was no referendum on this one, as it was deemed for example not as important as the gay marriage debate, however the government pushed ahead and the Irish people bailed out the banks and in the process created the biggest property company in the world - NAMA.   

Worryingly in 2010 NAMA came out to say that they have had to revisit their figures and they felt that after its lifespan, the investment would return the reduced figure of £1bn to the Irish state.   This is a significant drop of over 15%.  Even more worrying is the fact that Brendan McDonagh, the head of the national agency, told an Oireachtas committee in October 2013, that it was now aiming to only break even by 2020 rather than make the €1bn profit that had been included in its earlier business plan.

Now if you were Duncan Bannatyne or Debra Meaden at this point in the Den, you wouldn’t be very impressed at all as the prospects of getting no return on your money appeared quite high, what a downer.   The other aspect of the deal you would be asking yourself is has the country returned to growth and are banks’ lending again.  Answer to the first question we would hope is yes……. and on the whole the answer to the second part is a resounding NO. 

In fact in Ireland right now, the foreign banks are packing up their files, clearing their desks and running for the hills.  In the last few months we have seen announcements by ACC and Danske to join a host of others who have decided that Ireland is a now a no go zone for banks.  This is extremely damaging for the country as we need a stable banking structure to have any chance of turning the corner anytime soon.

 Back to Nama – The level of return from Nama assets will depend on the performance of loans and the property market in Britain and Ireland over the next seven years. It would be interesting to know what forecasts or assumptions Mr McDonagh has built into the current business plan that he is so pessimistic about the outcome., a very sobering thought altogether. While Nama continues to make operating profits, namely taking in more money than it pays out; further impairment charges keep hampering its financial progress. By the end of last year, it had made total impairment provisions on its loans of  €3.26bn, less than two years after buying them. In effect, this means the agency has overpaid for the assets by €3.2bn (modest figure if you ask me).

You often hear NAMA representatives come out declaring how well they are getting on, the new finance they are injecting into the economy and very proud of the fact that they are not in the business of fire selling properties.  Again you really have to question each of these points.  In fact NAMA is now doing what it said it would never do – sell Loans.  If you were watching this situation play out, you might come to the conclusion that they are making it up as they go along.  Who could argue with that point?  For me as an employer and an investor – it’s all about the return on your money, and my feeling is that NAMA will fail miserably in this department and the Irish taxpayer will lose billions of euros in this opportunity – I genuinely do hope I am wrong.

To date NAMA has brought in around €9.2bn by selling off assets, 80% of which were based in the UK, and described by some as the low hanging fruit. 63% of the sales have occurred in London, in fact which is a rising market as it is still seen as one of the safest places in the world to place your money.  A dragon might question this model as the London commercial property market is now very much on the up and if Nama could have hung on, it probably would have got a much better price today, and in the years ahead.
Imagine Brendan McDonagh is correct for one moment, and NAMA does end up breaking even. In 2020, we will look back at how Irish citizens took on the risk of setting up the biggest property agency in the world, with over €70bn in loans, finances by  €32bn in bonds, paid back the  €32bn and the interest and then shut up shop.

 The tax payer would have absolutely nothing to show for it – 0% return on its money. With the benefit of hindsight, maybe if this was a real dragons den scenario, they would have been better putting the €32bn on a horse at Cheltenham – as time goes by, I am struggling to see the difference.

 

Conor Devine MRICS

DONT BANK ON YOUR BANK.....

The Office of Fair Trading (OFT) has asked Banks to disclose historic errors involving loan agreements after it become alarmed that the problem is endemic amongst a large number of Banks. Northern Rock, the Co-operative Bank and Barclays have all recently paid out several hundred million pounds in compensation claims.

The OFT have put up to 50 banks and building societies on notice after the three banks admitted to having to refund some of their personal loan customers because their paperwork did not comply with the Consumer Credit Act.

Northern Rock paid £270m to 150,000 people in December 2012, and in September it emerged Barclays faced a bill estimated at £100m to repay as many as 300,000 customers. Last month, Co-operative Bank revealed it had increased its provisions for customer redress, in part to cover "an identified breach of the Consumer Credit Act".

The errors occurred because the Borrowers were sent incorrect documentation in a breach of the Act. The OFT has now stepped in following recent failures by some banks to fully discharge their obligations.

These revelations further confirm what everybody has come to learn over the last 5 years, that the Banks do not always do everything correctly and are also not very likely to own up to their mistakes.

The question then arises; how do you hold the Bank to account if you have a suspicion that you have been treated unfairly in relation to your borrowings?

Firstly you should seek professional advice from professionals who are familiar with the consumer credit act and how this act applies to your borrowings. The next set is for your professional to mediate a return of funds or compensation.

GDP Partnership specialises in this form of mediation with the Banks and has recently secured refunds for several clients in relation to errors in lending practises and miss management of accounts.

Author : Louis Waters ACA