RBS / ULSTER BANK PROFITEERING THROUGH GRG DEPARTMENT SAYS SERIAL ENTREPRENEUR LAWRENCE TOMLINSON

I had the pleasure of speaking at an event last night with Lawrence Tomlinson, the author of the Tomlinson report into practises at the Royal Bank of Scotland (RBS). Lawrence was at pains all night to ensure that every time he mentioned RBS he also named Ulster Bank. Ulster Bank have for some time maintained that the remit of Lawrence’s report did not extend to their organisation. This was repeatedly rubbished by Lawrence who pointed out that many of the original complaints into the Global Restructuring Group (GRG) were from businesses in Northern Ireland and related specifically to the GRG arm of Ulster Bank.

For those of us dealing with these issues on a daily basis, it reaffirmed what we already knew. The abuses are systematic and institutional and relate directly to activities at Ulster Bank. Ulster and RBS are still adopting the policy of denial, hoping that either Lawrence or the allegations will eventually go away but hopefully the tidal swell of injustice will insure that this doesn’t happen. Lawrence can do little more, he has very bravely brought these matters to the attention of the government but we now need to demand action from that same government.

Business Support Units are now treated as profit centres within RBS. Those people put in place to help and support are now clearly profiteering from your demise. Nowhere is this more apparent than with the use of the rather opaque West Register. We heard of one young banker in GRG who had forty five cases under his control – the norm to restructure would be six or seven but these businesses were only heading one way with his help – bankruptcy, so there was no need for care and attention. None of the forty five cases ever exited GRG. Demoralised, he has thankfully now found something better to do with his life. The statistics are astounding – Of all the business’ that enter GRG, only 6% re-emerge into a performing portfolio.  For a department that is supposed to help, support and restructure that is some appalling success rate. But who wants success when you can generate multiples of fees in distressing the business further and sharing in the ultimate fee fest.

Where will it all end. As with pretty much every financial scandal that I’ve seen, there will be a scapegoat. Either a person or a part of the business that will be thrown to the wolves and the baying media. Either somebody or a unit of the bank will be found to have acted outside of the general ethos and ethics of the bank and will be sacked or closed down. I suggest, in time that it will be GRG itself. It will neither be fair or equitable. RBS will set aside more of the taxpayers money to pay the inevitable complaints, I am reliably informed that they already have lawyers looking at possible civil suits and someone will churn out the usual rhetoric that it was somebody acting alone, is not representative of the bank as a whole and it has been dealt it.

I’ve seen it, heard it a hundred times. I will no more believe it than I did the first time!

The Tomlinson Report is a must read for everyone. Anyone with complaints against RBS or Ulster should keep the wheels in motion and contact either Lawrence or the Financial Complaints Authority (FCA) with their complaint. Banks such as RBS have become too big to fail, they are bullies and we need to stand up to bullies. There is a golden opportunity to break up the bigger banks into more manageable secure units. That time is now and we cannot let the opportunity pass.

Nick Leeson

Anyone with banking challenges can contact us at info@gdpni.com

Insolvency Service of Ireland - A Missed Opportunity

When the Insolvency Service of Ireland (ISI) was launched in the Republic of Ireland amid great fanfare just over 4 months ago, it was trumpeted as a solution to a large chunk of the country’s personal debt problems and gave hope to a huge swathe of people. The new laws had taken over 2 years to devise and were seen as a key element of the Government’s (Troika-influenced) strategy to help the tens of thousands that were swamped by personal and mortgage debt.

Given that the system had taken 2 years to devise and its roll-out delayed several times to make sure all was in order, people would have been forgiven for hoping it would hit the ground running. Instead, it has proved to be an embarrassment for the Government due to the low level of uptake. In advance of its launch on the 9^th September 2013, the ISI indicated that it had already had 4,500 enquiries and was expecting “thousands” to avail of its services and deal with their debt issues. The reality has been starkly different – as of last week, only 11 cases had come before the courts since the ISI opened for business. Whilst some of the blame for the low uptake can be placed on people’s reluctance to be ’first through the gate’ with the new system, it must ultimately be said that the service is not fit for purpose – it is not helping those it promised could avail of it. What makes this fact all the more damning is that such a situation was completely avoidable – there has been a well-run and functioning Insolvency Service operating in the UK for a number of years; why not simply mirror that system as closely as possible? The UK system was not an immediate success but was tweaked accordingly with new protocols introduced that resulted in acceptance rates for cases exceeding 90% - a figure that can only be dreamt of in ROI under the current system, which places the trump card in the hand of the largest creditor (i.e. the bank) in the form of the power of veto.

The salient point is this: the UK system wasn’t perfect; it was amended to rectify its flaws, and now works well. Why weren’t the relevant lessons learnt here and a similar system put in place? The people who have been through the financial mire for the past 5 years and were told that the ISI could solve their problems have been badly let down. The news last week that Justice Minister Alan Shatter is to change the system to make it more like the Individual Voluntary Arrangement (IVA) system in the UK is welcome, but why not do it from the start? This surely amounts to a missed opportunity, for both the Government and the country’s indebted borrowers, as currently people have little or no faith in the ISI. This is evidenced by the low numbers of people looking to it as a viable solution to their problems, and acknowledging the need to amend it 4 months into its lifetime is unlikely to increase confidence in the short term.

The system’s lack of transparency is a huge problem and highlights the fact that the majority of indebted borrowers would be far better off attempting to come to an informal solution with their bank, either directly themselves or through an intermediary. The banks are starting to come around to the idea of doing deals with borrowers as the Central Bank threatens to force them to make special provisions for unsustainable mortgage debt regardless of whether they have come to an agreement with borrowers – the hope is that once the banks realise they are going to take a hit one way or the other, they will approach the personal debt problem in a more realistic and proactive manner. Until then, the economic recovery will remain slow and continue to be hampered by the lack of a viable Insolvency Service.

Fergal Hand Senior Relationship Manager GDP  - Solicitor

BANKS - SMOKE AND MIRRORS

2014, heralded the start of a new year, post GFC (Global Financial Crash). Banking spin has been ratcheted up a notch and if you believe all you hear, we’re on the right track.

In Dublin, the Chief Executive of AIB has told us that the arrears issue will be resolved in two years. In Belfast, a report this morning tells us that there is no demand for credit. So what are we all complaining about?

The truth is that we are fed up being offered ill-conceived ways to reconcile the arrears problem and after five years of being continually refused credit, the majority of people have given up.

David Duffy tells us that the issues of loan arrears, capital adequacy and profitability will be resolved in the Irish Banking Centre in the next two years. The pillar banks will return to profitability during 2014-15 and will be able to pass any stress tests. Great news! Great news for the banks.

AIB are throwing around ten year, zero coupon bonds like confetti at the moment. Sign up to these, comply with the terms and conditions and an amount of your debt will be written off in ten years’ time. I’ve seen many of these ‘bonds’ with six figure sums involved. AIB are compounding as much of the arrears as possible into the existing mortgage as allowed by the reasonable living expenses. The balance is set into the ether, with a sum maturing in ten years. Think of it as a ten year hangover, you’ll feel groggy and not really sure what’s happening for ten years and then the real headache will kick in. You’ll have to immediately repay the amount of the bond.

It makes no sense to anyone other than the bank. It relies on property prices increasing, interest rates not rising and your economic, personal and work situation not deteriorating. They must have a new crystal ball at AIB, as I couldn’t guarantee any of those for you. In ten years’ time, if you are unable to repay, the bank will enforce all of the debt, repossess the house and get a judgement against you. All this after you have been paying on time for ten years. The banks will no longer be under the scrutiny of the Troika, the Central Bank and their balance sheets will allow them to be more aggressive and do as they will. You will be on the scrapheap. To suggest that the arrears issue will be resolved in two years when your own bank is wilfully kicking the can down the road ten years is spin of the highest order.

In Belfast, the Banking Enquiry up at Stormont is drawing some strange testimony. Granted only two banks have given evidence but both would suggest that there is money available to lend. The banks in NI are now saying that the country has a competitive banking market and supply of finance was not the issue. Sorry to be so sceptical but how many customers form part of this enquiry and how many have the banks seen in the past five years. I’m guessing the answer to both is not many. These findings in Northern Ireland contradict those of the Entrepreneur in Residence with David Cameron’s government, Mr Lawrence Tomlinson, who did by chance speak to a large number of bank customers in 2013.  He would have a very different view on this subject matter.

Who should you believe? I’ll let you know in an hour, I’m off to AIB Bank centre to get my palm read, before boarding the train to Belfast to get a loan.

It really is time to take back control, ask questions and challenge what you are being told. Banks are ticking boxes more so than ever before in the past and what is good for the banks is not always good for you.

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!