Jeremy Masding, PTSB CEO at the Oireachtas Finance Committee

Brendan Burgess

Addressing the SVR issue

Our second priority in recent months has been to try to address the issue of the comparatively high interest rates being charged by the bank on variable rate mortgages.

It’s important to understand that SVR mortgages are not our most common mortgage and the average balances of mortgages on SVR – at approximately €70,000 - are much lower than is generally understood.

Nevertheless we accept that as a result of decisions taken in 2010 and 2011, permanent tsb had become an outlier in respect of variable rate mortgages and that is not acceptable.

Here again we have made important progress.

·At the end of April – within days of receiving positive support from the Troika - we announced a unilateral reduction in our variable rates of 50 basis points for home loan mortgages.

·Last week when the ECB reduced its rate by 25 basis points we announced that we will pass this reduction on – plus a further 10 basis points - to all variable rate customers – even as many competitors declined to pass the reduction itself on.

Combined these two moves have had the effect of reducing our rates by 85 basis points. It has significantly improved our position compared to our major competitors and we have ended that outlier status.

I understand that some people believe our rates are still too high. Based on today’s Irish banking market economics – high deposit pricing, high loss rates and high overall funding rates – there is little room to manoeuvre without passing on further burden to the taxpayer. I will not chase down rates to levels that will negatively impact the already fragile state of the bank – and the economy.

However, let me be clear, I am not saying that there is no room for further reductions but clearly that room is dependent on us working together to create an environment for a rational banking model. Let us develop a normalised market and everybody will benefit.

A Rational Banking System

I think further clarity on the rates issue is very important. Our staring point is that we have a responsibility to re-establish a rational banking model in permanent tsb.

To our mind, a rational banking model starts with the funding side of our balance sheet. Critics say our lending rates are too high. But you don’t run a rational bank by setting out your lending rates and then hoping you can source your funding and run your operating cost base to match. You identify your costs and they dictate what rates you can set.

As I mentioned previously, we have three components to our costs:

·First, the high costs we face in raising money to finance our mortgage loans – particularly the high costs of deposits in this country which are only partially reduced by an amount of relatively cheap money being provided temporarily through the ECB
– money that is required due to the closure of wholesale markets to the bank but which is not a sustainable source of funding (at either price or quantum).

·Secondly, the high costs we face in making provisions for those who cannot repay their loans – and that cost is rising as impairments are rising.

·And thirdly our operating costs…literally what it costs to operate the bank and, over time, provide a realistic return for our shareholder. I have commented already on the Restructuring Plan.

I have no desire to run a bank where the rates are dictated by what we believe the market can bear. We have a blended, average cost of funds and that dictates lending product pricing and returns.

I hope that as we go forward the costs I’ve outlined will reduce – particularly the current irrational cost of deposits. If they do, I believe we’ll be able to reduce our variable rates further. But by the same token, if those costs increase then we will come under further pressure to raise rates.

That’s how a rational banking system works and that’s the type of system we need to re- establish in this market. Well-regulated competition – with this bank playing a core role – will raise standards, drive innovation, reduce taxpayer burden and transfer benefit to the end customer.

Other points made in response to questioning from TDs

The SVRs are not subsidising the trackers. All sectors of the business are loss-making.

The cost of funds is "north of 2.2%"

Splitting the loss-making trackers off into an asset management unit (his name for a bad bank) won't reduce the the SVR as the SVR business is losing money now anyway.

It would cost €30m to give a 0.5% cut in the SVR

The book is funded as follows:

  • Deposits: 40%
  • Wholesale funding: 25%
  • ECB : 25%
  • Shareholder funds: 10%
The key factor determining arrears is whether or not the person is employed - the rate rises within a certain narrow range have little impact on arrears

Brendan Burgess

There was a particularly interesting exhange at the end with Richard Boyd-Barrett who asked about the interaction between the Chief Executive and the shareholder. Again, it will be interesting to see exactly what he said when the transcript is published.
I meet with the shareholder regularly ...I meet the Department of Finance once a month

I make the decisions

If the sole shareholder decides ... on arrears or SVR ...the minister would relay that to us

There is a "Shareholder Framework" which governs the relationship between the shareholder and us.

My employment contract mandates me to bring the company back to profitability

The ECB insists that nationalised banks prioritise the maximization of profits
Unfortunately, none of the TDs present thought to ask him if the Minister had raised the subject of the high standard variable rate with him during one of these monthly meetings.

Brendan Burgess

The questioning from the TDs was very impressive

Michael McGrath kicked off with 10 minutes of questioning back and forth. He covered all the main issues very well

  • the rate is still the highest
  • please justify the difference between the rate for new business and the rate for exising clients
  • What is your blended cost of funds?
  • What fixed rates do you charge? (They didn't know)
  • the rates on RIPs is too high
He was followed by Kieran O'Donnell who focused in on a constituent whose fixed rate of 3.1% was expiring now and, although she was on 40% LTV, she had to pay 4.35% instead of the 3.69% on offer to new business. She had also been offered a 2 year fixed at 7.25% and a 5 year fixed at 8.35%

Masding replied that he was trying to make the new business rate and SVR converge. Unfortunately, none of the TDs realised that this meant that he was going to bring the new business rate up to the SVR rather than bring the SVR down.

Kieran then challenged him on the issue of the SVR being unprofitable if they were charging 4.35% but the blended cost of funds was 2.2%. Masding said that was due to high impairments. Kieran pointed out that the taxpayer had already paid for the impairments through the recapitalisation so he was double counting that. (Various other speakers came back to this issue but they could not resolve it)

Stephen Donnelly got stuck in then accusing them of gouging the SVR holders. He pointed out that they had apologised for the mistakes that they had made but that they were not proposing to do anything to rectify those mistakes.

(He raised the issue of the treatment of those in arrears very well. I will cover this in a separate post)

Kevin Humphreys focused on Masding's announcement of job losses and branch closures and asked if those who had been in senior positions who had been responsible for the reckless lending had been cleared out. Masding responded that he was reorganising the top team and all senior positions would be open to outside applicants.

(I had to leave the room for a while and missed the main part of Kevin's questions. I gather he elicited the information that a 0.5% cut in the SVR would cost "only" €30m and he tried to get them to estimate the annual losses on RIP tracker book. Kevin estimated that it was €400m a year but Masding and his deputies did not know)

Peter Mathews kept interrupting the other speakers but the chairman did a good job keeping him quiet. When Mathews did speak it was to give a lecture and when the chairman told him his time was up, Mathews then said "I now have some questions to ask". It's a pity Mathews does not talk less and say more.

Mathews said that the mortgage contract made no reference to the "blended cost of funds", so it was a breach of contract to be now linking the SVR to the blended cost of funds.


Frequent Poster
Thank you brendan for the excellent briefing . So they dont know their own banks fixed rates. They do not know what the arrears are on rip mortgages. He says that the svr is not profitable yet they borrow the money at 2.2% and charge 4.35% . I am glad kieran and others pushed him on that point it a pity he could not give an answer.
This meeting has thrown up many questions for ptsb on their handling of svr mortgages but well done to all for asking the hard questions
Hopefully Michael noonan picked up on the points brought up and start to ask him some questions after all wasn't it he who said dont believe a word the banks say
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Frequent Poster
Based on the briefing that Jeremy Masding gave yesterday and the figures in relation to mortgages/deposits it appears to me that the bank is insolvent.

All areas of the business are unprofitable and it is only being kept alive by the Trioka life support machine.

Even after the bad loans/trackers are moved to the Asset Management Unit as things stand all other areas of the business are unprofitable.

The only reason I can think of for not turning off the switch is that it will some day be a "3rd Force" and competition for the pillar banks.

I dont see a future for this bank in any standalone capacity.


Registered User
I just find it so annoying how they mention an 85 bases points reduction whilst still 135 bases points or so higher than AIB and expect to be congratulated. The spin the banks and politicians etc. put on things is unbelieveable and sickening. To say that they passed on the recent ECB cut and AIB didn't is pathetic and an idiotic statement of self praise and so insulting. Do they think we are fools....

Brendan Burgess

Based on the briefing that Jeremy Masding gave yesterday and the figures in relation to mortgages/deposits it appears to me that the bank is insolvent.

I don't think it's insolvent at all. It's assets probably exceed its liabilities.

It is one of the most highly capitalised banks in Europe on paper at least.

It has made big provisions in the accounts for loan defaults.

It is losing money and it is Masding's objective to carve out a bit of the business which is profitable. I argued at the AGM if they can't be profitable within the restriction of treating customers fairly, then they should close the bank down.