Karl Deeter doesn't seem to like AIB's rate cut!

[Brendan Burgess]

Karl Deeter: Throwing the baby out with the bathwater - subscription needed

... AIB is looking good for having recently cut its variable rate, somewhat unexpectedly. There are several reasons why we should question this and other aspects of the bank’s business.



AIB is effectively a state-run entity, not only in shareholding, but in direction of pricing (previously it was alone in lowering variable rates at the behest of Enda Kenny in 2011), and now it has reduced rates in a move which was seen positively, but which has real consequences.



As a financial broker in my day job, my own inherent bias is to cheerlead this. Both competition and lower prices are good for the industry and the firm I work at, but critical analysis requires some balance. The flipside is that the 25 basis point rate reduction on the residential variable rate loan book (which is about €16 billion) wiped in the region of €40 million in interest income off AIB’s income statement.


...
AIB is successfully gaining market share at existing prices. This move was, and is at its root, a political one, which makes for dire banking and at a time when the bank has not yet repaid the taxpayer any meaningful amount of that €21 billion – contributions to date were mainly taxes and penalties.

 

[MrEarl]

It's a fair point with regards to Mr. Deeter's comment on interest income lost, but there is also a question as to whether or not the Bank made this decision to try and help keep people out of arrears ?

It would seem from their CEO's comments of late that AIB is preparing to start returning to private ownership and I expect this is more easily done, with a lower number of borrowers in arrears.

There may also be another consideration, with regards to the level of capital to be retained (possibly as Tier 1) in respect of arrears loans and the associated opportunity cost. Again, a reduction in the SVR may help reduce the arrears and by extension, release capital for other purposes.

 

[dewdrop]

This small reduction generated much favourable media comment and may help AIB gain an increase in getting new mortgages.

 

[Gerry Canning]

Didn,t AIB do well !

In all my working life in finance this shower have never acted in our interest.
As said this has the whiff of politics.

This (reduction) is minimal and still leaves SVR rate far to high for honest payers.

AIB,s Culture always was a Vulture Culture. Effectively the same middle to high management are in Situ, these are the (professionals) that bust AIB. Not only did we bale them out but through Government we permitted too many to sail off with full pensions?

If AIB are returning to profit then why this acceptance of return to private ownership.?
Let us keep AIB so that future we may insulate ourselves from the next Banking Fiasco.

We may also be able to gradually get AIB,s culture into line .

 

[keepon]

Looks like Deeter's quibble is essentially ideological.

As a market fundamentalist, he's pinning the cut on the bank's public ownership, even though, as he claims, he's in favour of competition and lower prices. So, essentially, he's all in favour of competition benefiting the consumer so long as it doesn't come with a taint of state involvement, in which case he is so horrified he'd prefer to see the bank stay in line with others to screw variable rate mortgagees.
(Not that the AIB is by any means a radical move or a recognition of the scandalously high rates anyway.)

 

[cormacol]

The banks aren't screwing anyone - it's the practical difficulties associated with repossession. SVR rates are not expensive relative to the risks associated with the lending

 

[jathclare]

The banks are screwing people because they can. They also lost money on Trackers for years and many still are.

Repossessions are a factor but not the sole reason.

 

[cormacol]

If you mean charging rates which are commensurate with the risks then yes they are screwing people. Why aren't we seeing any competition then - surely a few other banks from overseas with none of the legacy issues re trackers / losses looking for a piece of the pie.

 

[Gerry Canning]

The banks aren't screwing anyone - it's the practical difficulties associated with repossession. SVR rates are not expensive relative to the risks associated with the lending

..............

Whatever about new customers accepting SVr rates, it is blindingly obvious that anyone who took SVR mortgage from before the crash have been royally screwed.
1. Everyone who took out an SVR mortgage before the crash , clearly understood that Mortgage Rates would move broadly in line with Market rates.
That was the clearly understood contract between customer and lender.
Ergo the lender is stealing !.

2. {Practical difficulties associated with Repossession}
There was a survey done that 18% of mortgages had serious flaws that meant Banks had difficulty enforcing them.That cost surely id down to Banks incompetence? Should paying clients subsidize that?
3. {Svr rates are not highetc} = Nonsense methinks , ie show me the figures

 

[MrEarl]

..............There was a survey done that 18% of mortgages had serious flaws that meant Banks had difficulty enforcing them.That cost surely id down to Banks incompetence? Should paying clients subsidize that?...

Hello,

I would be interested in reading a little more detail on that comment, if you have further information on it please ?

Another consideration is that (if it's accurate) that the solicitors who originally worded the mortgage documentation, or perhaps the solicitors who prepared the paperwork each time a mortgage was taken on a property (and may well have been a third party unconnected to the Banks) are responsible.

Have the Banks been seen to take significant legal action against any of the firms of solicitors, perhaps claiming against their Professional Indemnity cover (I don't recall seeing headlines to suggset so, but may have missed some reports) ?

 

[44brendan]

Impossible to take legal action against a solicitor unless a loss is crystallised. yes there are a large number of cases where security has been imperfectly taken. However very few of these cases have run their course to the extent that the Bank can quantify a clear loss. In such instances there may be a case for a claim against the solicitors professional indemnity insurance.

 

[Gerry Canning]

Mr Earl.

44Brendan comes across at having very good knowledge ,which he imparts with clarity.I am glad to get his confirmation.I am sure of my info but do not hold or remember the actual reports.
In relation to Professional Indemnity Insurance (PII) . My clear understanding is that it has increased to such a degree as to make it a major cost on the honest solicitor .
I think any solicitor will confirm this.
In my county Donegal ,I continue to hear of Solicitors (leaving?) (pushed?)the profession and Practises being taken over under the baleful eye of Law Society etc.

I have no idea what the call has been on PII but if it has got dear methinks it is because it is called on.

 

[dewdrop]

In regard to defective mortgage documentation I doubt if it were the actual mortgage document as most banks used standard forms. Most likely the document was not properly executed especially family home requirements or in some cases dare I say was not executed at all.

 

[keepon]

Why aren't we seeing any competition then - surely a few other banks from overseas with none of the legacy issues re trackers / losses looking for a piece of the pie.

Surely this has to do with the relatively tiny size of the market -- simply not worth the bother given the massive scale of globalised banking, and especially given that a new bailout politically is not going to be on the cards for a very long time to come. And, given what banking has gotten away with in the recent past in this country, if I were a German or British bank I would stay well clear for the time being -- the Irish public, once bitten, is unlikely to be so acquiescent next time.

Lack of competition, and faux competition, is not unique to the banking sector. We are all familiar with inflated margins and lack of real competitive edge in many sectors in Ireland, dominated by a few inside players cosseted by their near-exclusive access to a captive and (thus far) largely passive market.

Yet, as evidenced in cormacol's post and others, we still have so much blind faith in the infantile mantra that the invisible hand will work its magic.

Perhaps the banking union can tackle this exploitative, uncompetitive oligopoly with the necessary regulation, rather than the posturing that we currently get from the Central Bank. But I doubt it.