EBS What does an EBS "Variable Base Rate" mortgage mean?

[gnf_ireland]

I think a lot of banks pushed fixed rates at the time to lock people in and stop them moving as there was so much competition

Plus the fact the ECB rate was steadily rising ! People seem to be forgetting that point in all of this.....

 

[B26354]

Of course then you have to ask the reason WHY did they do this? It must have been done for a reason?

I’ve attached Chief Exec of AIB/EBS Bernard Byrne’s comments at the finance committee hearings where he references “limited legacy IT systems & operational failures.”
Razvan’s post merely confirms what happened with EBS and their specific systems failure & impact on contract obligations. However outdated IT systems & neglect of that department in the bank does not explain everything away & serious questions remain:

Why was the fixed term loan offer amended at loan offer stage and the interest rate basis removed contravening the terms & conditions of the loan itself(See image attached)?

Who made the decision to deliberately change this IT system configuration in mid 2008 and thereby move thousands of customers off the variable tracker rate they were due to revert to after the fixed term ended or those who were already on a variable base rate?

In 2006/2007 EBS retail director Dara Deering said they were trying to attract customers with tracker products over “standard variable rate” products(I think haveaniceday has the exact quote for this). A year later they had stopped offering the product. Former EBS finance director Brian Merriman said at the banking inquiry in 2015 that EBS offered “very little” by way of tracker mortgages and EBS steered customers towards fixed rate & standard variable rates. He also said tracker mortgages were “madness” (see image attached). So his comments suggest a retrospective cover up or it might offer us some idea as to the conflicts occurring re: the tracker product in EBS during that period? It might also offer us some idea about who at the top made these changes & why they did it. I know very little about roles/positions in banks but it looks to me like the retail director was trying to push trackers because they got customers to sign up to EBS mortgages but the finance director was (at least retrospectively) saying they make no financial sense to the bank.

 

[RAzvan R]

I cannot possibly comment on the above, so I am guessing you have internal knowledge to make such a post and can prove this.
Whether this is what was done at the local office level or the central underwriting level I have no idea
I just find it bizarre, in 2004/05 that a financial institution lending billions in mortgages would not have a reasonable automated ICT system underlying it - even if it was mainframe based. The industry I work in has been pretty much automated since the 1980's.

They start a strategic Lean Project Improvement aproach “Project NOVA 2004 to 2008” which was covering all aspects of the business and that also explained the shifts of variable Base + 0.00% margins and future more into SVR, just for EBS survival, definately not for his members.
This picture along with extra reading explain the failure from IT system which was at testing stage.
You can find all the reasons Why they did that in 193 Pages under the hedings of the pictures.
I’m just spechless is unfair.
All was happend due to lack of trainning, Poor comunication, poor IT system and system transferred and testing between EBS & ABC Mortgages, unexperience employees & governance.
All under the same headings EBS Project NOVA.

 

[B26354]

They start a strategic Lean Project Improvement aproach “Project NOVA 2004 to 2008” which was covering all aspects of the business and that also explained the shifts of variable Base + 0.00% margins and future more into SVR, just for EBS survival, definately not for his members.
This picture along with extra reading explain the failure from IT system which was at testing stage.
You can find all the reasons Why they did that in 193 Pages under the hedings of the pictures.
I’m just spechless is unfair.
All was happend due to lack of trainning, Poor comunication, poor IT system and system transferred and testing between EBS & ABC Mortgages, unexperience employees & governance.
All under the same headings EBS Project NOVA.

Is that re-pricing the tracker margin what happened to our mortgages in 2008?

 

[gnf_ireland]

I will start this by saying I am not trying to defend EBS here at all, and know very little about their workings in the period in question

However outdated IT systems & neglect of that department in the bank does not explain everything away

Absolutely. I work in IT and in many places I have experienced outdated IT systems. However, in most cases they are not an issue and work better than the newer ones - just limiting in the functionality available. Some mainframe systems are so tailored for a company, no COTS (Commercial Off The Shelf) project could ever replace it like for like. These projects are called business transformation, as it required business change as well as technology change to work.

In 2006/2007 EBS retail director Dara Deering said

Former EBS finance director Brian Merriman said

To be fair, I have yet to see a finance person and a commercial/retail person in any organisation agree on how businesses should be run. One by their nature is conservative and the other normally overly optimistic. This is the ongoing politics in any company. This is why a company in growth usually looks towards marketing/product people for leadership and accountants always get the job when things start to wobble.

I know very little about roles/positions in banks but it looks to me like the retail director was trying to push trackers because they got customers to sign up to EBS mortgages but the finance director was (at least retrospectively) saying they make no financial sense to the bank.

Imagine, a sales person wanting to sell and a finance person saying slow down here and lets look at the numbers

 

[B26354]

This whole article is worth a read actually as it gives an insight into the mess that was EBS around that time and the aggressive strategies used to get business. Notice Merriman’s comment about “steering” customers towards fixed & SVR.

https://www.irishtimes.com/business...ng-for-survival-since-2005-1.2300709?mode=amp

 

[gnf_ireland]

They start a strategic Lean Project Improvement aproach “Project NOVA 2004 to 2008” which was covering all aspects of the business ....... just for EBS survival, definately not for his members.

I cannot comment on this project as I was not involved in it (obviously), but I have been involved in similar initiatives in other industries. I have removed a section of what you have said, as it is not relevant to what I am saying

Every so often organisations find themselves having to take a step back and do a comprehensive review of what they are doing and where they are going. Its called a strategic review and includes things like SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis of themselves and their competitors. They do this to ensure they are heading in the right direction and are aware of the market conditions outside their control. Some companies do it proactively every year or so, with a major one every 5 years. Others do it when things go wrong or the company is looking to divest its interests. These reviews are normally lead by an external third party consultancy company and come up with options & suggestions for the organisation. If you want a practical example - think of the Brennan brothers in "At Your Service".

If EBS has concerns as to their business model with the increased competition from the international players, and the changing face of banking in Ireland - then doing a strategic review was a smart thing to do. It is also little doubt that if this review was underway, key players would have different view on the direction the bank should take. This is natural in any organisation

You can find all the reasons Why they did that in 193 Pages under the hedings of the pictures.

Please excuse me if I ignore the snippets you have posted. The reason is this obviously comes from a much larger document and I have written/read enough of them to say that you cannot take small elements in isolation and get an understanding of what is proposed or the direction the organisation chooses to go. These reviews are very complex, and isolated snapshots are meaningless if I am being frank. You may have access to the full document and understand the context, but I certainty do not

All was happend due to lack of trainning, Poor comunication, poor IT system and system transferred and testing between EBS & ABC Mortgages, unexperience employees & governance.

Again, having worked on many technology transformation/business transformation programmes in my life, I can understand going live (into production) without everything working 100%. But its very unlikely and rare that any organisation of any size would put something live (especially business critical systems) while in testing or not having a basic quality benchmark. The project is more likely to be cancelled than go in with massive holes in it - especially when money is at play. Now maybe EBS is the exception but it would very much be the exception in that case.

Again, I cannot say what happened at EBS and you clearly have access to information from the inside track as I doubt some of what you post above is publicly available - most of it is likely to be 'commercial in confidence' documentation.

Is that re-pricing the tracker margin what happened to our mortgages in 2008?

But I will say that posters here have said that the wording on the contract is consistent from 2004-2008, and if there was a business transformation going on chances are there would be changes, even if subtle, in this window. The changes discussed above talk mainly about 2008 - and there were other factors at play here - many of them external such as the events in the US and the commencement of the currency crises and maybe the banks internal cost of funds which had a knock on effect to things such as pricing and approach to mortgage lending.
Its not unusual for a company to have 'trigger points' where certain remedial action comes into play dependent on market conditions - no different to shops changing the prices of something when another shop does it !

I also see nothing wrong with a company wanting to get out of low margin business. If I am making 2% on some elements of the business and 14% on others - I would be a fool not to focus on the 14% line of business, unless the 2% one was a cash cow with minimal ongoing investment and risk.

 

[gnf_ireland]

This whole article is worth a read actually as it gives an insight into the mess that was EBS around that time and the aggressive strategies used to get business.

And this fully validates the strategic review mentioned above. They were trying to save the company. A business model that is not working normally results in margins being cut and aggressive pricing of products to attract new customers.

Notice Merriman’s comment about “steering” customers towards fixed & SVR.

There is nothing wrong with anyone steering a customer towards a product. As long as a gun is not put to their heads and told to buy it, they have a choice to walk away and say no.
BoI today clearly steer customers towards fixed by offering pretty competitive fixed rates and their lowest variable rate is 3.9%. There is nothing wrong with this - it is clearly a business strategy that is working for them!


Yet none of this provides that "variable base rate = tracker rate". It actually says the opposite. It is very clear from his view at the time that EBS did not have many tracker customers:
"Mr Merriman said he raised this concern at board level and that EBS had “very little” by way of tracker mortgages."

 

[B26354]

I also see nothing wrong with a company wanting to get out of low margin business. If I am making 2% on some elements of the business and 14% on others - I would be a fool not to focus on the 14% line of business, unless the 2% one was a cash cow with minimal ongoing investment and risk.

GNF-I’m assuming you see something wrong with a company/bank getting out of a low margin business by robbing families of tens of thousands of euro?

 

[B26354]

Yet none of this provides that "variable base rate = tracker rate". It actually says the opposite. It is very clear from his view at the time that EBS did not have many tracker customers:
"Mr Merriman said he raised this concern at board level and that EBS had “very little” by way of tracker mortgages."

Sounds like your more inclined to take the word of the bankers over the evidence provided here. And there’s more evidence you haven’t even seen. Variable base rate is a tracker. Whether EBS pay up is another argument.

 

[gnf_ireland]

GNF-I’m assuming you see something wrong with a company/bank getting out of a low margin business by robbing families of tens of thousands of euro?

No I see nothing wrong with any company existing a business they are not making money in. This is standard business. Would you go to work if it was costing you more to get to/from work than you were making from the job itself?

How they get out of business is a different matter. If they have done so illegally they should be a case to answer. If they done so in a legal manner, then this is a different matter. I have said this over and over again on this thread - the definition of "variable base rate" is the only question to be answered and this is very likely to require a court to decide it. You say its a tracker; I don't believe it is as it does not track anything and by any defined margin. Others here take other views. EBS state in the article posted they believe they have very few customers on trackers. Everyone clearly has a different opinion on this.

Whether EBS done a strategic review of their operations in 2004 or they upgraded their IT systems in 2006 is simply noise unless you can prove they are related and what they done is illegal. EBS making a decision to get out of low margin business could have meant anything from not selling any more low margin products, to selling the ones they had on the books at a loss to limit the exposure to incentivising people to take a different product. All perfectly legitimate means of exiting a line of business.

 

[gnf_ireland]

Sounds like your more inclined to take the word of the bankers over the evidence provided here. And there’s more evidence you haven’t even seen. Variable base rate is a tracker. Whether EBS pay up is another argument.

If this is as clear cut as you say, it would have been resolved in the courts ages ago. If EBS are found to be wrong in their definition of variable base by a court, they will have to pay up - end of discussion. If they are not found to be right then they will not have to pay anything. This is how the court system works

I agree 100% I have not seen all of the evidence. However, what I have seen is disjointed, mostly circumstantial and highly littered with opinion rather than facts. There is exceptionally high levels of emotion running through the statements (understandably) and people reading what they want to read into wording - normally taken in total isolation from the rest of the page/section. Repeating "variable base" is a tracker over and over again does not make it a tracker.

I believe if it was that certain they would lose a case, the Central Bank would have pressured EBS into conceding on this. The Central Bank have been pretty fair in their approach from what I can see (in general). They have got banks to concede on items I never thought they would have without some sort of a fight, including the infamous KBC flyer to brokers and the BoI staff mortgages. The Central Bank are sitting on the fence on this one so its not clear cut. What is the last CB response on this one?

And please spare me the rubbish on taking the word of the bankers over evidence provided here. I have said repeatedly I am not convinced by the evidence posted here and that is my personal opinion. I simply quoted a line from an article posted by someone else claiming to prove a point and I said it actually said the opposite. "Mr Merriman said he raised this concern at board level and that EBS had “very little” by way of tracker mortgages."
Just because I have a different opinion to you on this does not make my opinion any less correct or valid than yours.

Ok, I have one last question on all of this - what has someone like Padraic Kissane said on the evidence provided on this to date? Does he believe that there is a solid chance this will be taken under the Central Bank review or does he believe it will need to be resolved in the court?

 

[EbsLoannotrafor]

If it the case was certain and would cost as much as outlined , that might be a reason for the central bank to not concede initially as one of its minions ( which it is regulating might collapse ) this would have political , international and financial reverberations . The others - kbc and Boi staff are small fry , this is the big one and perhaps everyone is touching to base on it on their shift until the external forces ( beyond ) Ireland decide what to do with it . It might serve the banks and the politicians to leave this scandal for another 10 years to hatch ..
By the way the shambles of IT governance cannot be vaguely called “legacy issues “ ( code for not my problem on my watch ) who was responsible ? ( CEO I would say ) and if the shambles, it had an unfair impact on customers , they should address this and redress customers .

 

[gnf_ireland]

If it the case was certain and would cost as much as outlined , that might be a reason for the central bank to not concede initially as one of its minions ( which it is regulating might collapse ) this would have political , international and financial reverberations .

This sounds like a conspiracy theory to me
If the proof is that solid, push the CB for a decision and someone take a high court action against EBS. This is the only way you will know for sure who is write or wrong here.

By the way the shambles of IT governance cannot be vaguely called “legacy issues “ ( code for not my problem on my watch ) who was responsible ? ( CEO I would say ) and if the shambles, it had an unfair impact on customers , they should address this and redress customers .

Legacy IT systems very rarely impact customers - they impact the organisation much more with the cost of maintaining them and the manual processing required to support them.
Investment in IT system is not cheap - not every company can afford to pump 100's of millions of euro into IT.
The only way IT systems impact customers is if there are charging errors in them - not if the paper printed says variable base rate rather than tracker !

Bank of Ireland's digital transformation project is costing 500 million euro
http://uk.businessinsider.com/bank-...n-in-digital-transformation-2016-10?r=US&IR=T

 

[B26354]

GNF-Padraic Kissane has already stated his opinion about this case on this very website so I won’t be answering for him.

As for the court idea-why even talk about this yet when it’s in the CB review now?I know brokers involved in this fiasco have mentioned courts because EBS are blaming them. Let’s just stick to the CB review and see what happens there. The courts & legal action is for another day when hopefully everyone has been paid back their money.

 

[RAzvan R]

And this fully validates the strategic review mentioned above. They were trying to save the company. A business model that is not working normally results in margins being cut and aggressive pricing of products to attract new customers.


There is nothing wrong with anyone steering a customer towards a product. As long as a gun is not put to their heads and told to buy it, they have a choice to walk away and say no.
BoI today clearly steer customers towards fixed by offering pretty competitive fixed rates and their lowest variable rate is 3.9%. There is nothing wrong with this - it is clearly a business strategy that is working for them!


Yet none of this provides that "variable base rate = tracker rate". It actually says the opposite. It is very clear from his view at the time that EBS did not have many tracker customers:
"Mr Merriman said he raised this concern at board level and that EBS had “very little” by way of tracker mortgages."

The aproach of pushing fix to SVR customers was working perfect for the businnes. They realised that in Q4 2008. Thats why we are on SVR at the moment.
The contract wording Fix to preavailing Variable Base but thanks to Project NOVA we are on SVR.
I agree with any Busines Transformation program & Continuous Improvements initiative but all those Voice of Bussines inițiatives must be alingned with Voice Of Custumers.
I dont agree with a NON Profit organization whos shifting focus on profit rather than customers.
The coments of Merriman regarding this concern at Board level was not about verry little Tracker Mortgages.
The concern was how to atract more customers in Tracker Home Loan group instead of Comercial category.
Very Little was in Jan 2004 with 3% Rezidențial Trackers, 95% Comercial Lending which stoped in 2005.
Project NOVA increase the rezidențial Tracker Mortgages from 3% up to 60% by 2006 and further more by 115% to mid 2008.
The Main concern it was the level of Tracker Mortgages beeing too low in Jan 2004 at 3% and moving to agresive Tracker advertising Campaign Fix to Tracker option.
Through SWOT & SMART the concern was identified but it was to late.
He realise that 85% of the home loans if not all are Trackers and need to eliminate the margins.
The end results was the real concern followed by Fix to SVR despite the wording from the contracts of Fix to Variable Base.
In Project NOVA were involved internal & external auditors from which one of them was of course the Financial Regulator.
The scale of the damage is too large even for the Central Bank.

 

[RAzvan R]

Is that re-pricing the tracker margin what happened to our mortgages in 2008?

As per Lean wording is minimise or eliminate the margins (variance).
In our case was eliminated due to possible houman error or combined houman error + untrained personal on New pilot IT system + testing stage was for almost 2 years+ lost of talent/specialist + 171 brokers/intermediaries + Poor comunication +++
We end up without the + despite the contract wording.

 

[B26354]

I’m ringing Joe Duffy about this on Monday

 

[haveaniceday]

Just to say - My broker was certainly leading me down the fixed path - this was certainly what he was 'advising' me to get in 2007 - there was never any discussion on trackers or variables unless instigated by me and never any discussion about what would happen after the fixed period was over and what rate I would go onto - in the end I asked for the loan to be changed to tracker.

 

[gnf_ireland]

GNF-Padraic Kissane has already stated his opinion about this case on this very website so I won’t be answering for him.

Any chance you can provide me a link to this one? I cannot find to where Padraic has posted on this thread. I am curious to what someone of his experience in this area thinks the chances of success are?

Let’s just stick to the CB review and see what happens there.

Agreed the CB review needs to do it thing and see what comes out of it. I am surprised though if it is as clear cut as you are saying that it has not been moved on further at this stage

Project NOVA

There is a lot of discussion around the internal project within EBS, its objectives etc. I cannot comment on any of that
What I will say thought is this does not show anyone how the variable base rate is the tracker. It may give some insight into the corporate mindset within EBS, but not show what needs to be proved.
I go back to my current BoI example and fixed rates - its clearly a business strategy but there is nothing wrong with it

In our case was eliminated due to possible houman error or combined houman error + untrained personal on New pilot IT system + testing stage was for almost 2 years+ lost of talent/specialist + 171 brokers/intermediaries + Poor comunication +++
We end up without the + despite the contract wording.

I genuinely wonder how much of this is speculation versus fact. You are making some very bold statements that would require substantial cross industry/function experience. How much experience do you have in major (>50m) programme (either business or technology) deployments and rollout?

My broker was certainly leading me down the fixed path - ...... never any discussion about what would happen after the fixed period was over and what rate I would go onto

So in your case this is a broker issue not an EBS one. How can EBS be held to account for the actions of an independent 3rd party broker ?

I’m ringing Joe Duffy about this on Monday

Best approach I think !!