What the government can and should do about PTSB

The Government is washing its hands of the victims of the PTSB's predatory lending practices, saying that they have no role in setting interest rates.

First of all, this contradicts what they have already said about the subject. The following have all said publicly that the banks should pass on the ECB rate cuts.

• The Taoiseach, Enda Kenny
• The Tánaiste, Eamon Gilmore
• The Minister for Finance, Michael Noonan
• The Minister of State at the Department of Finance, Brian Hayes

Full details in this thread : > PTSB mortgage problems & questions > What government ministers have said about mortgage rates



Of course, they don't have the legal power to tell the likes of Ulster Bank or KBC bank to reduce their mortgage rates.



But as the owners of PTSB, the government, if it wishes, can tell them to reduce their rates. The Minister for Health called in the board of the HSE and told them to resign. The government can call in the board of the PTSB and tell them to either reduce the SVR or else they should resign.

Mpsox said:

It also raises an interesting legal and ethical conudrum for the directors, they are obliged to run a company in the best interests of the shareholders, but what is the best interest of the shareholders?, to cut interest rates, possibly force the bank into further losses which the shareholders (us as tax payers) would have to pay for, or not to cut interest rates and inflict high interest rates on their customers, who are also probably tax payers(and their shareholders). ? Politically, it's easy for the Govt to say "cut interest rates" but they've not said who is going to pick up the additonal bill.

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This is something I have been missing in this discussion - evidence of some kind of profiteering, what does their cost base look like? Are they making Hugh profits when compared to the other banks?

Brendan Burgess said:

But as the owners of PTSB, the government, if it wishes, can tell them to reduce their rates.

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This is the bit that absolutely baffles me,surely they should be doing something by now?

Jim2007 said:

This is something I have been missing in this discussion - evidence of some kind of profiteering, what does their cost base look like? Are they making Hugh profits when compared to the other banks?

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Hi Jim

That is an interesting question which was asked in this thread but not satisfactorily answered.

The PTSB borrowers are not asking for PTSB to provide them with mortgages at a loss. They accept that the loans should be profitable for PTSB. But, at the same time, they do not want to subsidise the loss making trackers.

Are they making Hugh profits when compared to the other banks?

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I don't think that this is hugely relevant. But as it happens, PTSB does not have the huge property development losses of AIB, yet AIB is charging 3% compared to PTSB's 5.2%. So if this argument was valid, then PTSB should be charging a lot less than AIB.

For 2011, PTSB will show huge losses as it will be making provisions in line with the CB stress tests.

The cost of funding is very relevant

The highest rate for a notice or short-term account from PTSB is 3%.
But it is paying the ECB 1% on a huge amount of its borrowing. They also have zero cost funding with their current account balances and many deposit accounts paying little or nothing due to customer inertia.

So its cost of funding SVR mortgages is between 1% and 3%. I would have thought that a margin of 1% above the cost of funding was fair enough. That would result in a SVR of no more than 4%, which is still 3% above ECB.


One should ask the same questions of AIB

What really annoyed the PTSB SVR customers was that pressure was put on AIB to reduce their rates while PTSB which has the same owners were charging 3% more and came under no pressure.

I presume AIB's cost of funding is very similar to PTSB's. AIB is paying slightly more, 3.1%, for their most expensive deposits.

Both AIB and PTSB need to be able to provide profitable mortgages
At the moment, there is no incentive to AIB to provide new mortgages at 3%. They need to increase their SVR.

I don't think anyone would be foolish enough to borrow from PTSB.

We need a functioning mortgage market, and both should price their mortgages to be profitable and to attract new business.

Of course, both need to reduce their loans/deposits ratio so maybe they don't want new business at any price.