AIB AIB's comments on Prevailing Rate cohort in their Annual Report

Brendan Burgess

Founder
Messages
51,904
There is not a lot of further information.

They estimate the total redress to be €265m .

And they say €35m for a fine.

So they must be including the admin costs of redress in the €265m?

Restitution costs include a provision of € 265 million for additional redress that may be due to a group of customers who had an option of a prevailing tracker rate. This follows a recent preliminary decision issued by the Financial Services and Pensions Ombudsman. Total potential impact is € 300 million, including a provision of € 35 million for the impact of monetary penalties from the Central Bank of Ireland included in Provision for regulatory fines.


The Chief Executive says:
I am intent on addressing legacy matters of the past

Astonishing that it has taken an Ombudsman's decision for him to make that resolution.

They say that the outcome is "unpredictable".

The Group is continuing to engage and consider its position. However it is unpredictable how these matters turn out, so we have made
additional provisions for €300m to reflect the combined impact of application of the compensation in that individual preliminary
decision to a wider group of around 5,900 customers in similar circumstances, together with related potential additional charges.


But they have learnt nothing. They refer to this group as

Following a complaint to the Financial Services and Pensions Ombudsman (“FSPO”) by a customer from the ‘06-09 Ts & Cs who never
had a tracker’ cohort
, the Group received a preliminary decision in January 2020 which upheld a claim for further redress due to this
impacted customer.


If, in their own thinking, they had referred to this group as "The 06 - 09 cohort who were denied their right to a tracker", they might have approached the whole issue in a more rational manner and resolved it years ago.
 
Last edited:
Annual results out just now.

As we announce our new medium-term targets today and embark on our next phase, I am intent on addressing legacy matters of the past so that our future, characterised by a normalised cost base, balance sheet and capital structure, will deliver for our stakeholders and sustainably generate shareholder value.”
– Colin Hunt, Chief Executive Officer

Exceptionals of €592m driven by legacy restitution

Profit before exceptionals€1,091m
Exceptionals€592m
Profit after exceptionals€499m


Exceptional items were €592m in 2019 and include the €300m of additional tracker mortgage-related provisions announced on 4 February 2020 to cover a range of possible outcomes and related additional potential charges, following a preliminary decision by the Financial Services and Pensions Ombudsman.


Exceptional items include restitution costs of €416m, provisions for potential regulatory fines of €78m, termination benefits of €48m and loss on disposal of loan portfolios of €40m. We continue to work with the Central Bank of Ireland on legacy conduct matters. We know that issues may continue to emerge and we are committed to dealing with them in an expedited, transparent and fair way for our customers.


We have prioritised culture and accountability in order to build a best-in-class culture that is underpinned by our values, behaviours and actions. In order to further simplify AIB operations, remove complexity and foster a culture of collaboration, we have organised our structure around two core segments Retail Banking and Corporate, Institutional & Business Banking. Additionally, we have strengthened our management team and achieved gender balance well ahead of industry peers. We believe the Executive team has the right blend of skills and experience to deliver our strategy and back our customers over the coming years.
 
Last edited:
And from the Annual Report - PDF 13

In February 2020 we made a market announcement concerning a preliminary decision of the Financial Services and Pensions Ombudsman (FSPO) regarding compensation due to a customer who was in a previously identified group within the tracker mortgage review, but where the Group had concluded no financial detriment had been incurred.

The Group is continuing to engage and consider its position. However it is unpredictable how these matters turn out, so we have made
additional provisions for €300m to reflect the combined impact of application of the compensation in that individual preliminary
decision to a wider group of around 5,900 customers in similar circumstances, together with related potential additional charges.


From PDF 18

This includes €300m additional provisions taken to cover a range of possible outcomes and related potential additional charges following a preliminary decision by the Financial Services and Pensions Ombudsman relating to a previously identified group of customers who had an
option of a prevailing tracker rate.


From PDF 58
4342


Restitution costs include a provision of € 265 million for additional redress that may be due to a group of customers who had an option of a prevailing tracker rate. This follows a recent preliminary decision issued by the Financial Services and Pensions Ombudsman. Total potential impact is € 300 million, including a provision of € 35 million for the impact of monetary penalties from the Central Bank of Ireland included in Provision
for regulatory fines.

From PDF 197

Provisions for liabilities and commitments
The measurement of provisions, including those for customer redress and related matters, is highly judgemental. Back in 2017, following review and analysis of the parameters of the Central Bank of Ireland’s Tracker Mortgage Examination framework, the Group concluded that a cohort of customers who were never on a tracker rate would be paid compensation.

However, in January 2020, the Group received a preliminary Financial Services and Pensions Ombudsman (“FSPO”) decision which upheld a claim by an impacted customer within this cohort and awarded further redress. The Group considered this preliminary decision and recorded a provision of € 265 million based on an initial assessment of the likelihood that additional redress may be due to all customers in this cohort. The Group recognises that there is a range of possible outcomes and has created this provision, which was subject to review and approval by the Board. This represents Management’s best estimate of loss taking into account the available evidence and assessment of the potential outcomes
in finalising this matter with the relevant stakeholders.

The Committee has reviewed the position and the process for estimating the provision. Based on its assessment, the Committee has concluded that this provision is reasonable taking into account the inherent uncertainties in the calculation and the judgemental nature of key assumptions, particularly relating to the identification of impacted customers and related
redress costs.

From PDF 277

Provisions for liabilities and commitments (continued)
At 31 December 2018, a provision amounting to € 10 million was held against, what was then considered to be, the practical completion
of the identification of all impacted accounts subject to ‘customer redress and compensation’ and the on going appeals process.
In determining this provision, the Group assessed other possible redress scenarios and concluded that the possibility of a further outflow
of economic resources was remote.

However, following a complaint to the Financial Services and Pensions Ombudsman (“FSPO”) by a customer from the ‘06-09 Ts & Cs
who never had a tracker’ cohort as outlined above, the Group received a preliminary decision in January 2020 which upheld a claim for
further redress due to this impacted customer.

The Group has considered this preliminary decision and recorded a provision of € 265 million based on an initial assessment of the
likelihood that additional redress may be due to all customers in this cohort. The Group is continuing to engage and consider its position
with regard to the impact of this preliminary decision and the methodology applied by the FSPO. There are a number of issues that need
to be resolved. Accordingly, there is a range of possible outcomes, however, the provision represents the Group’s best estimate based
on the available information at this stage.

As detailed in notes 40 and 47, AIB and EBS were advised in 2018 by the CBI of the commencement of investigations as part of an
administrative sanctions procedure in connection with the Tracker Mortgage Examination. In this regard, the Group created a provision
of € 70 million for the impact of potential monetary penalties that are expected to be imposed on the Group by the CBI being its best
estimate based on external developments in the industry at 31 December 2019. This matter is still considered to be at a relatively early
stage, and the amount provided for is subject to uncertainty with a range of outcomes possible with the final outcome being higher or
lower depending on finalisation of all matters associated with the investigation. Accordingly, this is a critical accounting estimate which
could result in a material adjustment in the next financial year but it is difficult to quantify a range of outcomes.

Other than as outlined above, there is no individually significant provision that is expected to result in a material adjustment in the next
financial year.

From Page 330

Tracker Mortgage Examination
The provisions at 31 December 2019 for ‘Customer redress and compensation’, including payments arising on appeals, amounted to
a) € 265 million in respect of tracker mortgage customers - the ‘06-09 who never had a tracker’ cohort; and
b) € 6 million (31 December 2018: € 10 million) for previously identified impacted accounts.

Following a complaint to the Financial Services and Pensions Ombudsman (“FSPO”) by a customer from the ‘06-09 Ts & Cs who never
had a tracker’ cohort, the Group received a preliminary decision in January 2020 which upheld a claim for further redress due to this
impacted customer.

The Group has considered this preliminary decision and recorded a provision of € 265 million based on an initial assessment of the
likelihood that additional redress may be due to all customers in this cohort. The Group is continuing to engage and consider its position
with regard to the impact of this preliminary decision and the methodology applied by the FSPO. There are a number of issues that need
to be resolved. For further information see ‘Critical accounting judgements and estimates’ (note 2).

From PDF Page 338

47 Memorandum items: contingent liabilities and commitments, and contingent assets (continued)

Legal proceedings
The Group, in the course of its business, is frequently involved in litigation cases. However, it is not, nor has been involved in, nor are
there, so far as the Group is aware, (other than as set out in the following paragraphs), pending or threatened by or against the Group
any legal or arbitration proceedings, including governmental proceedings, which may have, or have had during the previous twelve
months, a material effect on the financial position, profitability or cash flows of the Group.
Specifically, litigation has been served on the Group by customers that are pursuing claims in relation to tracker mortgages. Customers
have also lodged complaints to the Financial Services and Pensions Ombudsman (“FSPO”) in relation to tracker mortgages issues.
In relation to one of these complaints, the FSPO has recently issued a preliminary decision which upheld a claim by a customer for
further redress – see ‘Critical accounting judgements and estimates’ (note 2).
Further claims may also be served in the future in relation to tracker mortgages. The Group will also receive further decisions by the
FSPO in relation to complaints concerning tracker mortgages.

Based on the facts currently known and the current stages that the litigation and the FSPO’s complaints process are at, it is not
practicable at this time to predict the final outcome of this litigation/FSPO complaints, nor the timing and possible impact on the Group.
 
Last edited:
lol , the group who never had a tracker. Sounds like they are very happy about the whole thing

This part sounds like they are at least admitting they will probably have to pay out

"
The Group has considered this preliminary decision and recorded a provision of € 265 million based on an initial assessment of the
likelihood that additional redress may be due to all customers in this cohort. "
 
Sounds like all is worded to get the executives through the results phase without admitting wrong doing, you would expect more combative language if a decision to appeal was already taken or that they had been advised that they could overturn the preliminary decision
 
Sounds like all is worded to get the executives through the results phase without admitting wrong doing, you would expect more combative language if a decision to appeal was already taken or that they had been advised that they could overturn the preliminary decision

True - there is just no way they would provision 300 million in advance of fighting a decision they thought they could win. They have lost this, they know it and are just doing a bit of waffling to keep the shareholders happy
 
"Never had a tracker" has always irked me, its a deliberate attempt to downplay the significance of 3.2 and to distract from it. AIB reiterated it several times at the last finance committee appearance too. I can't remember if anyone said if was irrelivant I know I wanted to shout it out!
 
"Never had a tracker" has always irked me, its a deliberate attempt to downplay the significance of 3.2 and to distract from it. AIB reiterated it several times at the last finance committee appearance too. I can't remember if anyone said if was irrelivant I know I wanted to shout it out!
Michael McGrath in fairness to him asked them to stop using that term as it was irrelevant. Once again they clearly didn't listen, just trying to hide their own considerable ineptitude by mentioning this
 
I think we can surely assume aib have resigned to paying out. I will eat my hat if it turns out they challenge the ombudsman’s decision.

I hope they don’t take too long in resolving.
I don’t see any reason why they don’t use the methodology they have already used the last time round.
Note the last time aib also covered customers tax liabilities to revenue. So that will presumably have to factored into their 300 mil figure also.
 
Last edited:
I think we can surely assume aib have resigned to paying out. I will eat my hat if it turns out they challenge the ombudsman’s decision.

I hope they don’t take too long in resolving.
I don’t see any reason why they don’t use the methodology they have already used the last time round.
Note the last time aib also covered customers tax liabilities to revenue. So that will presumably have to factored into their 300 mil figure also.
Can I ask what you mean by tax liabilities?
 
I think they might occur if this wasn't your home and was sold in the interim so capital gains tax? Also I believe revenue would be due a portion of any TRS paid back too.
 
I think they might occur if this wasn't your home and was sold in the interim so capital gains tax? Also I believe revenue would be due a portion of any TRS paid back too.
Would mortgage interest relief come into play also? Could the revenue seek to claim back taxes on that relief I wonder.
 
All I know is the last time aib covered all taxes customers may have to revenue. Probably applied more to people who received significant lump sums due to lost property due to overcharging. But now that you mention it I i guess mortgage interest relief is also a factor. And there are probably other tax issues I can’t think of also.
 
Last edited:
Back
Top