AIB Live Thread: AIB Bank Before Oireachtas Finance Committee 26/09/2017

Bernard Byrne, CEO of AIB will appear before the Finance Committee today in Room 3 at 4pm this afternoon.

If you want to watch live you can do so by going here: http://www.oireachtas.ie/parliament/watchlisten/watchlive/committeeroom3/

Don't worry if it doesn't play automatically at 4pm. There is normally a bit of a lead in time. As before, you can expect a prepared statement to be read out by the CEO to the committee before it advances to questions and answers.

Afternoon all. The meeting has now commenced but has gone into private session for a few moments.

Bernard Byrne CEO of AIB (BB)
Since we last met the IPO for AIB has been completed, that is a positive transaction.
Strong levels of capital and strong levels of profitability.
A severe shortage of housing is a crucial issue and interest rates in that context.
We've announced a 5th SVR reduction as well. We believe the position we hold on SVR is a very attractive position.
Non performing loans and tracker issues are also a very important element. We've made significant progress on the tracker issue at this time, and also on arrears in terms of SME, construction, and residential mortgage portfolios.
Brexit is a key issue for the bank.

Comments about the amount of regulation required now compared to before the financial crisis.
And how it relates to the cost of providing a banking system.

*comment from SaySomething*
Very relaxed, affable, and opening statement wasn't the formal presentation. Interesting to see how this goes

Michael McGrath, FF (MM)
Welcomes the mortgage rate reduction. Mentions the lack of cashbacks on new mortgages.
EBS customers have been in touch with the committee to highlight the lack of interest rate reduction for them. Asks BB to explain his reasoning.

BB
Our core principle is to reduce interest rates/pricing and we've committed a significant amount of money. It is an expensive proposition and we believe it's the right thing to do.
We don't control the market.
Cashback is seen to be very attractive to some customers. It's a feature of the marketplace. We have a dual brand strategy - we have AIB and EBS Brand which has implemented 3 SVR reductions to date and it hasn't announced them in the current phase but it is a brand that has a cashback offer. We have to operate and compete in the market.

*back and forth between MM & BB*
Basically it's explained that EBS higher rates are related to the cashback offer. AIB doesn't offer cashback and the SVR rates are lower.

BB
We can facilitate people to switch between the brands of EBS/AIB but we must reunderwrite any reissuing of credit. For a customer that has demonstrated the ability to pay. There is a process but we are willing to do this.

MM
Makes the point on the differing interest rates forceably on behalf of aggrieved EBS customers.

Asks BB's opinion on cashback offers. Says he is personally of the view that they distort the market and makes it difficult for customers to assess value. Asks what impact would it make if the Oireachtas legislates to end them.

BB
AIB believes that the primary drive is not cashback offers/teaser rates/upfront benefits distorts the market. In general we agree with that.

MM
Can a customer with AIB move down the LTV move down the band and get a preferential rate if they get the house revalued to less than 50% if they submit a new valuation.

BB
Yes, we do need a valuation.

MM
Are they limited to one such a reduction?

AIB
In essence there is no such restrictions. If the market moves in the opposite direction we're not passing on the higher rate.

MM
Asks for clarification.

AIB
They will be given that interest rate

That sounds like AIB are just saying you can switch from EBS to AIB. Sure you can switch to any bank for that matter!
Does the AIB 'process' involve the customer forking out legal fees etc.?

MM
Raises the tracker rate. Asks is this all the accounts that have been identified.

BB
The statistics that we include in the formal commentary are those that are available based on our half year results. 97% at this point in time. Since them some further cases have been identified through that process. A modest figure. There is a second category. We've found certain instances where customers were put on the wrong rate, for a short period of time, as short as a weekend. That's in the 100s. The compensation is very small in terms of the interest rate. It arose as part of the overall Examination. It's a modest amount.

The central bank is responsible for reviewing us.

MM
Asks does this 3,200 affect does this include the new cohort?

BB
The others have always been on a tracker but it could be an administrative reason we got it wrong. The additional number were never a tracker issue but they've been caught. Several hundred is all I can say. We've not got final figures.

MM
Asks for clarification on correct rate & redress.

BB
Confirms 2,900+ have been returned to rate and redressed. 97% of the 3,200 have been completed at this stage.

AIB
Confirms the model of the degree of loss and the appropriate compensation.

lledlledlled said:

Sure you can switch to any bank for that matter!
Does the AIB 'process' involve the customer forking out legal fees etc.?

Click to expand...

Yes, but they are not stopping you from moving "internally" to get a lower rate. They pay €2000 to switchers.

(Great summary Say Something. Saves me doing it.)

Michael McGrath is doing a great job.

Brendan

MM
You're close to getting to the bottom of it?

BB
We are very close. We can't confirm until the Central Bank is finished that will certainly run into 2018. It has cost €133 million to date.

MM
Asks have they found out why?

BB
AIB reacted to the world changes as ECB rates collapsed and closed down trackers. People didn't think through the consequences of shutting down the tracker rate so abruptly (referring to the company) the consequences weren't tracked on systems. Really it's a complete failure of the adminstrative systems to track the correct products on offer at that time. We're not surprised that everyone did it around the same time because it's a result of what happened in the marketplace. Everyone had their own challenges on terms of how to implement that. Clearly everyone got it wrong.

Brendan Burgess said:

Yes, but they are not stopping you from moving "internally" to get a lower rate. They pay €2000 to switchers.

(Great summary Say Something. Saves me doing it.)

Michael McGrath is doing a great job.

Brendan

Click to expand...

Providing you qualify in terms of underwriting.
MM playing a blinder.

MM
Customers who are in this 3.67% cohort prevailing rate issue. What about their entitlement to the tracker rate? I've looked at their contracts and has the banks reached a conclusion on this? Has the bank deemed them not to be affected?

BB
Any customer who was on a tracker and was deemed to be impacted, therefore they had a rate in some contract at some point, they have been returned to the tracker rate. They received that original margin.
For customers who didn't have a tracker and who got prevailing rate clause or similar. Prevailing rate for any commodity based product we believe it's based at the rate offered today. That is our view on the prevailing rate.

MM
Surely the prevailing rate is a certain margin above ECB rate? Surely it should be the ECB plus the prevailing margin that applies to trackers.

BB
I don't believe so it refers to the prevailing rate, not a tracker rate.

MM
Quotes from contract in reference to tracker rate.

BB
The rate that a tracker would at that time have been offered.

MM
A margin at a rate of 3.67%?

BB
Correct

MM
Queries

BB
*Obfuscates*

Sorry folks they are speaking quicker than I can type. Also can't follow obfuscation.

MM
Asks how many customers are in that cohort and have they been communicated with?

BB
Any customer who has sought information?

MM
Have the central bank signed off on your position on this?

BB
The central bank haven't signed off on their examination so no, that would be the answer.

Senator Rose Conway (SRC)
Asks have the Gardaí been in touch over the investigation.

BB
No, not that I'm aware of.

SRC
Asks for numbers of families who have appealed the tracker compensation.

BB
It's about 100, the programme is progressing. people have a year to appeal.

SRC
Asks for results of appeals breakdown.

BB
Says there are 3 panels, they are only getting going, there are no bank staff associated with the appeals. I have no information on this.

SRC
Asks about people who have lost their homes.

BB
Full compensation position for interest overcharge, redress, compensation, time value of money, related to the loss of the property. Putting the customer back into a position where that loss of a tracker had not occured.

SRC
Asks if there are any incidences where a property owner affected took their own lives.

BB
Not that I'm aware of.

*pausing to put the kettle on*

BB
We haven't sold private residential properties to private equity.

AIB
The cyprus portfolio that we sold was a portfolio by private landlords to get into the investment market. We don't have any plans to sell private residential non performing loans at this point. I'm not saying that we won't be selling non performing loans but from a private residential point of view that is not on the agenda.

BB
On housing we've been developing our thinking on housing. As part of our overall thinking we will have a report based on the housing sector, as providers of senior debt. We will be launching something around industry specific themes.

SRC
Asks about their role in the housing crisis.

BB
Our role is as providers of finance.

SRC
I think you could provide more significant support to the housing crisis.

*I'm skipping bits and pieces here, that is slightly drawn out*

SRC
Talks about the 2 banks and customers being treated differently between the two banks.

Kieran O'Donnell (KOD)
Repeats query on differential on rates between EBS and AIB. *SS Curses: if he wasn't late he wouldn't have missed this for goodness sake. Covering the same ground as earlier in this post. Not going to waste time with this unless something new is mentioned*

KOD
I hear KPMG are in looking at your loan book doing due diligence in terms of the potential sale of loans. Can you confirm that KPMG are doing this work?

*SS: once again we've covered this already earlier. What a waste of time. Infuriating waste of committee time by a representative who missed the start of the meeting.*

KOD
Mentions nervousness of customers about dangers of loans being sold to a vulture fund. Asks for clarity from AIB about this.

Jim O'Keeffe, AIB
It's difficult to comment on specific cases. We look at affordability and we look at compromise. We are doing write offs absolutely. We try to maintain the sustainable business, where the assets are associated with the sustainable business, we try to maintain the business.

KOD
Mentions farms, the land is worth farm more than the value of the loan. AiB would have the largest bank of agricultural loans in the country.

JOK
In relation to the farming sector, we have taken a very proactive and sustainable role to keep farms in business. It's dangerous for me to go into too much detail here. The key point I would make is that we use the word compromise. There has to be compromise on both sides in the majority of cases.

KOD
When do you think the due diligence on the loan book will be concluded and when will you make a decision in terms of sell on.

BB
In overall terms we will have reached the European norm by the end of '19. Compares the work done to come to an arrangement on a non performing loan to the similar work done for due diligence on loan book.

KOD
Asks the SME/Agricultural loan book plans.

AIB
We are more likely to operate in the investment asset classes as we work through the portfolio. Our priority is to work with residential loans and SME.

KOD
Could you do it in the next 2 years?

JOK
I can't tell you it won't happen in the next 2 years. Emphasises they will work with people who engage with them today.

RM (robert mulhall AIB)
AIB accounts for 36% of all new mortgage market at the moment.
Our threshold is all about affordability. We will take into account rental payments. They must be able to demonstrate ability to meet deposit requirements, and we do take into account salaries being used to pay rent.

Gerry Horkan (GH)
Asks about branch plans and staff plans in the long term.

BB
There is no immediate plan to look at the branch network at the moment. We have maintained services on offer across the network.

RM
Technology on offer in terms of self service, also offers larger availability. We can now offer full service at lobbies 8am-8pm daily. Less than 10% of all transactions are now manually conducted. It reflects on society as a whole. We also have our arrangements with An Post and offer our services in 1100 outlets across the country. We believe we are offering a high level of services across the country.

GH
Asks for clarification on funding for non-zoned lands for developments.

BB
The bank should focus on senior debt. The market is more stuck where land needs more equity solutions. That's an equity risk issue because you don't have a path to cash. If you don't have a path to cash, you don't have a path to debt.

GH
Ask about Brexit.

BB
Talks about uncertainty, impact on trading into the UK (agri-food in particular), regional influences. We have 21 Brexit advisors across the network to work with SMEs to inform them and to see what the bank can do. It's a two-way pipe *SS: crosses this off buzzword bingo*.
I think until there's greater clarity it's about preparing and positioning.

GH
Asks how NPL (non performing loans) were treated. How many were written off? How many were repaid. Do you have the figures?

JOK
The majority of that work will have been on restructuring but as a result of that... looking for information from the reports.

*a lot of back and forth about figures*
*yawns, I can't follow this. Don't think the committee can either. For a bank/finance committee I don't think it's brilliant accounting skills once again*

GH
What is the role 'head of homes' and what do they do?

RM
They are there to understand the market place and communicate best with mortage holders. It's basically dealing with new mortgage customers.