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?
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?
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.