Irish Shadow Banking

 Since the Global Banking Disaster in 2007, Irish Shadow Banking hasn’t gone away you know. The shadow banking system consists of non-banking institutions that include inter alia hedge funds, money market funds, pension funds, insurance companies and to some extent the large custodians such as Bank of New York and State Street. The funding of Shadow Banks is typically associated with the non- banks’ securities lending transactions, use (and re-use) of the collateral they post with banks, etc. Irish Shadow Banking recently entered the public domain, in an Irish Times article describing law firm Matheson’s (formerly Matheson Ormsby & Prentice, Solicitors)  usage of Registered Charities to facilitate the tax avoidance and potentially risky Irish shadow banking activities of global hedge funds and lenders. In recent years there has been substantial growth in Dublin of Special Purpose Vehicles (SPVs) set up by global financial institutions to operate in the Irish Shadow Banking sector. Such SPVs are tax-efficient structures used by financial institutions to house risky assets such as distressed debt instruments or so-called catastrophe bonds, which allow insurers spread risks linked to weather events or acts of terrorism. Dublin has become a mecca for SPVs and similar structures and the Irish Central Bank is endeavouring to comprehend the potential risks Irish Shadow Banking poses to the Irish financial system, after several Economists warned Regulators of their need to comprehend & attempt to monitor their activities vis-à-vis those of High Street Banks. Matheson  offers its international financial clients the use of charitable trusts, which can be registered with the Irish Charities Regulator allegedly to “relieve poverty and distress”, while simultaneously acting...
Flaws in Tracker Redress Schemes

Flaws in Tracker Redress Schemes

A Conflict of Interest is something that potentially haunts members of the Professions in all democracies. On the Web Site of KPMG., (authors of PermTSB’s Tracker Redress Schemes) reference is made to a recent Wall Street Journal article1 and public comments by the Securities and Exchange Commission’s (SEC) Director of the Office of Compliance Inspections and Examinations, 2 the Financial Industry Regulatory Authority (FINRA) and the SEC are “keenly focused on conflicts of interest” for firms in the financial services sector. Further emphasizing the importance of managing conflicts of interest (COIs), SEC Director di Florio stated that “conflicts of interest, when not eliminated or properly mitigated, are a leading indicator of significant regulatory issues for individual firms, and sometimes even systematic risk for the entire financial system.”A recent Sunday Times article disclosed that KPMG were paid €8.6m by Permanent TSB in 2015 for work on the state-controlled bank’s Tracker Mortgage Redress Schemes [TMRS] and other “regulatory and compliance projects”. The payment, equivalent to a substantial 3% of the accountancy firm’s all-Ireland fee income [of about €300m a year], provides the first glimpse of how a Tracker Redress Schemes scandal will cost Irish lenders millions in fees, on top of the interest refunds and compensation they will have to pay to impacted customers. The emerging Tracker Redress Scheme scandal, is rooted in the unfair removal of low-cost tracker mortgages from thousands of home owners, is also interfering with the banks’ ability to securitise, or offload mortgages as they seek to sanitise their balance sheets. Approximately 90 of the 1,372 customers offered compensation as part of PTSB’s Tracker Redress Schemes have...
Consequential Hedging Losses

Consequential Hedging Losses

Consequential Hedging Losses denial in  cases for mis-sold products, have become center stage, particularly with their ‘Ugly Sister’ – the Banks’ Conflicts of Interest. In 2012, the UK Financial Conduct Authority (FCA) identified failings in the way that some banks sold structured collars, swaps, simple collars and cap products, which are collectively referred to as Interest rate Hedging Products [IRHPs]. The nine Banks involved agreed to review their sales of IRHP made to what are described as ‘Unsophisticated Customers”  since 2001. There is no equivalent Irish scheme in place, although there have been instances of Consequential losses denial in Hedging cases, and related Banks’ Conflicts of Interest.   The full review started in May 2013. The UK banks have nearly completed their reviews, having sent a redress determination letter to 18,100 businesses and paid over £2.1 billion in redress, including £464 million to deal with consequential hedging losses. The nine banks that are reviewing their sales of IRHPs  are: Allied Irish Bank (UK), Bank of Ireland, Barclays, Clydesdale & Yorkshire Banks, Co-operative Bank, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander UK Out of these, four have had major commercial financing operations here in Ireland, but there is no equivalent Scheme in place for negatively affected Ireland-based  commercial Borrowers. To give a perception that outcomes are fair and reasonable, the banks’ review of every case is overseen by an Independent Reviewer;  AIB GB uses its own Auditors –  Deloitte, as an allegedly Independent Reviewer. However on 20th June 2013 Allied Irish Banks, plc. (AIB) announces the appointment of the same Deloitte as Independent Group Auditor. This is a...

Discredited Former Troika Members & Greek Economics

The Troika of the European Commission, European Central Bank & International Monetary Fund whom history will judge unfavourably, are part of the festering problem that is Greece. Even the IMF now owns-up to the established fact that the Troika has mishandled the problem of Greece, in admitting that the policies rigidly imposed were principally wage cuts & uncompromising austerity, with negligible attention to reform of state structures or product markets. Syriza’s main challenge is the residue of the scorched earth austerity policies of the previous 6-years. Reducing its GDP by 26%, and youth unemployment up to 62%. This position is described in a recent book entitled, ‘The Rape of Greece’, by Nadia Valavani, Syriza’s deputy finance minister. The EU-Troika forced a bankrupt country to take on additional credit packages, allowing foreign banks to effectively ‘dump’ their bonds onto Greek taxpayers, and trap the Greek population in sovereign debt slavery. As in Ireland, this process was expediently called a ‘rescue’ or ‘bailout’. Leaked IMF minutes for May 2010 stated that Troika loans to Greece, “may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders’. Syriza’s Manifesto, the Thessaloniki Programme demands cancellation of “the greater part” of Greece’s public debt. Understandably and justifiably it seeks a “European Debt Conference”, at which it would have plenty to say for itself. Mr Varoufakis recently told Paul Mason (Channel-4): “ you can’t have a monetary union that pretends it can survive by simply lending more money to debtor countries on condition that they must shrink their income”. This...
Learning from Icelandic Economics; Banking Crisis Management

Learning from Icelandic Economics; Banking Crisis Management

Having just returned from a trip to the Land of Ice & Fire, that is Iceland – a country that is finally lifting controls imposed during its Banking Crisis management in 2008, I couldn’t escape the aura of regeneration, honesty & freshness that revealed itself during my stay. Earlier this summer, Katrín Júlíusdóttir the Icelandic Finance Minister announced the end of capital controls –or limitations on what people there can do with their money– imposed after the 2008 crash. While other countries are still suffering from flat inflation and badly behaved, but contrite bankers eye-balling Tribunals’ Investigators, Minister Júlíusdóttir has announced a 39 per cent tax on investors looking to take their money overseas. This summer Iceland imposed the tax to prevent it haemorrhaging money as it loosens bank laws imposed six years ago, when Iceland made the shocking decision to let its banks go bust. Rather than maintaining the value of the Krona artificially, Iceland chose to accept inflation in a lesson to leading global nations on Icelandic Economics. This pushed prices higher at home but helped exports abroad – in contrast to many countries in the EU, which are now fighting deflation, or prices that keep decreasing year on year. Iceland also allowed bankers to be prosecuted as criminals – in contrast to the US and Europe, where banks were fined, but chief executives escaped punishment. The chief executive, chairman, Luxembourg ceo., and second largest shareholder of Kaupthing, an Icelandic bank that collapsed, were sentenced in February to between four and five years in prison for market manipulation and economic fraud. “Why should we have a part...

PermTSB Tracker Redress Scheme – Desperate Measures on Tracker Mortgages Scandal

  Because of a series of Bad Calls made over the previous 15-years, in a Tsunami of reckless lending activities the exposures to Bank balance sheets became such that the majority of Tracker Mortgages were a major source of recurring business losses. This has been particularly true of Permanent TSB., and its enforced commencement of its Tracker Mortgage Redress Scheme. To counter-balance this, the Banks [collectively and individually] evolved a Customer Handling Strategy whereby affected Borrowers were cajoled, by-hook-or-by-crook to forfeit their rights as Tracker Mortgage Borrowers. As a direct consequence of being very deliberately inveigled into moving-off Trackers, without being appraised of their Rights as Consumers at the time, Borrowers (to date, and into the future) have been charged very substantial volumes of mortgage interest. Indeed it has been demonstrated that in the case of Permanent TSB., more than 22-affected Home Owners actually had to under a forced-sale of their Private Residences. Scale of Tracker Scandal in PermTSB Tracker Redress: Recent media estimates indicate that what is now legitimately referred to as the Tracker Scandal is expected to cost PermTSB Tracker Redress, alone at least €35m in reimbursements to customers together with an additional €20m in Central Bank fines. Such mortgages are a carry-over from the pre-2008 Banking boom  when Irish banks could borrow virtually unlimited amounts from mainland European banks at or close to official ECB rates (see Previous Blog on Government & Banks acted in consort to fuel reckless lending). Those days are long gone, and Irish Banks have been caught ‘with-their-trousers-down’ but the tracker contracts remain in force, with the recently-released Central Bank statistics showing...