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Finance Bill to be published - Irish Times
08/02/2012
Tax incentives aimed at luring senior multinational executives to Ireland and increased mortgage relief for struggling homeowners are among the provisions included in the Finance Bill, which was published today.
Many of the measures were announced by Minister for Finance Michael Noonan in Budget 2012 in December.
Among the provisions is an increase to 30 per cent in mortgage interest relief for first-time buyers who took out their mortgage between 2004 and 2008.
The Bill also makes provision for the Budget announcement that mortgage interest relief will be available at 25 per cent for first-time buyers who purchase property this year and at 15 per cent for non-first-time buyers who purchase in 2012.
A Special Assignee Relief Programme (SARP) is included in the bill which will reduce the cost to employers of assigning skilled individuals from abroad to take up positions in an Irish-based operation.
An exemption from income tax on 30 per cent of a salary between €75,000 and €500,000 will be provided for employees assigned to a role in the State for a minimum of one year and a maximum of five years.
Also included is a Foreign Earnings Deduction (FED) to assist companies seeking to expand into emerging markets in Brazil, Russia, India, China and South Africa.
The maximum amount of income that can be deducted under the scheme will be €35,000 per annum. The deduction will end in the 2014 tax year.
The Finance Bill also makes provision for the Budget announcement to increase the exemption threshold for the Universal Social Charge from €4,004 to €10,036. This measure will remove approximately 330,000 people from liability for the Universal Social Charge.
The DIRT (Deposit Interest Retention Tax) rate has been increased by 3 percentage points to 30 per cent in the Bill and the rate for certain longer term savings products has also been increased by 3 percentage points to 33 per cent. The increased rate applies to interest paid or credited on or after January 1st, 2012.
Retirement relief is to be modified with an upper limit of €3 million on relief for business and farming assets disposed of within the family.
The annual imputed distribution which applies to the value of assets in an Approved Retirement Fund (ARF) each year is being increased from 5 per cent to 6 per cent in respect of ARFs with asset values in excess of €2 million.
The scheme, which provides relief from corporation tax on the trading income and certain gains of new start-up companies in the first 3 years of trading, is being extended to include start-up companies which commence a new trade the next three years.
The Finance Bill includes a number of changes to the R&D tax credit scheme, which were previously announced in Budget 2012. It also includes changes to a number of indirect taxes, including the standard rate of VAT which rose from 21 per cent to 23 per cent at the start of 2012 and carbon tax and excise duty on tobacco products.
“This Finance Bill is a further step towards economic recovery and regaining our fiscal autonomy. The achievement of these objectives will take time but we are making good progress in implementing our Programme for Government," said Mr Noonan.
"Economic circumstances mean we must target support where it is most needed. I am confident that the measures contained in this Finance Bill provide balanced, targeted and effective support to business to encourage job creation which will be the cornerstone of our economic recovery," he said.
The Bill will go through the Oireachtas in the coming weeks.
The pitfalls of debt management agencies - Irish Times
30/01/2012
ARE YOUR DEBTS stressing you out? Are you falling behind in your credit card or loan payments and fed up with the constant calls coming in from hard-edged debt collectors demanding instant payment? Would you like those calls to just go away? Would you like all interest repayments to be frozen and your debts halved? Would you like to save thousands?
Of course you would, who wouldn’t? Maybe a debt management company is the answer? After all thousands of cash-strapped Irish consumers have flocked to these slick companies in recent years and can they all be wrong?
Yes, yes they can.
There is big money to be made in the business. While pricing structures vary from company to company, the fees are universally high and when people are already drowning in a sea of debt, up-front fees of as much as €750 and a monthly fee of 15 per cent of any agreed repayment seem particularly outlandish. But still people contact these companies because they are scared and vulnerable and looking for help.
Although the fees debt management companies charge are high they are not the biggest problem. Despite the fact that these companies handle millions of euro belonging to often very distressed and vulnerable consumers every month, the State has not enacted any legislation to protect consumers.
The debt management business in Ireland is like a less exciting version of the Wild West and there are no rules governing the dozens of companies which have set up in recent years offering to help people scale the personal debt mountains they have created through a combination of reckless borrowing and reckless lending.
The absence of legislation has led to the quite ridiculous situation where you could set up a debt management company before lunch today and start handling people’s cash. All you need is a snazzy name for your business – something that people will remember, a flash looking website with an address that is similarly easy to recall and a whole lot of neck and away you go.
Until the middle of last week one such business, Dunne Maxwell trading under the name yourmoney.ie, had been big in the money space. It had been paying the bills for thousands of people for over seven years. According to its very flash website, people who put their trust in the company and allowed it to manage their money had “nothing to loose” (sic). It promised to reduce people’s debt by 50 per cent and save them thousands. So far so good.
Except it turns out that people did have something to “loose”. Their money. Last week the Central Bank wrote to hundreds of customers of the Dublin-based debt management company and strongly recommended they suspend all payments to it immediately. The remarkably forthright letter said people should “consider contacting the Garda” if bills to be paid on their behalf by the company were not up to date.
The bank said that “in the public interest and as part of a general review of the debt management sector”, it had inspected the company and had “reasons to be concerned about the nature of the company’s operations and its handling of customers’ money”. Overnight the company disappeared. First its phones were disconnected and then its website went down. By Tuesday of last week its offices, listed as being on Clarendon Street in Dublin, were vacant, save for a few officials from the Central Bank sifting through files.
The company’s overnight disappearance left hundreds of its customers climbing the walls, terrified that they might be left owing thousands of euro to creditors. While the Central Bank said it could not say how much money belonging to clients might be owed to creditors and which are due to be paid this month, sources told Pricewatch that the amounts could be significant.
The bank has been commendably proactive and in addition to writing to customers of the debt management company, it also said it had contacted the creditors involved and has asked that customers whose bills have not been paid by Dunne Maxwell be treated “sympathetically”.
While the Central Bank has no regulatory power over debt-management companies, and cannot force them to comply with its orders, it has been carrying out inspections across the bill-payment and debt-management industry to see if any of the firms were carrying out activities which it could regulate.
The first phase of this review has concluded and the bank has contacted a number of companies notifying them that some of their activities are subject to regulation. The bank said that companies whose activities, at least in part, fell under its remit must immediately take steps to provide more protection to client funds.
The Central Bank said recommendations of the Law Reform Commission, that the debt management and debt advice services of all firms in the sector be subject to regulation, should be implemented as soon as possible.
It can join the club. Both the National Consumer Agency (NCA) and all the not-for-profit organisations who help Irish consumers manage debt are increasingly concerned at the proliferation of such companies and they all urge caution when it comes to such services. Neither the Money Advice and Budgeting Service (Mabs) or the Free Legal Advice Centres (Flac) have anything positive to say about the companies. And both urge struggling consumers to make contact with them first before giving money to such a business.
The exasperation in the voice of the National Consumer Agency’s chief executive Ann Fitzgerald when the Dunne Maxwell story broke in this newspaper was evident. Her annoyance is hardly surprising. She has been warning about debt management companies for a very long time and repeatedly calling for legislation to protect “vulnerable consumers” yet nothing has been done.
Speaking to Pricewatch last summer she said it was “not acceptable to have to wait until next year” for legislation. “We have to get it done in the autumn. It is not complex and much of the framework is already in place.” She was ignored. Speaking to Pricewatch last week she repeated her call for legislation and warned that unless it happened soon, more vulnerable people would be caught out.
The Law Reform Commission has all the work done on legislation, a fact acknowledged by the Central Bank last week. Even Fianna Fáil, which, a cynic might say, dragged its heels on the issue for all the years it was in government, was able to pull together a pretty solid bill governing debt management companies last year.
The Government is failing to protect the public from rogue companies offering debt management services, according to Fianna Fáil senator Thomas Byrne. While Fianna Fáil could be expected to have a go at the Government at every opportunity, on this occasion at least, the party is on the money.
Last summer it published a bill which would have regulated the sector yet nothing has happened.
“We wrote to the Minister for Finance Michael Noonan and the government chief whip last summer asking that time be made available in the September-December session to debate and pass this legislation in the Dáil and Seanad to protect the public. We’re still waiting,” Byrne says.
Under the Fianna Fáil bill any business which claims to be a debt management advisor would be subject to regulation by the Central Bank and be required to have an authorisation. They would be required to set out all fees at the point of engagement and be prohibited from handling client monies themselves.
There is growing levels of concern about these companies and some financial institutions have gone as far as refusing to deal with debt management companies at all over concerns that their fees will eat into the money the banks are owed. Another issue is that many of the companies operate off a percentage of the repayment amount agreed and, the higher the repayment a client agrees to, the more money they make.
“We cannot allow a situation to continue where people continue to be preyed on by rogue operators and the Government sits mute,” Byrne says. “The Government should immediately bring forward a debate on the new rules for businesses involved in providing debt advice, debt management and household budgeting services.”
Questions to ask
For people trying to juggle the demands of several creditors, taking on a debt management company can seem a hassle-free – albeit expensive – option. Before committing to any company, ask the following questions:
* What are the fees for the service and when do I have to pay the fee?
* Is the fee paid upfront?
* If the fee relates to the size of the debt, what percentage of the total debt is payable?
* What exactly will I get for that fee?
* Will you work on and resolve all of my debts?
* Will I pay a fee even if you cannot assist me to get the solution I want, or a solution that works for me?
* Are you connected to any other organisation that sells financial products?
* What training or skills do your debt advisors have?
Insolvency Bill may lead to rise in loan costs - Irish Times
27/01/2012
THE COST of borrowing could rise significantly once the Personal Insolvency Bill becomes law as financial institutions price in the risk of more people being able to walk away from unsecured loans.
While the introduction of the legislation, which Minister for Justice Alan Shatter described as the “most radical reform of insolvency law since the foundation of the State” has been broadly welcomed, it could lead to interest rates on credit card borrowing and personal loans climbing, according to financial experts.
The Irish Banking Federation (IBF) warned that any costs associated with possible debt forgiveness programmes emerging out of the new legislation will ultimately end up being passed back to the taxpayer.
One of the new measures in the proposed Bill will see the introduction of debt relief certification allowing people who owe up to €20,000 in unsecured loans apply for a debt relief certificate if they meet certain criteria.
Once granted, their debt will be frozen for a year and then written off. Karl Deeter of Irish Mortgage Brokers said this is likely to see access to credit curtailed and the cost of borrowing increased as banks seek to protect themselves from future defaults.
“Unsecured credit is likely to increase because banks will have to factor in the relative ease with which some people will be able to walk away from their substantial debts,” Mr Deeter said.
“Once the risk of default increases, the cost of borrowing is also going to increase,” he added.
Sources within the banking industry agreed and claimed it was inevitable that the cost of borrowing would climb once the new legislation came into force.
Mr Deeter expressed confidence that new legislation would significantly improve the situation but warned that in the immediate aftermath of the Bill being implemented, there was “going to be a slaughterhouse” as a backlog of people with debts they cannot manage are processed.
He said that while banks will be able to veto voluntary arrangements many will embrace the changes because it will allow them to get bad loans off their books and return to normal business.
“At the moment our banks are struggling to get resolution in many cases and while they may not like every aspect of the new Bill at least it will allow them to get cash moving again.”
The banking sector has declined to comment in any depth about the legislation, and sources say that too many questions have yet to be answered before the sector will be able to draft a considered response.
Felix O’Regan of the IBF did, however, repeat the sector’s grave concern over secured debt being included in the Bill and he warned that the taxpayer could ultimately be asked to pay for widespread debt forgiveness. “It is taxpayers’ money that has helped to rescue the situation and the more costs that are brought to bear on the banks, then the longer it is going to take for the banks to return money to the taxpayer,” he said.
First sale of Irish bonds since 2010 - Irish Times
26/01/2012
PRIVATE INVESTORS bought Irish Government bonds yesterday for the first time since September 2010. The National Treasury Management Agency sold just over €3.5 billion worth of three-year debt.
The new bonds were offered to investors holding €11.8 billion of outstanding bonds maturing in two years. The fact that about one-third of those investors agreed to the “switch” to longer-dated bonds “demonstrated investor appetite for Irish Government paper and will support our plans for a phased re-entry to long-term debt markets”, the NTMA said.
The rate of interest offered was just under 5.2 per cent, only marginally higher than the bonds it repaid.
It is the first time any of the three euro zone economies in EU-IMF bailouts have succeeded in selling bonds of this maturity. The re-entry to the market follows a six-month trend decline in yields on Irish Government debt. In recent weeks yields have fallen close to the levels of Italy, the weakest euro zone economy not in a bailout.
Yesterday’s bond sale served a dual purpose: to test market demand for Irish Government bonds and to reduce the size of the repayments due in January 2014. The latter was considered important because the single repayment of €11.8 billion in two years was unusually large. It would also have taken place just as the Government is scheduled to exit the bailout. Yesterday’s operation lowers the January 2014 hurdle.
A spokesperson for the European Commission in Brussels said the result of the bond auction was “encouraging as it shows increasing confidence among investors in the strong commitment of the Irish authorities to redress the situation and fully implement the EU-IMF programme. The result is particularly positive as the maturity is well beyond the end of the programme.”
Barry Nangle, head of bonds at stockbroking firm Davy, the only Irish dealer of the Government’s bonds, said the “significant majority of investors switching were the Irish domestic banks”.
Health insurance set to rise for families by €800 a year - Irish Independent
25/01/2012
A NEW hike in premiums is set to spark a health cover flight as 100,000 people could be forced out of the private health insurance market.
Families will be hit for an extra €800 a year following the latest private health insurance hike.
This move sparked fears last night that thousands more will abandon private healthcare for the the overstretched public system.
Quinn Healthcare will add a 6pc policy price rise to those that have already kicked in this month as health insurance increasingly becomes a luxury.
And further increases are expected from all three insurers -- VHI, Aviva and Quinn Healthcare -- this year, because of Budget measures to pass on more hospital costs to health cover providers.
The succession of price rises has prompted fears that up to 100,000 will ditch healthcare cover this year.
Already around 6,000 are being forced to dump their private medical insurance every month as they cannot meet soaring costs.
Quinn yesterday announced the 6pc rise, which comes into force in March. It follows an increase of up to 25pc earlier this month and two previous rises last year.
Aviva is poised to increase the price of its policies by 15pc from next month -- after two rises last year.
And VHI will announce a new round of increases within weeks, after two increases which pushed up the price of some policies by 48pc last year.
Experts expect the VHI to admit that policies will rise at least 15pc this year.
Quinn Healthcare blamed yesterday's hike on the 40pc increase in the levy imposed by the Government on private healthcare policies, a move first revealed this month in the Irish Independent.
The insurer said the extent of the rise in the health levy was not anticipated and it was not in a position to fully absorb such large increases.
Health Minister James Reilly insisted that the large rise in the levy should not mean higher premiums for consumers.
But Quinn Healthcare managing director Donal Clancy said the higher levy would cost his company €20m in a year.
He admitted more people would have no choice but to give up health cover.
"We fear that these levy hikes will mean that, undoubtedly, more people who can afford it least will be forced into a public health system which is already buckling under intense pressure."
Even more rises are on the way due to Government plans to charge a health insurer every time a person with private cover uses A&E in a public hospital. Legislation will be introduced later this year to bring in this new system which will cost insurers around €143m.
Experts estimate this change will send prices shooting up again by at least 15pc, with the VHI recently warning that it may have to impose 50pc increases because of this new rule.
A total of 2.17 million people now have private health insurance -- down 123,000 since the start of the recession.
Health insurance expert Dermot Goode of healthinsurancesavings.ie said: "This latest Quinn increase adds to the probability of 100,000 consumers allowing their health insurance to lapse in 2012, forcing them to rely on the already creaking public system."
The latest Quinn rise will impact at the next renewal of policies. It follows increases which came at the start of last year and last April.
This means that the cost of a typical policy for two adults and two children on Essential Plus Excess will jump to €2,959.
This is up from €2,151 in January last year, a rise of 38pc. This means the cost for health cover will jump by €808 in little over a year, calculations confirmed by Quinn Insurance show. And an average family would need to devote €5,000 before tax earnings just to cover their healthcare costs under this plan.
Noonan for talks with EU, ECB on Irish bank debt - Irish Times
23/01/2012
Minister for Finance Michael Noonan will have separate meetings with the EU and ECB tomorrow to discuss the Government’s request for a reduction in the cost of Ireland’s bank rescue.
As the Government intensifies its efforts on cutting Ireland’s debt, Mr Noonan will hold talks with EU economics commissioner Olli Rehn and European Central Bank chief Mario Draghi
While the Minister reported progress in the Government’s campaign to secure lower borrowing costs on the loans used to recapitalise Ireland’s banks, he said the ultimate decision was for the 27 EU countries to take themselves.
Mr Noonan described tomorrow’s discussions as a medium-term initiative and indicated that no breakthrough was expected at an EU summit next in Brussels next Monday.
Mr Noonan was speaking this afternoon as he arrived in Brussels for two days of talks on the debt crisis with his euro zone and EU counterparts.
“There are talks going on as you know. At a working group meeting about ten days ago there was an agreement that the troika or their superiors would get together and develop a common paper,” he told reporters.
“That work is proceeding. Tomorrow I’m meeting Mr Rehn to discuss the issue with him and tomorrow afternoon I’m going down to Frankfurt to meet Mario Draghi. I have a meeting for about an hour down there so it’s proceeding,” he said.
“It’s a long decision-making process in Europe always, so we certainly have made progress at the level of the technical level. But of course, in the end of the day, to get a decision will be a matter for 27 individual countries.
“I’ve had conversations in Berlin with [German finance minister} Wolfgang Schauble last week and we sent some people to Paris the following day to talk to representatives of the treasury so we have intensified our efforts but I think it will take some time and we don’t want to get it entangled in other issues.”
On a possible referendum in Ireland on the EU fiscal pact, Mr Noonan said nobody could answer the question as to whether the people would back the treaty in any vote. “We don’t even have the completed yet and you don’t ever take the people for granted,” he said.
Tánaiste Eamon Gilmore said people who claim the Government it should not pay a €1.25 billion Anglo Irish Bank debt on Wednesday have never recognised the consequences of a default. Mr Gilmore said it was easy to argue against redeeming the senior unsecured bonds of the bank but added there would be serious consequences.
“If you don’t repay will people lend to you? If people don’t lend to us - and bear in mind what has caused us to get into the EU-IMF programme in the first place is that we weren’t able to borrow on the markets - we can’t bridge the deficit that we have,” he said.
“What happens to public services? What happens in the hospitals? What happens in schools? What happens to the pay of teachers, nurses, guards? What happens to social welfare payments?”
Meanwhile, the euro zone finance ministers are discussing the terms of a Greek debt restructuring they are ready to accept as part of a second bailout package for Athens.
Greece and its investors remain deadlocked over the actual loss that bondholders will incur and its impact on the country’s national debt. Although Greece and its creditors insist a deal is within reach, officials say the situation is increasingly urgent given the ongoing deterioration in Greece’s debt profile and the risk of an uncontrolled default if the talks fail.
Without the second bailout from the euro zone and the International Monetary Fund, Greece will not be able to pay back €14.5 billion in maturing bonds in March, triggering a messy default that would hurt the whole euro zone economy.
Germany and France pressed for a rapid deal between Greece and its private creditors that cuts its soaring debt to sustainable levels and said they were committed to a sealing a new bailout for Athens by March to avert a disastrous default.
French finance minister Francois Baroin said a deal to convince the banks and investment funds that own Greek debt to accept deep losses on their holdings appeared to be "taking shape."
But his German counterpart Wolfgang Schaeuble warned that any deal must help Greece cut its debt burden to "not much more than 120 per cent of GDP" by the end of the decade, from roughly 160 per cent today, something many economists believe will not be achieved by the existing plan.
"The negotiations will be difficult, but we want the second program for Greece to be implemented in March so that the second (bailout) tranche can be released," Mr Schäuble told a news conference in Paris with Mr Baroin and the heads of the German and French central banks.
"Greece must fulfill its commitments, it is difficult and there is already a lot of delay," Mr Schäuble said.
After several rounds of talks, Greece and its private creditors are converging on a deal in which private bondholders would take a real loss of 65 to 70 per cent on their Greek bonds, officials close to the negotiations say.
But some details of the debt restructuring, which will involve swapping existing Greek bonds for new, longer-term bonds are unresolved.
Institute of International Finance chief executive Charles Dallara, the who is negotiating on behalf of the private debt holders, left Athens over the weekend saying banks had no room to improve their offer.
Sources close to the talks said today that the impasse centres on questions of whether the deal would return Greece's debt, currently over €350 billion, to levels that European governments believe are sustainable.
In Brussels, European economic and monetary affairs commissioner Olli Rehn said talks had been "moving well" and expressed confidence a deal could be sealed this week.
German chancellor Angela Merkel said there was no question of extending Greece a bridging loan if talks with the private sector dragged on further.
The euro pushed up to its highest level against the dollar in nearly three weeks on hopes Greece and the banks could overcome differences and seal a successful debt swap.
After dealing with Greece, euro zone ministers will choose a replacement for European Central Bank Board member Jose Manuel Gonzales Paramo, whose term ends in May.
The 17 ministers of the euro zone will then be joined by 10 ministers from the other European Union countries to finalise a treaty setting up the euro zone's permanent bailout fund - the €500 billion European Stability Mechanism (ESM). Its predecessor, the EFSF, is widely viewed as insufficient.
Additional reporting: Agencies
Permanent TSB to cut home loan rate for new buyers - Independent
19/01/2012
LEADING lender Permanent TSB is to cut its mortgage rate for new buyers by almost 1pc, -- the first time in almost four years that a bank has reduced its borrowing cost.
The move is expected to be followed by other lenders in what could be a crunch year for the mortgage market.
Experts have predicted that there could be a tentative revival of the market due to lower interest rates, a Budget-day boost for home buyers, and more lending by banks.
Permanent TSB will announce today that its variable rate for new buyers will drop to as low as 3.69pc from next Monday, the Irish Independent understands.
Existing borrowers will not benefit from the new rate, although the lender did cut all its rates for existing borrowers by 0.7pc last month.
Frank Conway, of Irish Mortgage Brokers, said: "Lenders have not been enticing new customers for close to four years now. They have been in lock-down mode."
The rate cut comes after Bank of Ireland last month said it had put together a new €1.5bn mortgage fund to support customers who were buying their first home.
Last month's Budget reversed moves to scrap mortgage interest tax relief for those buying this year.
This means a couple who buy before the end of this year will get up to €5,000 over the year in mortgage tax relief.
Some property experts expect property prices to bottom out this year.
AIB yesterday denied it was turning down first-time buyers for finance. It said it was approving half of all applications.
The average new buyer has a deposit of between 10pc and 12pc of the property's price.
Head of mortgages Jim O'Keeffe said the bank approved 4,000 home loans last year.
But he admitted that just €4bn worth of mortgages were issued across the entire market last year, compared with €30bn during the boom.
"We will convert the majority of mortgage applications into approvals," he said.
Mr O'Keeffe insisted that most borrowers were able to secure the amount of money they had applied for from the state-owned bank.
Lending experts said that nine out of 10 mortgage applications were approved during the boom, a time when lending criteria was thought to be too loose.
Bankers in crucial talks to prevent default by Greece | Irish Times
18/01/2012
Efforts to prevent the looming threat of a Greek default will resume in Athens today as global banks return for fresh talks on how to break the deadlock over the second Greek bailout.
The rush to bring the Greek government and global banks together again, just five days after negotiators broke off talks on a private-sector contribution to the plan, underscores mounting anxiety over the threat of a default.
Separately, better than expected inflation data for the euro zone led some commentators to suggest the European Central Bank has more leeway to cut interest rates to prevent a slide back into recession.
Annual inflation in the 17-nation bloc was 2.7 per cent in December, not 2.8 per cent as the EU’s statistics office, Eurostat, had originally reported.
EU leaders have made the second EU-IMF rescue of Greece conditional on a big “haircut” for the banks and investment funds that hold Greek bonds, but seven months of negotiation have proved fruitless.
“Obviously we’re in a very important moment. It’s very important politically, it’s very important for markets and it’s very important for Greece,” said an adviser to a participant in the talks.
The resumption of talks between Greek prime minister Lucas Papademos and the leaders of the Institute of International Finance (IIF) banking lobby comes against the backdrop of renewed street protests in Athens over the country’s austerity programme.
As thousands of workers marched on parliament, officials from the EU-IMF “troika” started to examine the government’s books in an effort to stitch together a new €130 billion loan plan.
The process is crucial for EU leaders, who are struggling to convince sceptics that their rescue plan for the euro zone is viable.
Markets have largely shrugged off a mass downgrading of euro zone countries by Standard Poor’s.
While the European Financial Stability Facility was downgraded by SP on Monday night, it conducted a successful auction of €1.5 billion short-term debt and attracted bids for more than three times the amount of money it raised.
Spain sold €4.88 billion at a considerably lower rate than in a comparable sale last month, and Italian borrowing costs also declined.
Although European share prices reached their highest level for more than five months, European officials acknowledge that the turmoil could flare up again at any moment.
German chancellor Angela Merkel has spurned a demand from the IIF to intervene in the Greek talks, pressuring both sides to go back to the table themselves. However, all sides complain of brinkmanship.
The talks are being conducted for the IIF by its managing director, Charles Dallara, and Jean Lemierre, special adviser to the chairman of BNP Paribas.
At issue is the interest rate on new bonds Greece will offer in a debt exchange designed to reduce its overall indebtedness by some €100 billion.
Although EU leaders resolved in October to pursue a voluntary 50 per cent loss on privately held debt, the banks have countered that they may lose as much as 80 per cent of the net present value of their investment.
Greece and its EU-IMF sponsors want the deal done in time to ensure the country does not have to fully repay a €14 billion bond due on March 20th, but weeks of preparatory work are required.
Any failure to reach an agreement could see the country run out of cash, prompting an uncontrolled default with potentially catastrophic consequences for the euro zone at large.
Rating agency Fitch said Greece was insolvent and likely to default, although it expects that to take place in an orderly way.
“It is going to happen. Greece is insolvent so it will default,” said Edward Parker, a Fitch managing director. He told Reuters that would not come as a surprise but argued against any unplanned default.
“That, would be, for us, the really damaging situation, but one which we are certainly not expecting to happen because, clearly, in a rational situation you would think Greek politicians and European policymakers would ensure that it doesn’t happen.”
Central Bank will take over more credit unions | Irish Independent
17/01/2012
The Central Bank will have to take control of several more credit unions this year as huge numbers of borrowers are unable to repay their loans.
Senior financial sources told the Irish Independent last night they are convinced that a number of the lenders will not survive without intervention as they are being caught in a vicious cycle.
The crisis is worsening as increasing numbers of customers are unable to repay their loans.
This is putting huge financial pressure on a significant proportion of the country's 408 credit unions. In addition, regulations for credit unions have been tightened.
The predicted takeovers will come in the wake of the regulators' swoop on one of the largest cooperative lenders in the State.
Luke Charleton, a finance expert from Ernst & Young, has been put in to run Newbridge Credit Union after the High Court granted a request from Central Bank regulators for the appointment of a special manager to the lender.
Newbridge is the third largest community-based credit union in the State with assets of €190m.
It was the first time the regulators used new legislation to take control of a credit union.
The High Court was told Newbridge Credit Union does not hold sufficient reserves to withstand expected heavy losses from loan defaults.
At least half-a-dozen other credit unions will end up being run by the Central Bank, a number of experts in the sector said yesterday.
A government-appointed commission concluded in October that there are 26 unnamed credit unions where there are serious concerns about the amount of money they have set aside to cover loan losses.
The Credit Union Commission also found that loan arrears at the country's 408 credit unions have risen to €1bn, almost triple the level of arrears in 2006.
Finance Minister Michael Noonan has set aside €250m this year and the same again for next year to beef up the funding of credit unions.
The Government expects a number of struggling credit unions to be merged with stronger ones. The merged bodies will need extra funding to allow for higher numbers of borrowers defaulting on loans.
Credit union sources expect up to 100 credit unions to eventually end up merged with stronger ones.
A senior figure from the sector said: "Newbridge won't be the only one where the Central Bank takes control. There will be six or seven where a special manager is appointed."
Pressure from members to lower the repayments on their loans is creating financial havoc for the community-based lenders, according to sources.
Every time repayments on a loan are rescheduled, the credit union has to put aside 20pc of the value of the original loan into its reserves.
This means that if someone is struggling to make repayments on a €10,000 loan and the repayments are stretched over a longer period then the credit union has to set aside €2,000 into a loan provisioning account. This seriously restricts the amount of funds they have available to lend out.
One manager of a credit union revealed yesterday that it rescheduled repayments on 14 loans, and this meant it had to set aside €80,000 in case the borrowings were not repaid.
The financial co-operatives are hit by having to write off large amounts of lending as consumers are unable to make repayments.
Many have also being hit by a collapse in commercial properties that they funded.
Almost 300 credit unions have been told by regulators to restrict their lending. This has seen the overall amount lent out by the members of the Irish League of Credit Unions in the Republic drop by €670m in the year to last September to €5.03bn.
At least 10 credit unions are considering merging, ahead of moves by regulators to force a restructuring of the movement.
Regulator James O'Brien warned recently that not all credit unions will survive through the present financial squeeze.
New code promises safer navigation in financial sector | Irish Times
16/01/2012
It is something most consumers would like to see, but despite being announced last year, the Financial Services Ombudsman’s intention to “name and shame” financial institutions has yet to be realised.
While consumers may have to wait some time for such an initiative, will the new Consumer Protection Code help restore the trust of consumers in the financial services sector?
With complaints from consumers in connection with financial institutions now at historically high levels – 7,000 in 2010 – last year the Ombudsman, William Prasifka, decided to carry out a consultation process.
He did this ahead of making amendments to its biannual reviews, which would include a breakdown of the record of individual providers.
This tracking of individual providers is common practice in countries such as the UK, New Zealand and Australia. According to Prasifka, introducing just such a regime could be achieved without any exchequer funding and could offer significant benefit to consumers.
“Our view is that it would encourage providers to engage more fully with their customers in trying to resolve issues,” he says, noting that financial institutions are very concerned with upholding their reputation.
“They would be very much concerned if it were seen that they weren’t performing as well as their competitors.”
While Prasifka is keen to point out that such information will need to be “contextualised”, ie put in context of the size of the firm’s overall business, the consultation process did throw up some objections from industry.
In its response, for example, the Irish Insurance Federation said the Ombudsman’s proposals represented a “radical” step.
It argued that if not managed correctly, the proposals could generate misunderstanding in the market by subverting the statutory/supervisory role of the Central Bank through “periodic trial by media”.
If the proposals were adopted, then for financial institution A, for example, the Ombudsman’s report would reveal the total number of complaints made against the company, the number of complaints upheld, those upheld in part and the total amount of compensation awarded.
Given the amount of mis-selling complaints the Ombudsman regularly receives, particularly in the case of older people, such information could provide a valuable insight into where best to seek out financial products.
Indeed, misselling accounted for more than 37 per cent of investment complaints for the period 2007-2010.
While Ireland may not be the only country with problems in this area – in Britain, for example, the Financial Services Authority (FSA) recently slapped a £10.5 million (€12.6 million) fine on the HSBC for mis-selling products to elderly people – the expectation is that complaints will likely continue to rise.
“I will have been in this job for two years in March and I don’t see any sign at the moment that complaints are going down,” notes Prasifka. “All indications are that complaints will remain at historically high levels.”
Most worrying is that while complaints may be on the rise – and some of these may be unfounded – the number of complaints being upheld by the Ombudsman is also increasing.
After all, as Prasifka concedes, part of the reason complaints are rising is because people in financial difficulties are looking for help, even if they don’t have a valid complaint.
“A lot of complaints are being driven by people in financial distress,” Prasifka says, adding that complaints about mortgages and mortgage protection insurance have been increasing.
He describes the increase in the number of complaints being upheld (up to 29 per cent from 24 per cent previously in the first six months of the year) as “a very worrying trend”.
“It’s not a good trend and we want to see it come down.”
While the ability of the Ombudsman to “name and shame” financial institutions may help in this regard, it will require legislative change.
Before Christmas, Fianna Fáil’s spokesman on finance Michael McGrath published a Bill empowering the ombudsman to do just that, but his party is now in opposition – and it did not pursue it when it had the opportunity.
Nonetheless, Prafiska is hopeful that the proposals submitted to the Department of Finance will be acted on.
“We’ve never heard any substantive argument against it from anywhere,” he says, adding, “even the providers [financial institutions] are generally in favour.”
While consumers may have to wait some time for this amendment, however, since the start of this year there is additional protection for consumers in the form of the new Consumer Protection Code.
It covers banks, insurance companies, credit unions and financial intermediaries and its purpose is to strengthen and enhance protection for consumers.
The code aims to facilitate a better complaints resolution process, by imposing new requirements on financial services providers.
For example, institutions must now acknowledge a complaint within five days, provide an update every 20 days, and if not resolved within 40 days provide a time-frame on when it will be.
It also brings about a number of changes to how financial services providers and intermediaries must conduct themselves, most notably when it comes to the conflicts of interest that can arise with regards to commission-based financial advice.
Under the new code, when advisers earn commission in selling financial products, it should be done in a way that does not “impair” their duty to act in the consumer’s best interests. This is also the case for salespeople in financial institutions.
Moreover, if an adviser or intermediary is “tied” to a particular financial institution, in that it can only sell products sold by that firm – and likely earn commission from doing so – then it must disclose this to the consumer.
However, it could be argued that the code does not go far enough.
In Britain, for example, the Financial Services Authority is set to ban commission-based financial advice associated with the sale of products such as annuities and mutual funds from the end of this year.
Consumers should also welcome a new “reasons why” requirement, which means that lending institutions must disclose why they have refused to offer credit, such as a mortgage, to consumers. Given the lessons learned as a result of the housing bust, more stringent affordability criteria will be checked when it comes to giving out mortgages.
Enforcement powers have also been strengthened.
While a fine of the order of that imposed by the FSA on HSBC has not yet been seen in Ireland, under new legislation the Central Bank will be able to double the fines it imposes on financial institutions, bringing them up from €5 million to €10 million, or 10 per cent of turnover.
“Certainly we have become a lot more active and we will get even more active in 2012,” notes Peter Oakes, director of enforcement at the Central Bank,
Indeed last year, more than €5 million in fines were imposed across nine companies – more than double the total for 2010 – although the case of the Combined Insurance Company of Europe accounted for the majority of this.
Just before Christmas, the Central Bank imposed its largest single fine to date, €3.35 million, on the company because of a wide range of issues, including a failure to follow standard claims procedures and over-insuring customers.
However, 80 per cent of fines imposed were related to cases with a consumer angle, while 30 per cent of the Central Bank’s enforcement activities have been in the area of mis-selling.
As such, it is hoped that stricter enforcement might lead financial institutions to get their act together when it comes to treating consumers appropriately – thus reducing the number of complaints that have to go to the ombudsman.
The new code: key points for consumers
* Unsolicited “doorstep” visits are banned
* “Vulnerable” customers must be identified
* Remuneration agreements should not lead to pressurised selling
* Consumers should receive an explanation when credit is refused
* Consumers’ ability to repay credit should be assessed
* Interest-only mortgages – consumers must demonstrate ability to repay both interest and principal
* Stricter advertising principals – small print can only be used to supplement key information
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