There are two very obvious national business opportunities available right now which I am actively considering. The first which is partly tongue-in-cheek, partly not, is for a security company. For €5,000 per year, it will provide you with a sharp, professional response to your security needs. Under threat of physical harm? Just press your alarm button and one of our highly-trained security staff will be with you in minutes. They’ll know you by name and you will be treated with the courtesy and respect befitting a customer who pays €5,000 a year for their security. Nothing unusual so far, but this business is going to make me a fortune, because a large part of my costs will be manpower-related, and I am going to recruit the cream of An Garda Siochana for this business, underappreciated guards who might be fed up of dealing with piss and vomit on a Saturday night and who would prefer to deal with people of quality such as those who can afford the €5,000-a-year fee. How can I afford to recruit such fine employees? Simples, I will just ask the justice minister Alan Shatter to pay their salaries. “Ludicrous!”, I hear you shout in protest, Minister Shatter won’t simply pay me to employ the best Gardai to provide a private security service to rich folks. Well, if you think my business plan is fantasy, why not study how the private education sector works in Ireland, where annually about €100m is handed over to private schools to pay for…..teachers!
The second business opportunity is less tongue-in-cheek and arises from the present financial mess of the nation’s banks. All banks, and that includes the healthiest like Bank of Ireland and possibly some local units of international banks, are dealing with the colossal financial challenge of loss-making tracker mortgages, distressed loans, loans in arrears, loans where there is restructuring or implementing forbearance measures. Although banks can theoretically access cheap funding from the ECB secured on mortgages, the mortgages need to be of prime quality to access the highest loan-to-values from the ECB at the lowest interest rates.
Now, although the headlines might have given you the impression that there is a uniformly nightmarish scenario playing out right across the State with mortgage borrowers in arrears and negative equity, in truth, the numbers in arrears or a restructuring arrangement is less than 25% of owner-occupied mortgage accounts. And as for numbers in negative equity, estimates vary, but the latest research whilst is albeit from 2010 indicates the problems aren’t as great as widely perceived (see below). So although parts of the Irish banks’ mortgage books are a complete mess, other parts and seemingly the majority, are okay.
In Ireland for owner-occupier mortgage accounts, 400,000 of mortgages are tracker, 270,000 are variable rate and 100,000 are fixed rate. And if you are a variable rate mortgage borrower, you will be feeling nervous at present following recent interest rate hikes despite the fact that ECB interest rates are on a down-ward, or stable trajectory. If you are not in negative equity or mortgage arrears and haven’t needed a restructuring, then YOU are paying the price for your neighbours’ misfortune or bad decisions.
And here’s where the second business opportunity kicks in – the creation of a mortgage company which will poach the best mortgages from the zombie and walking-wounded banks, and because this new mortgage company doesn’t have a legacy of bad lending decisions, loss-making tracker mortgages or a Government paranoid about the need for further recapitalisation and because the new entrant will be able to access the cheapest ECB funding secured on its prime mortgages, this new mortgage company will naturally enough be able to offer cheaper variable mortgage rates. It’s called “competition” and there is a crying need for a new market entrant with a clean balance sheet to provide the “good” standard variable rate mortgage customers with a cheaper alternative.
And now is a perfect time for such an entrant to make their entrance. With the imminent creation of the central credit register, the new entrant will be able to judge a customer’s credit-worthiness better than ever before. With Bank of Ireland required to send out letters to customers advising them of the new entrant’s proposition – yes seriously, that was a condition under which the EU approved the state-aid bailout of Bank of Ireland, and others – the new entrant will even see their marketing taken care of.
And what of the “bad” standard variable rate mortgage customers left to languish at the zombie and walking-wounded banks? Well, it seems that they don’t enjoy any protection at present. Although it seems incredible, the European Commission approved the injections and guarantees of AIB/EBS, Bank of Ireland, Anglo, Irish Nationwide and Permanent TSB, WITHOUT requiring these banks to offer an alternative to customers who may wish to switch their mortgages to other banks, remembering that if you are in negative equity or arrears, no bank is going to want to accept the transfer of your business. So these customers are screwed, courtesy of the European Commission, aided and abetted by our own government and Financial Regulator. If AIB decides to raise its standard variable rate to 10% tomorrow, then too bad for you – that’s how the private sector works. Yes, the Government and Financial Regulator may huff-and-puff and run to the nearest microphone to transmit their disdain, but the banks can just give anyone who challenges them the finger, and point to their mortgage contracts and to their profit and loss accounts and balance sheets and say that with their increased cost of funding and increased losses on the “bad” mortgages, they are justified in raising rates. The banks might even point to variable mortgage rates in the rest of Europe and correctly point out that our rates are still cheaper on average.
I reckon the new entrant should be able to pick up at least 100,000 mortgages of say an average of €100,000 each or €10bn in total and if the new entrant charges 3% on standard variable rate mortgages and its cost of funding is 1%, then it has €200m gross profit per year. Remembering it is picking up only the primest of mortgages which should require the minimum of administration, its costs should be relatively modest. Heck, the bank mightn’t even need a banking license if it is not taking deposits. Some of you might be thinking about the case of the private health insurer, BUPA which, a few years ago, sought to limit its health insurance to the best risks, and which finally exited the State when it was threatened with a levy. BUPA gave up without a fight, and faced with parochial political manoeuvres decided to run away from the competition fight. Just see if this Government has the temerity to threaten a new banking entrant with such terrors, when banking is hardly a social service and where there is EuroZone wide supranational control of banking from the ECB. Isn’t it funny that that private schools not only get subsidised with €100m of Department of Education funding, but they’re not facing a levy either!
But surely banks don’t have unfettered freedom to raise rates? Well take a look at the following parliamentary questions asked by the Sinn Fein finance spokesperson Pearse Doherty of the Minister for Finance Michael Noonan this week, questions which deal with Bank of Ireland’s compliance with competition terms under which the European Commission approved the granting of state-aid via the €4.7bn bailout. Not only is the Minister satisfied that Bank of Ireland has complied with all of its obligations provided for in the EC approval, but the Minister specifically says that Bank of Ireland does not need provide a mechanism for distressed mortgage customers to switch provider to a cheaper alternative. However the bank would need cooperate with a smaller player who sought to tempt Bank of Ireland mortgage customers to switch provider. Still though, some might say that BofI, AIB/EBS and PTSB are just shooting fish in a barrel with their variable rate increases…
The full parliamentary questions and responses are here.
Deputy Pearse Doherty: To ask the Minister for Finance pursuant to the approval by the Competition Commissioner at the European Commission, of the State-aid provided to Bank of Ireland in 2009 and 2010, and specifically pursuant to paragraph 140 of the Decision N546/2009, if he will confirm the current market shares of Bank of Ireland in each of the four markets referred to in paragraph 140..
Minister for Finance, Michael Noonan:As the Deputy will be aware, the Bank of Ireland (BOI) was approved for State Aid under European Union Rules and the resulting decision was published as Decision number N546/2009 in the Official Journal of the European Union. The Decision was subject to BOI adhering to commitments as set out in the Annexes to the Decision.
The commitment referred to in paragraph 140 concerns BOI providing a mail marketing service to a Relevant Competitor where the relevant competitor’s share of the market is less than 15% in at least one of the four markets for Relevant Products and BOI’s market share is above 30%.
The four Relevant Products and the most recent data available for BOI market shares are:-
PRODUCT MARKET SHARE*
(i)Personal current accounts in Ireland 35%
(ii)Business current accounts in Ireland 36%
(iii)Personal & (iv)Business credit cards in Ireland 34%
*At February 2012
Deputy Pearse Doherty: To ask the Minister for Finance pursuant to the approval by the Competition Commissioner at the European Commission, of the State-aid provided to Bank of Ireland in 2009 and 2010, and specifically pursuant to paragraph 155 of the Decision N546/2009, the way the commitment given in the following terms the IBF switching codes for personal
and business customers will be placed on a statutory footing immediately, and it will be accompanied by an information campaign has been met..
Deputy Pearse Doherty: To ask the Minister for Finance pursuant to the approval by the Competition Commissioner at the European Commission, of the State-aid provided to Bank of Ireland in 2009 and 2010, and specifically pursuant to paragraph 155 of the Decision N546/2009, the way the commitment given in the following terms, the National Consumer Agency will run a shop and switch public awareness campaign in relation to banking products and services has been met.
Minister for Finance, Michael Noonan: I intend to answer PQ Questions No’s 175 and 176 together.
I have been advised by the Central Bank that, in July 2010, the Irish authorities in the context of the final decision of the European Commission on the restructuring of Bank of Ireland, committed to undertake several actions in order to improve competition on the Irish banking market. As part of this programme, Ireland committed to the implementation of a package of measures aimed at supporting competition in the Irish banking market. The Irish authorities agreed to meet, inter alia, the following commitments:
“a. The IBF [voluntary] switching codes for personal and business customers will be placed on a statutory footing immediately, and will be accompanied by an information campaign (to be carried out by the NCA and the IBF), and
b. A review of the provisions contained in the switching code, with a view to making any necessary enhancements, will be carried out by the Central Bank and concluded by end Q2 2012″
In December 2011, under the EU Commission decision (SA.33443) approving the Bank of Ireland revised restructuring plan, the Irish authorities committed to undertake a revised package of alternative measures in order to restore the competition in the Irish banking market by facilitating entry and expansion of competitors and enhancing the consumer protection in the financial sector. In particular, Ireland committed to carry out specific measures in order to enhance:
” (a) Customer mobility and protection (provision of information; transparency to facilitate consumer decision making; financial inclusion);
(b) Entry of competitors (electronic banking, SEPA migration, quality and availability of credit history information and reporting by banks);
(c) Corporate governance.”
The specific commitment agreed in relation to switching is:
” The Central Bank of Ireland will:
(i) carry out a review of the provisions contained in the Code of Conduct on the Switching of Current Accounts,
(ii) ensure that any necessary changes to the Code of Conduct on the Switching of Current Accounts following its review will be published by end Q2 2012.”
I am informed by the Central Bank that the obligation under the first part of the initial commitment was met with the publication, of the Code of Conduct on the Switching of Current Accounts with Credit Institutions (the Switching Code) on 1 October 2010.
In 2011, the Central Bank began its review of the Switching Code with a theme-based inspection and mystery shopping exercise (the 2011 Review). The inspection was aimed at assessing how well the switching process works in practice for consumers. The mystery shopping exercise was undertaken to determine the awareness and understanding of the Switching Code amongst frontline bank branch staff. The 2011 Review confirmed that once a consumer began the switching process, it generally ran smoothly.
In June 2012 the Central Bank published a Discussion Paper outlining the outcome of the review undertaken by the Bank on the operation of the Switching Code together with possible enhancements to the Switching Code as a result of that review. The Discussion Paper posed a number of questions to interested parties on issues connected with switching and how the Switching Code could be further enhanced or expanded to support the switching process. Interested parties were invited to respond the questions posed in this Discussion Paper by 30 September 2012. A total of 4 submissions were received in response to the Discussion Paper, all of which will be published on the Central Bank’s website in the coming weeks. An analysis of responses is currently underway.
The Discussion paper can be found at:
http://www.centralbank.ie/regulation/poldocs/dispapers/documents/120622 discussion paper on switching.pdf
The National Consumer Agency have informed me that their new interactive banking comparisons were launched in October 2011 and the launch was supported by radio and online public awareness campaigns. A copy of the press release is available on the NCA website – http://corporate.nca.ie/eng/Media_Zone/Press%20Releases/banking-cost-comparison.html.
From April to June 2012, the National Consumer Agency ran a campaign to promote switching banking products. This campaign used press, radio and online public awareness activity. The NCA recently made a submission to the Central Bank’s discussion paper on Code of Conduct on the Switching of Current Accounts with Credit Institutions which outlines their views on issues concerning switching of banking products.
Deputy Pearse Doherty: To ask the Minister for Finance pursuant to the approval by the Competition Commissioner at the European Commission, of the State-aid provided to Bank of Ireland, Allied Irish Banks and Permanent TSB, the way standard variable rate mortgage borrowers in negative equity can switch to cheaper alternative lenders..
Minister for Finance, Michael Noonan: Bank of Ireland has been granted four state aid approvals between 2009 and 2011. These have been published by the European Commission in redacted form on its website under the decision numbers, N149/2009, N546/2009, SA.33216 and SA.33443.
There is no reference in the State-aid documents to methods for standard variable rate mortgage borrowers in negative equity switching to cheaper alternative lenders.
However, in the State Aid approvals for Bank of Ireland published as N546/2009 and SA.33443 (2011/N) commitments were put in place for both the State and Bank of Ireland to implement market opening measures, which aim at decreasing the cost of entry for new competitors, or the cost of expansion for small competitors, in Ireland.
Bank of Ireland (BOI) will operate two market opening measures
(1) A Service Package and
(2) A Customer mobility package
In relation to mortgages, from 2013 -2015, BOI has committed to providing a mail marketing service to a Relevant Competitor where the relevant competitor’s share of the market is less than 15% and BOI’s market share is above 30%. In this case, BOI will randomly select at the request of the Relevant Competitor, a percentage of its mortgage customers and send them a copy of the Relevant Competitors marketing material. These mailings will be divided over six periods of six months and different selections will be made each time. However, it would then be at the discretion of the Relevant Competitor whether to engage with a particular mortgage customer, with a view to providing a loan.
Irish Life & Permanent Group Holdings plc (now Permanent TSB Group Holdings plc) was granted State Aid approval on 20 July 2011 for the recapitalisation that took place. In the State Aid decision SA.33311 (2011/N) which has been published by the European Commission in redacted form on its website there is no reference to the matters referenced.
Allied Irish Banks plc has been granted three State Aid approvals between 2009 and 2011. These have been published by the European Commission in redacted form on its website under the decision numbers N241/2009, N553/2010 and SA. 33296 (2011/N) and there is no reference to the matters referenced.
I’m very disappointed in your dig at the private schools sector. If you want to make the analogy then fine, continue it.
By paying the 5,000 per year for their security the individuals provide their own Garda stations, pay for all the support staff and administrators for these Garda stations and pay a significant share of the Gardai salaries as well.
By doing this, it reduces the overall cost to the taxpayer of having a police force, freeing up resources to be invested in areas with higher crime.
@ Conor I am afraid that private schools are entitled to a wide range of other supports, including those for ancillary staff, they just are not entitled to capitation fees.
Indeed when Mary Hanafin was Minister, the many private schools in her constituency were overloaded with capital grants. Thankfully her successor stopped this abuse.
The one type of support staff not generally employed by the private fee paying schools are special needs assistants as they normally do not take such children.
Time to kill off all these supports to privilege . The Protestants have used religion to hide privilege and the Jesuits & the other Catholic orders have hidden behind them.
Not true Niall, the teacher’s salaries are the ones paid by the state, and they are paid at a lower ratio than in other schools already. The capitation grant which covers running costs was withdrawn already.
I didn’t know about Mary Hanfin giving grants to private schools. Have you any link to further information on that?
As for Privilege, I can tell you from personal knowledge and experience that there is very little privilege at most private schools, and a lot of working middle income people making sacrifices for their kids.
This divide has been whipped up as yet another way of turning sections of the population against each other while the polticians keep paying themselves handsomely for doing very little.
Private schools dig aside (although I do agree to some extent) banking competition is something that is completely absent from the Irish market. We fall into your ‘screwed’ category and are pretty sick of being over a barrel with regards to our lender. I seem to recall a property investor in England solving his inability to get credit by obtaining his own banking licence. I wonder how easy it is to do here….?
Not so tongue in cheek…security is a good proposition as there will be guard dogs, running battles, youtube virals aplenty when the “who really owns what” battle starts and into the mix is added some mean next generation absentee landlords who come to see what they bought for cash at a distressed property auction …wait a minute says Jimmy, that’s my feckin’ warehouse…and then they call…the NWL security co.
Coming soon to a town near you.
Would suit some folk nicely to see such chaos, — one court ruling away as they say
Going back to the dig a private schools, its not generally undrstood that these arguments all were had out when we introduced free secondary school education. The reason that there salaries are paid is that the state maintains controls over what is thought. It is also the arbiter of what happens to teacher in there employment contracts.
The idea of any private school in Ireland deciding its own sylabus is not a good one. I wouldn’t like schools being able to go down an American route and have local communities decide on various courses ranging from “intelligent design” to neglecting to teach improper books.
In addition, we know how well how politicans like to prevaricate when it comes to legislation. Corporal Punishment was discovered to be involiolation of childrens rights in 1982 (from memory) but it wasn’t made illegal until the late 90s. This human right was enforced by a deptarment of education regulation. If you were in a truly private school i.e. zero funds from the dept. of education then you still got beaten for at leasta few years after the discovery.
In losing that control things will happen that we might not like. We could return to the days of an Unmarried Pregnant teacher being sacked for bad example.
Fully privatise schools by all means. But be aware of the dangers of doing so. In the same way privatising the gardai and paying for, yes as has being pointed out, you’ll probably have to pay for the stations. Then you can set about writing laws to suit yourself. Eur5000 might be cheap.
I wonder how many private gardai I would need to pull my car to work in the morning. It could be alot of fun.
The reason the state pays the salaries of teachers in private schools is because the owners of private schools have pull with the government. It’s the same for every other “semi-private” company in the country.
As for NWLs idea about state funded “(semi-)private” security companies, as long as the owners had influence with enough ministers, mandarins and magnates, it could become a reality tomorrow morning. Probably will become one if things get really bad in the coming years.
@OMF Sorry OMF, thats the wrong way around. Private schools have pull because the government got involved with paying the salaries. Its the government involvment that gave them the power.
The pattern plays out again and again. EEC makes a short term commitment to shore up farm prices for 5 years and over half a century we have huge farmers unions dedicated to political pressure to maintain them.
NAMA itself is an example of the Irish government constantly “helping” out various financial insitutions and then getting stuck with the cost of private debts. NAMA is the ultimate evolution of a state that protects private insitutions instead of protecting citizens from the damage the insitutions do when they fail.
In a similar vein, property developers are not supposed to be the focus of an economy. They are an aid to economic activity. But in this country, over the course of the 20th Century they became the focus of economic activity to greater or lesser degrees. If the government had actually bought the property they use instead of renting large office blocks would they have become so powerful and influential?Where would they be without there largest reliable customer?
The Irish government has consistently failed to build public insitutions to do its job. Instead it paid the private sector to do its job. The religious for schooling, the banks for housing and lets not even get started on natural resources.
So it wouldn;t surprise me if they did privatise the gaurds. Maybe I should wonder how many gaurds I need to force politicans to pull my car to work.
Reblogged this on Machholz's Blog and commented:
Yet another betrayal of the ordinary citizens this so called “Servant of the Irish people” He is no such thing! He is a servant of the moneymen and their corrupt system. This government is abandoning the citizens of Ireland to the wolves from the toxic banks! Down with this puppet government and down with the Banks!
…. So school fees increase by circa €5,000 per annum ( 1.5 teachers @ €80k gross divided by 25 students). Pupils will be forced to leave because their parents are now unable to pay. The pupils then transfer to National school where the full costs of their education now fall on the taxpayer as the parents no longer subsidise them.
Typical left wing claptrap. But it will probably be implemented in order to satisfy the socialist agenda.
No it will not. Too many influential T.Ds went to or have their children in private school including the Minister for Education. This is a smokescreen for something else they do not want discussed.
The real issue is probably the need to raise Irish education to international standards in terms of not allowing discrimination against special needs students by private schools.
Education, hmmm. The State financing to the privileged. This may have always been the case, this country is after all, a very snooty country.
But regarding this ‘central-credit’ register – would it be moral for the State to set up such a thing? after all, should not the State regard all people as having the potential to access credit?
tbh I do not understand ‘finance’; but with the new Insolvency Bill being brought in next year; will this be the ‘real’ ‘national’ write-off? That is; 1.) that people with negative equity will receive a write-down (and the State and ‘write-off’?)
2.) they will be a ble to stay in their homes and keep ‘title’; and 3.) in future decades, if they want to, be able to sell at a profit?
So, the Irish, (of which I am a ‘poor’ one), kinda cute after all.