Shy banks opt to settle beyond public gaze

Tue, Nov 13, 2012, 00:00

CANTILLON:It’s unusual for one major international bank to settle a high-stakes case for damages by investors. But two in less than a week is very rare, particularly at the Four Courts in Dublin.

Dutch bank Rabobank settled a test case last week with four investors over the disastrous Solid World Bonds sold by its beleaguered Irish bank ACC that could pave the way for hundreds of settlements.

Then yesterday UK bank HSBC settled a case taken by an investment fund called Kalix relating to hundreds of millions of euro invested with New York Ponzi fraudster Bernie Madoff.

This case was largely an international affair as it involved the use of an Irish HSBC subsidiary acting (or not as it allegedly should have) as custodian for the so-called feeder investment funds to Madoff’s pyramid.

But it was big business for Irish lawyers. HSBC threw a lot of cash at defending the legal proceedings, the main beneficiary of which was Dublin firm Matheson (until recently Matheson Ormsby Prentice).

Dublin law firm Dillon Eustace represented Kalix. The case was the first to have a European-regulated fund or Undertakings for Collective Investment in Transferable Securities, or Ucits, taken to trial over a custodian failing to fulfil its duties.

The British Virgin Islands-registered fund Kalix had placed money in Therma International Fund, the Ucits fund which invested money with Madoff, while HSBC Institutional Trust Services (Ireland) acted as custodian for the money.

Details of the settlement in the ACC Solid World Bonds case have been hidden by confidentiality clauses.

The terms of the HSBC settlement have also not been revealed.

Given the reputation of banks internationally, these institutions have learned that it is better not to have yet more dirty laundry cleaned in public.

Boucher’s pay package out of kilter

The appropriateness of paying large remuneration packages to executives at the former Anglo Irish Bank and large pensions to former AIB bankers who helped bring down that bank is rightly getting most of the attention given the cost of those two failed institutions.

The fact that Bank of Ireland (BofI) has cost the public a fraction of the other two banks – €4 billion for BofI against €29 billion for Anglo and €21 billion for AIB – shouldn’t mean that the only bank to avoid State control should get off lightly.

Bank of Ireland chief executive Richie Boucher, a senior executive at the lender since before the crash who drove the bank’s lending into property, has been earning a pay package that has well breached the Government’s €500,000 pay cap.

He was paid €831,000 for 2011. This includes a €623,000 salary (after waiving €67,000), allowances of €34,000 and a pension sum of €174,000.

Boucher has explained this by saying it has been approved by the Department of Finance.

BofI said yesterday that it is going to test the water to raise funding via an unguaranteed public bond backed by Irish mortgages.

This is another positive step back towards a normal existence for the bank but this is only another small step on that road.

The bank is still reliant on the backing of the State and the guarantee, making Boucher’s pay still seem so out of kilter.

The Government, after all, introduced pay caps as a condition of guaranteeing the banks.

BofI has shown itself to be the strongest of the banks but it required support to survive the crisis and is still a long way from full health.

Boucher’s pay should be reduced to the Government cap and kept at that level until the bank has emerged fully from under the wing of the State.

Down and increasingly out

If there was one silver lining to the taxpayer bailout of the Irish banks it was the moratorium on repossessions. All the banks signed up to the moratorium and subsequent codes or practices without too much fuss, reflecting the extent to which they had become wards of the State.

You can get an inkling of the positive impact of these measures in term of social cohesion from Spain where politicians are now scrabbling to introduce similar measures in the face of mounting public anger now that a taxpayer bailout of the Spanish banks is on the way.

About 400,000 homes have been foreclosed on in Spain since the nation’s decade-long real-estate boom ended in 2008, according to AFES, an adviser to homeowners facing repossession.

Spain’s 103-year-old mortgage laws are among the most stringent in Europe and Spain’s ruling People’s Party is now seeking to change them as public pressure mounts following two suicides in the past month by people facing eviction.

“It’s not a reform we want to put off, rather one that we want to approve as soon as possible,” according to deputy prime minister Soraya Saenz de Santamaria said after a weekly cabinet meeting yesterday as protesters gathered outside party headquarters and another general strike is planned for this week. The government is talking to the opposition Socialist Party – which wants a moratorium – as do the banks.


CRH and Bank of Ireland both issue interim trading statements today, while Glanbia Co-op members vote on splitting the group’s milk and food ingredient businesses


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