Banks charging special rate for Norwich loans

BANKS are charging special "arrangement fees" to people seeking to borrow money to buy Norwich Union shares.

Tens of millions are likely to be loaned out by the banks to thousands of the 150,000 Norwich Union shareholders in time for the June 16th flotation. Special schemes have been set up by the major banks.

An official at a Dublin city centre Bank of Ireland branch, asked about the possibility of a £1,000 or £2,000 loan, said that as it was a "speculative loan" there would be an arrangement fee of £250.

"That's the cheapest you'll get in the market," the official said. He said other banks were charging more and that one bank was charging a £600 fee. This bank was not identified.

The official said loans could be arranged for non Bank of Ireland customers. "It will take 48 hours because we are doing so many.

A survey of a number of Dublin banks found that most were charging - special fees and had officials specialising in the loans.

An official at a National Irish branch, when asked about a £10,000 loan, said the bank was offering overdraft facilities for people buying Norwich Union shares. The rate was 9 per cent and the money had to be repaid by the October 31st, 1997. There was a 1 per cent fee, with a minimum charge of £300 to be paid "up front".

Allied Irish Bank was looking for a 0.5 per cent facility fee for a £10,000 overdraft, with a rate of 9 per cent. Smurfit Paribas is offering a special deal on loans of £112,000 for the purpose of buying shares. The shares must be assigned as security, the money paid back within six months, and an arrangement fee of £450 has to be paid on drawing down the loan. The interest rate is 8.25 per cent per annum to be capitalised for the period of the loan.

It is understood that the £15 million to £20 million which has been assigned to the scheme has mostly been allocated.

Presuming the British banks are making similar facilities available it is likely that the shares will be significantly oversubscribed.

A spokesman for the Central Bank said he would not comment on any specific lending product.

A spokesman for AIB said the fees were justified as there was a significant amount of administrative work involved and the rates being offered were below the normal rate.