Full extent of tracker scandal remains unclear

As Minister for Finance Paschal Donohoe prepares to meet the heads of KBC Bank and Bank of Ireland this morning, the scale of the tracker mortgage scandal may yet rise to represent about 10 per cent of all tracker mortgage accounts.

Ahead of the Central Bank’s current examination, which commenced in 2015 with a letter to 15 lenders, some 7,100 problematic trackers had been identified, across lenders including Permanent TSB and Bank of Ireland/ICS Building Society. Compensation of €43 million has already been paid out as part of this process.

And according to the latest update from the Central Bank, we now have a further 13,000 mortgage accounts impacted, bringing the total up to more than 20,000 impacted. But the figure is expected to rise further; after all, Bank of Ireland has only given a figure (4,518) from December last year, while a host of other banks, including KBC Bank, Danske Bank and Bank of Scotland have yet to quantify the scale of the issue (if any) at their respective institutions.

Some commentators have suggested the tally could rise to as many as 30,000 - and with about 350,000 tracker mortgages outstanding, the figure is steadily approaching about ten per cent, or one in ten, of all tracker mortgages, which puts the scale of the scandal in context (albeit many of those affected are now on fixed rates).

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The scandal - in numbers

However the issue remains difficult to quantify. In this table, we’ve put together figures we’ve received from the banks, and figures from the latest Central Bank review. And it doesn’t take an eagle eye to see there are discrepancies between the two.

Why for example does AIB say it has paid out compensation of € 133 million in the period up to June 2017 if the Central Bank has only accounted for € 120 million in the period up to September 2017? And why do the banks say that almost 5,000 accounts have been redressed and compensated - while the Central Bank says just 3,300 have been as of September 2017?

Well first up the issue of compensation. In our contact with all of the banks impacted by the review, the only one who gave an indication of how much they have paid out to date is AIB. It says it “utilised” €133 million in the period to June 30th - significantly more than the €120 million reported across the sector by the Central Bank. However this figure covers “both redress and related costs” so it isn’t all going to the consumer, whereas the figure from the Central Bank only covers payments to mortgage holders. Indeed while it has been suggested that the whole process may cost as much as €500 million on an industry wide basis, as much as 50 per cent of this could go to consultants and advisers to the lenders. Ulster Bank for example, told us that it has put aside €211 million to deal with the crisis, but as it noted at the Oireachtas hearing last month, this money “includes project costs”.

Secondly, on the number of accounts that have been redressed and compensatoined, responses from the banks suggest the figure is as high as almost 5,000, with AIB pointing to 3,104 such accounts as of June, and Permanent TSB noting that some 1,800 have been compensated. However, the Central Bank has a figure of just 3,300 accounts as of September 2017 - so why the difference? Well, it’s understood that the Central Bank has not yet verified all the accounts that the banks say have been compensated, which means that we might perhaps, expect a big jump in the number of accounts compensated come the next Central Bank review. Or we might not.