Bank test firms hired without tender

FINANCIAL CONSULTANTS who were paid as much as €30 million to conduct the latest round of bank stress tests were appointed without following normal tender procedures.

Under the terms of the €85 billion EU-IMF bailout deal, the Government agreed to complete a more stringent stress test of Irish banks by March 31st of this year to help determine the full extent of potential losses.

The Central Bank confirmed that, in light of the tight deadline to complete the tests, it did not follow normal tendering processes and instead invited a number of firms to provide presentations as well as estimates of their fees.

The bank said the successful firms were hired “on the basis of their expertise and knowledge” following the presentations.

Black Rock Consulting, a US company that specialises in investment and risk advice, was appointed to conduct the main stress tests on the banks and project future losses.

Barclays Capital was also hired to provide expert advice on reorganising the banking sector, while Boston Consulting Group provided project management.

The cost of the tests is expected to be at least €30 million.

The test results, published last March, were the third and most stringent attempt by the State to determine the full extent of potential bank losses. Previous stress tests had failed to reassure international investors that the full extent of the banks’ financial problems had been revealed.

The new stress tests estimated that the four main banks would need an additional €24 billion, bringing the total cost of the bank bailout to about €70 billion.

The National Treasury Management Agency (NTMA) has said the net cost of the extra €24 billion will probably be about €19 billion, after burden-sharing by junior bondholders is factored in.

In contrast to previous stress tests, which focused on losses linked to development loans, the new stress tests also looked at potential losses on home loans and buy-to-let mortgages. This involved analysing about 700,000 mortgages, calculating how many loans were locked in to unprofitable interest rates, and estimating how many would be repaid and how many would go bad.

In addition, numerous third-party subcontractors were hired to provide a range of legal and financial advice. They included Ernst Young, Deloitte, Mazars, Clayton Euro Risk, Situs, Arthur Cox and Matheson Ormsby Prentice.

The Central Bank said the €30 million covered work completed by these firms, as well as work on assessing loan losses at Irish Nationwide Building Society and reviewing methods used to determine losses at Anglo Irish Bank.

In response to a parliamentary question last week, Minister for Finance Michael Noonan said the stress tests were the responsibility of the Central Bank Commission and he had no role in the matter.

“The Central Bank has also informed me that, in light of the requirement under the EU-IMF programme to use consultants under a very tight deadline for urgent financial stability purposes, it was not possible to apply normal tender processes. However, expert firms were selected from a larger list,” he said.

“Firms were chosen on the basis of their expertise and knowledge, with each having a specific role in specified areas,” he added.