Deutsche Bank plays down Irish tracker-mortgage crisis

Investment banking giant Deutsche Bank has sought to ease investor concerns over the widening Irish tracker-mortgage scandal, saying it is nothing like the payment protection insurance (PPI) scandal that has hung over the UK banking industry for more than a decade.

The German bank said in a note published on Monday, following a recent investor trip to Dublin, that the tracker controversy was a “reputational/PR issue for the banks” but “is not of a PPI-type issue as this relates to administrative errors on mortgages and their consequences to customers, not prolonged mis-selling of insurance contracts on multiple products over 10-plus year”.

Overcharged

Bank of Ireland said last week that it would set aside up to an additional €175 million to deal with a further 6,000 mortgage borrowers found to have been overcharged. It had previously ring-fenced €25 million to cover 4,300 impacted customers, 600 of whom were wrongfully denied their right to a cheap tracker mortgage, while the remainder were on the wrong rate.

Deutsche Bank said the additional cost was higher than its analysts expected, and that it has not currently forecast any higher provisions for AIB and Permanent TSB, who have set aside as much as €190 million and €145 million in recent years, respectively.

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Deutsche Bank analysts David Lock and Rohan Singhai said their "overall impression" was that all the Irish banks want to resolve the tracker scandal as soon as possible, either by the end of this year or the first quarter of 2018.

In the UK, regulatory authorities started imposing fines on lenders for PPI misspelling in 2006, banks are continuing to set aside money to deal with the issue, with CYBG, the parent of Clydesdal Bank and Yorkshire Bank, announcing earlier this month that it was taking a further £403 million (€453 million) to compensate customers.

Protection

All told, the industry has set aside £43.5 billion to cover the costs of PPI claims, making it the UK's most expensive financial mis-selling scandal. Irish lenders were told to refund €67 million in mis-sold payment protection in 2014 following a review of the matter by the Central Bank of Ireland.

Irish banks have known of issues in their tracker mortgage books as far back as 2010.

In total, current and former Irish mortgage lenders have acknowledged up to 27,500 cases of overcharging going back almost a decade. The figure is expected to rise as banks complete their reviews and regulators go over their figures.

Meanwhile, the Deutsche Bank analysts said it may be next year before Ireland’s banks’ loan books begin to grow again, following a decade of contraction. AIB and PTSB are currently lining up multibillion-euro sales of non-performing loans as they seek to lower their level of soured loans to European norms.

Mr Lock and Mr Singhai said that the UK's exit from the European Union "remains the key exogenous risk for the Irish market, given the uncertainty over what form Brexit will take, and the impact that this will have on Ireland's export sector and border with Northern Ireland".