As George Bush once said ‘Fool me once, shame on you, fool me twice…shame…well you’re not gonna fool me twice’. Banks however have done this and so much more in the last few weeks that how it’s not front page news has me flabbergasted! Are the Irish public meant to really believe the picture we are seeing unfold? Apparently so…..
Let’s look at the picture so far and put it in a time-line, then we can look at that time-line and try to discern if it was sheer co-incidence or opportunism that has lead to the moves in the market.
Tuesday 4th December: Ulsterbank cut brokers income by 50%, no explanation, and done by email. It would be laughable if it were not so serious.
Tuesday 11th December: PermanentTSB announce brokers income will be cut, to be fair they gave a lot of warning, because of the size of PTsb this action kicked off an industrial dispute, nobody cared about ulsterbank but PTsb was a market giant.
Then came the waiting game, to see what the result of the industrial dispute was, nothing was happening and PTsb claimed they were ‘unaffected’, one way or the other we found ourselves in ‘magic April’ where apparently all of the stars and planets must have come into perfect actuarial alignment because suddenly hitting the consumer and broker was happening like it was going out of fashion!
Friday 11th April: First Active announce brokers are getting incomes slashed by 50% with just over two weeks warning. Consumers hit with higher margin tracker mortgages and brokers livelihood is halved.
Tuesday 15th April: Bank of Scotland pulled all fixed rates, indicated they wouldn’t honour any loan offers that were not in by 10 a.m. (email sent to brokerage at 10:01) and all fixed rates disappeared instantly, consumer hit by up to 50+ basis points and broker incomes reduced by up to 50% but if you meet certain quality guidelines you only get chopped by 30%
Friday 18th April: Ulsterbank announce plans to withdraw completely from the broker market and they increase rates as well. Again they did this via an email, I must remember to send the Board members of that firm a nice basket of bananas and a copy of any book that covers the topic of ‘etiquette‘. In the meantime their parent company is hemorrhaging and begging shareholders for cash so they don’t have to go cap in hand to Mervyn King.
Wednesday 23rd April: AIB made a move. AIB chopped brokers by 50%, the day before Discount Trackers were withdrawn and we are told that margins will be rising as well, bad news for both the consumer and broker. This came the same day as they told the world that their money supplies were ‘stable and robust’, I can’t really blame them given what was happening up until now.
Friday 25th April: Bank of Ireland & ICSchop brokers by up to 45% with insane claw-back conditions to boot. Will they raise rates? Well, if we look at the level of ‘copycat’ movement amongst banks then you can assume that they will. Once arch nemesis AIB made their move they made theirs, keeping their punishment a ‘bit less’ than AIB and doing so a day or two after so they wouldn’t look like the bad guys, and even if they do they don’t hit as hard.
Is the movement of five massive market Banks & Building Societies all within two weeks a co-incidence? The last five changes all happened within four days or less of each-other? Or is it opportunistic? Was there some curious factor that was hitting them all at the same time? The answer appears to be no, as none of them have mentioned a specific event other than ‘market conditions’.
While I accept that ‘market conditions’ are less than favourable what is totally unacceptable is the lack of warning about changes and the short lead in times, given that mortgages are not normally turned around in a matter of days, or in one lenders case in reverse time.
A part of me knows that Banks are sitting smug now, having gained up to 50% upfront cashflow and at the same time improving their margins (on average 0.3%) which will put an extra €4,600 in their pockets for every €100,000 borrowed over the life of a 30 year loan.
to put that in perspective, on a €300,000 mortgage they will now get (if broker payments are halved) an extra €1,500 up front and then
an additional €13,700 over the life of a loan!
Brokers were/are constantly told that the poor banks don’t make any money until year three, well, now they will do it in half the time, our industry will have to move to a totally new model in what is already a complex time financially and consumers will pay more. Who is hurting more? I have to say brokerage is, because we were left uninformed of any internal problems lenders were having, if things were getting tight couldn’t they warn us at least? And if the truth is anything short of that then it points to total collusion across the financial industry.
The only lenders that are staying true to the course they have set are IIB, Haven and Leeds Building Society, and in turn the fact that they have not stabbed their distributors in the back meant they were in the papers where the very valid question was raised: ‘Will brokers now skew their advice?’, this is a risk, and one that will rely on the total integrity of brokers, thankfully sharp regulation will mean that anybody caught doing this will be removed from the market, and rightly so, in any case, what was once a level playing field is now being turned upside down.
Haven have since lowered the LTV of deals they will accept just in case this resulted in an increase in applications (however before all of this they were already receiving much more than they expected). IIB had to increase their rates. So the actions of the banks that negatively affecting the consumer means that other banks who are not in this arena must adopt the same principles.
The lenders that don’t want to hack at every cost around them now have to play an identical game. If business were a nation we are all now living in Gomorrah.
In a country where the likes of Haughey and Ahern are idolised I can only assume that even if this was proven that we’d be more likely to see banks get a pat on the back than a slap on the wrist.