31 May 2019

Permanent TSB: CBI issue €21m fine over tracker mortgage problems

The Central Bank of Ireland yesterday issued a €21m fine to PTSB as it concluded its Enforcement Investigation in respect of tracker mortgage issues at the bank. A gross fine of €30m was reduced to €21m in accordance with the early settlement discount offered by the CBI under their administrative sanctions procedure (ASP). 


The fine relates to what the CBI described as “serious failings” on 2,007 tracker mortgage accounts, with PTSB admitting 42 separate regulatory breaches of the CBI code of practice and consumer protection codes. The fine is the largest ever issued by the CBI under its ASP, and is the first issued under the industry wide tracker mortgage examination. PTSB expects most of the fine to be covered by the existing provisions in place to deal with the tracker mortgage issue, with only a small charge taken this year on the residual (we have a €10m exceptional charge in our figures for this year in regard to this issue, and we leave our FY19E EPS forecasts unchanged as a result). While the fine levied by the CBI now brings PTSB’s investigation to a close, we note media reports on some private legal cases being taken by some tracker mortgage customers who are unhappy with redress offered to them by the bank, and it is unclear if existing provisions will be able to deal with any adverse outcomes to these cases.


The calculation basis of PTSB’s gross fine of €30m is not given, but it represents approximately 6.7% of PTSB’s FY18 revenue (the maximum fine under the ASP guidelines is 10% of annual revenue), and so a similar read across for AIBG and BIRG would suggest fines of the order of c.€150-200m could be levied by the CBI (we expect every bank in the sector to receive a sanction fine of some sort). However we believe the breaches of consumer protection at PTSB were significantly more serious than those at the other banks in the sector, and so do not expect the sanction levels at the other banks to be as big in proportional terms (though perhaps slightly higher in nominal terms for both AIBG and BIRG given their relative size and the number of cases impacted at each bank).


Bank of Ireland: Ian McLaughlin to head UK division

Bank of Ireland yesterday announced that Ian McLaughlin had been selected to taken over the running of the bank’s UK division, and will join the Group from RBS. Des Crowley, currently CEO of the UK subsidiary, will remain in the role until Mr McLaughlin takes up his new position, which is subject to regulatory approval.


Mr. McLaughlin is currently with RBS Group where he has been managing director responsible for home buying and ownership, and managing director for specialist banking since 2012.
The hiring of Mr McLaughlin is a welcome decision by the Group given the significant business overhaul and repositioning which is currently being undertaken in the UK, in particular the mortgage market proposition and the sale of the UK cards business. The UK division currently represents approximately 40% of Group balance sheet but only c.20% of earnings, and a doubling of the underlying ROTE within the UK division has been given by management as a medium term target.


Total Produce AGM today - Guidance unchanged

In a very brief trading update prior to its AGM today, Total Produce noted that full year earnings growth expectations remain unchanged, despite competitive markets and more uncertainty around international trade. Management also noted that Dole, the company in which it currently has a 45% stake, is trading in line with expectations.


Peso slips on Trump tariff threat

The Mexican Peso is off almost 3% against the US dollar overnight as US President Trump threatened to impose tariffs of 5% on all Mexican goods. The measure is to punish Mexico for lax border controls, with a threat that the tariff will increase to 25% in October if the flow of migrants is not bought under control by then. The tariffs have added concerns about the global growth outlook, with Trump marrying two of his major campaign issues (Trade and Immigration), markets are concerned that the US president may continue to make aggressive policy decisions to play to his base supporters in the lead up to the presidential election.


China manufacturing data points to contraction

China PMI data released last night has heightened concerns that the combination of poor domestic activity and the ongoing US trade stand-off will have significant knock-on implications for global trade. Non-manufacturing PMI’s came in as expected, a reasonably positive 54.3, but the manufacturing survey came in worse than expected, and indicated a deterioration in outlook from last month (49.4 vs 49.9 expected, 50.1 last month). The manufacturing component on the survey is widely watched by global markets, a number of Central banks (including the ECB, Bank of Canada and Bank of England) have already pointed to Chinese contraction as one of the main reasons for their change in policy stance since the start of the year.


South Africa cabinet fails to live up to expectations

The rand strengthened earlier this month on optimism that Cyril Ramaphosa would significantly reform government when he announced his cabinet. Just 2 weeks later that cabinet announcement has disappointed markets as reforms have fallen short, while a significant number of the old guard (tarnished by involvement in Zuma’s corruption ridden government) have managed to hold on to positions.


Ramaphosa has won widespread acclaim for announcing a cabinet with a 50% gender balance. He has announced a leaner cabinet, reducing the number of portfolios from 36 to 28, however this doesn’t go far enough according to some critics. He has dropped a number of old guard cabinet members who’s reputations have been tarnished by association with the Zuma government and claims of corruption, but the reappointment of David Mabuza as deputy president in particular has drawn criticism. So far the Rand is off over 4% against the Euro from its post-election highs, reflecting markets disappointment in the outcome of the election along with the global headwinds mentioned above.


GfK consumer confidence

May saw UK consumer confidence rise more than expected to -10 from April’s reading of -13. Market expectations had been for a reading of -12. Amongst the factors behind the rise in May, were households improving confidence around their own personal financial situation and a 5pt rise in expectations around the general economic situation. The major purchase index also rose back into positive territory at +1.


Economic Releases

UK 09.30 Mortgage Approvals
UK 09.30 Net mortgage lending
UK 09.30 Consumer credit
GE 13.00 HICP (prel.)
GE 13.00 CPI (prel.)
IT  13.30 GDP (final)
IT  10.00 HICP
US 13.30 PCE price index