Overcharging in Irish banking is nothing new but this week, in Delaware of all places, the ugly issue came into the spotlight again. It emerged at a hearing of a petition seeking bankruptcy protection for State-owned Irish Bank Resolution Corporation, the former Anglo Irish Bank, now in liquidation.
The case involves developer John Flynn, who is pursuing the bank on a fraud case in New York on the basis of a claim that he was overcharged by $11 million on loans of $200 million.
The overcharging or loading of interest on loans at Anglo emerged in 2010 when IBRC management estimated that the overcharging would probably cost between €30 million and €100 million. The defunct bank actually paid out €67 million in refunds and compensation in 2012 arising from its investigation into overcharging.
This is a fraction of the estimate that Flynn’s expert witness, Eddie Fitzpatrick of the Bankcheck financial services company in Belfast, who put the figure at about €1.2 billion in evidence on Tuesday.
What else did we learn this week that we didn’t know before? Well, three years ago, IBRC told us that overcharging on loans took place between 1999 and 2004.
Following this week’s hearing, IBRC’s special liquidators, Kieran Wallace and Éamonn Richardson of KPMG, confirmed in a statement that the overcharging took place over a longer period. Between 1990 and 2005 there was interest overcharged on most variable rate loans in the Republic, Isle of Man and the US and on about a quarter of variable rate loan accounts in the UK.
Challenging Flynn’s (and Fitzpatrick’s) assertion that the overcharging continued past 2004 until present time, Wallace testified that there had been an issue around how the bank had set its own cost of money rate but that this practice ended in 2005.
The most revealing part may yet be to come. The Flynn side has said David Drumm is willing to stand behind their claims. Anglo’s ex-chief executive testifying against the bank? Now that would be an interesting day in court. But with IBRC protected by the Delaware court, at least temporarily, it may never come.
