Northern Ireland’s Neglected Savers
Posted by robin in Financial Articles Wednesday December 2, 2009 3:09 pm
A call out of the blue from Northern Ireland…
“Have you heard of the Presbytarian Mutual Society?”
Um, not a lot.
A year’s worth of distress follows in quick time: an account of another financial institution that got dashed on the rocks of the credit crunch.
The difference here is this one actually went bust and missed the bail out. It merits scant national media attention but resonates loudly in Belfast among the 9,500 who are out of pocket, some of their life savings. Approximately two-thirds of their number is over 60 years old and, after a year of waiting, some have “started to die”.
PMS Ltd was set up as an Industrial and Provident society in 1982. There are around 160 such societies registered as limited liability companies in Northern Ireland and more than 8,000 registered with the FSA.
Such organisations typically serve communities with a “common bond” to one another. They are set up as limited liability companies either as co-operatives or with a view that the business conducted will be to the benefit of the community. In Northern Ireland these include a variety of housing associations and agricultural societies amongst other trades.
FSA guidelines define an Industrial and Provident society as:
“…an organisation conducting an industry, business or trade, either as a co-operative or for the benefit of the community…”
“Co-operative societies are run for the mutual benefit of their members, with any surplus usually being ploughed back into the organisation to provide better services and facilities.”
The FSA is the UK regulating authority for such organisations. Only in the case of PMS it wasn’t. PMS was registered but not regulated by the Northern Ireland’s Department for Enterprise, Trade and Investment (DETI).
A condition of set up is defining the “objects” of the society. In the case of PMS these were:
· To promote thrift among its members by the accumulation of their savings
· To use and manage such savings for the mutual benefit of members
· to create a source of credit for the benefit of its members at a fair and reasonable rate of interest
PMS’s growth over time had accelerated rapidly in recent years. Assets had increased from £50m to £300m in the six years prior to its swift and brutal end. An “unprecedented run on the Society’s cash” led to administrator, Arthur Boyd & Company, being appointed on 17 November 2008. Its stated aim was first, to see if PMS could be rescued or if that was not possible, then organising a wind up of assets in an orderly manner.
The administrator’s last report on 15 June 2009 updated its assessment of the PMS loan book and identified where the holes lie.
Nature of Advance Amount Estimated Recovery
(£m) (£m)
Advances to Congregation 11 11
Advances secured on:
Own homes 9 8
Houses for sale 3 2
Agricultural land 26 22
Other forms of security 4 3
Buy to let properties 24 17
Commercial property 17 10
Building sites & development land 85 34
Total 179 107
The report notes half the advances made between 2005 and 2007 were “to fund commercial property, building sites and development land”. The Northern Ireland property boom saw values double in the three years to June 2007. By June 2009 they were pretty much back where they started having fallen an estimated 40-60%, though the market has been recovering since.
This small credit institution boasted 21 directors, including six addressed as Reverend. Barclays, in contrast, with around £1.5trn in assets gets by with a board of 13. But it appears societies originally required a minimum of 21 members to form in the first place, so perhaps this was the legacy from inception.
My caller maintains savers didn’t know what was going on. The administrator too noted in its June report approaches from “a number of members” who believed themselves depositors rather than investors. Returns received by savers were those akin to a deposit account with interest credited annually. One disappointed saver says:
“We were never told our savings were at risk, in fact we were told the exact opposite; the directors assured us that they would not speculate with our savings.”
Though this was an unregulated entity with the FSA, the UK regulator has since made enquiries and on 9 April broke with protocol for ongoing investigations when it announced on that PMS “was conducting regulated activities without the necessary authorisation or exemption”.
Meanwhile some savers, with all their money tied up, continue to suffer. Calls on the administrator to set up a “hardship fund” could not be realised for legal reasons.
In mid-January 2009, Northern Ireland’s Enterprise Minister Arlene Foster stated it was a UK government problem:
“The Executive has done everything it can within its powers to assist the Presbyterian Mutual Society. It does not have the same options open to it as the UK Government in terms of depositor protection.
“The UK Government must act now to assist the members.”
The UK government didn’t see it that way and lobbed the problem back at Northern Ireland. Northern Ireland secretary Shaun Woodward explained their position in parliamentary questions on 3 June:
“We appreciate the gravity of the situation, but we equally have to recognise that, under the law, those people who put money into the PMS did so not as savers, but as investors, and that the regulation of this body in Northern Ireland is the responsibility of devolved government in Northern Ireland, not of Whitehall.”
Mark Durkan MP pointed out to the Minister the assertion that most with money entrusted to PMS believed themselves savers NOT investors. Tory MPs Ann Winterton and shadow Northern Ireland secretary, Owen Paterson, said the government was to blame for PMS’s downfall. The blanket deposit guarantee scheme issued on 8 October 2008, excluded the unregulated PMS from its protection. Their savers subsequently rushed to withdraw funds and switch to government guaranteed deposits.
Between 27 October and 17 November 2008, when it went into administration, the Society had withdrawal requests of £50m and only £4m in the bank. The government had bailed out Dunfermline why not this Society the MPs wanted to know?
That was a building society regulated by the FSA and its depositors were savers reiterated Woodward, explaining further that:
“…they made an investment in the form of risk capital in the form of withdrawable shares and loans”.
We might also note that Dunfermline was 10 times the problem, with assets of more than £3bn and that Scotland is not wanting for political influence in Westminster.
Mr Woodward cited the FSA’s judgement on the matter that PMS had been “conducting regulated activities without the necessary authorisation or exemption”. The Minister also alluded to “issues about the regulation of bodies such as the PMS and they will need to be addressed,” perhaps this starts with the question: how did DETI and the FSA miss this unregulated bank?
The findings of the UK Accountancy and Actuarial Discipline Board might make revealing reading when published. They launched an investigation in August to look at the actions of directors and the society’s auditor, Moore Stephens.
Further parliamentary questions to Sinn Fein Deputy Leader Martin McGuiness MP on 9 November suggested an increased likelihood of government assistance. This is envisaged along the lines of solutions provided for Dunfermline and Bradford & Bingley, though care is needed not to fall foul of EU state aid rules.
Some form of white knight bank has been mentioned. An FT report in February suggested RBS subsidiary Ulster Bank as a possible buyer. The Belfast Telegraph reported “three financial institutions have shown an interest” in November with Ulster Bank again in the frame.
Meantime the anniversary of this collapse has recently passed and some savers, who put life savings with PMS, are facing a second Christmas of financial hardship. A “delayed” report on PMS from a Ministerial Working Group set up back on 17 June is due to be presented to Gordon Brown by NI Minister Shaun Woodward “within weeks”.
“They were originally due in September but were then pushed back to October…”
It’s now December and still no report.
Administrator Arthur Boyd, meanwhile, is sitting on its hands awaiting possible government assistance before proceeding to wind up PMS’s assets.
My caller fears political heat cools with distance and their plight needs to resonate more loudly in Westminster. Given an urgent call for action was made six months ago and an overdue report is yet to materialise, it seems a fair point.
Government machinery turns slowly on this one, in contrast to similar such problems of late. Presbytarians reportedly place great importance on education and life-long learning. This unfortunate experience provides plenty of both.
A quarter of population “not in control” of their finances
Posted by robin in Financial Articles Tuesday December 16, 2008 1:25 pm
Rarely can a new year have been anticipated with such dread.
By all accounts, 2009 is going to be miserable for many.
Research findings from insurer Axa Group give an indication of how bad. It finds:
- 11.6m (a quarter of the UK adult population) are ”not in control of their finances” with 1.3m saying their personal finances ”are entirely out of control”
- 6.1m have no savings left with 1.7m saying their savings have evaporated in the credit crunch
- 3.8m can’t keep up with credit card bills
- 1.02m have borrowed too much and can’t keep up mortgage payments.
Other research by Abbey finds that 4.6m Brits are now holding on to cash in the house now faith in banks is shot.
More than £5bn has been tucked into teapots, stuffed under mattresses or stashed in newly acquired safes. Somewhat self-servingly it points out the danger of this strategy…burglary rates tend to rise in the bad times.
So it boils down to a straight calculation. The relative probabilities of being mugged either by your bank or by your neighbourhood burglar.
In yet more research, National Savings & Investments says more than half of the population do not save regularly and more than a fifth save nothing at all.
Now the tide’s gone out, that’s a lot of people swimming naked.
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