On Wednesday morning we learned Bank of Ireland’s fine over its part in the tracker scandal was incoming. Yesterday morning the Central Bank of Ireland announced a record €100.5 million fine. In that time, the bank has dropped 9.6 per cent in value.

Almost 15,000 Bank of Ireland customers were impacted by the bank’s actions. 25 families lost their homes as a result, and 25 buy-to-let properties were lost. 

The Central Bank found Bank of Ireland committed 81 separate infractions relating to tracker mortgages. It provided unclear documents to customers; failed to interpret documents in its customers’ best interests; failed to warn customers about the consequences of their decisions; implemented an unfair complaints procedure; committed operational errors; and excluded customers from the tracker mortgage examination. 

The Central Bank found Bank of Ireland had dragged its heels. The process for remediating mishandled tracker mortgages began in 2010 and went on for eight years. 

The €100.5 million fine comes in addition to the €186 million the bank has already been forced to repay affected customers. It has been discounted 30 per cent under the settlement discount scheme, which encourages banks to cooperate fully with Central Bank investigations. 

The Central Bank has not, yet, found any individuals liable for their actions.

What spooked investors?

The €100.5 fine is in line with what the market would have expected. The Bank provided for €106 million for “conduct risk” in 2022. In its annual report, the Bank said it was setting aside funds “primarily relating to remaining unpaid customer remediation and appeals costs, enforcement action costs and other remaining programme costs. In addition to the [tracker mortgage examination], we also consider other conduct-related matters.”

If the fine was smaller than expected, why did Bank of Ireland’s shares drop 9.6 per cent — more than €710 million worth? With the proviso that divining the causes of market moves is a mug’s game, I shall now attempt to divine the cause of this share price drop.

Bank of Ireland’s closest comparator is AIB. Between the close of markets on Tuesday and today, AIB has dropped 4.6 per cent. In the same time, the Euro Stoxx Europe Bank index is down 3.7 per cent. So Bank of Ireland’s shares would be expected to fall by about that much. 

Bank of Ireland differs from AIB in that it has a good-sized UK business. Last year the UK accounted for 25 per cent of Bank of Ireland’s operating profits, and 27 per cent of its assets. Maybe that caused the drop? 

British banks are having a very bad time. Their bad time began not with Chancellor of the Exchequer Kwasi Kwarteng’s notorious mini-budget, but in the middle of last week. Since September 21, the FTSE 350 Index of UK banks is down 14 per cent. But since the market close on Tuesday — when Bank of Ireland’s slide began — the UK banks are down only 6.3 per cent. 

So since Tuesday, Bank of Ireland is down more than even the UK banks, and much more than European banks and AIB. 

Were the UK quarter of Bank of Ireland’s business to have fallen as much as the FTSE 350 UK bank index, and the Irish three quarters to have fallen as much as AIB, Bank of Ireland shares should have fallen 5.0 per cent. Instead dropped 9.6 per cent.

One market analyst put it down to a delayed reaction on investors’ part: “My past experiences where problems crop up in the market would suggest investors assess those with the most risk first, and then trickle out beyond to second and third order thereafter. Bank of Ireland broadly fits [that] secondary if you have a large exposure to UK banks in your fund.”

The idea is that investors in UK financials were slow to see the risk in Bank of Ireland, because it’s not obviously a UK bank. While UK banks were selling off heavily, beginning in the middle of last week, Bank of Ireland was bouncing along happily. Only yesterday did they catch up.

Another idea is that the Central Bank fine somehow opened the door to greater losses in future. But there was no sign of that in the announcement. Thirteen years after we first learned about overcharging of tracker customers, Bank of Ireland and the rest of the Irish banking industry are now drawing a line under the affair.