Thursday, March 12, 2009

Everybody Is Not Happy With Bank of Ireland Group CEO appointment!

Bank of Ireland chose to appoint an insider, Richie Boucher, to the top job following the resignation of Brian Goggin, who was group chief executive since June 2004. Boucher was Head of Retail Financial Services Ireland at the Bank. This division includes consumer banking, business banking and wealth management. It accounted for €33 billion in revenue (38% of total) for the year ended 31st March 2008 and covers 276 branches and 1.3 million customer accounts.

Bank of Ireland ordinary shares currently trade at €0.24 reflecting a market capitalisation of €239 million. Two years ago they traded at €17 underpinning a market capitalisation of €17.38 billion.

Brian Lenihan TD, Minister for Finance, announced on behalf of the Irish Government on 11th February its intention to provide €3.5 billion in Tier 1 core capital to Bank of Ireland just two weeks prior to the announcement of the Boucher appointment. As this money is coming from the National Pension Reserve Fund there is naturally a heightened awareness and real concern among the Irish public about the capacity and competency of those in charge of the country’s banks’ against a background of very questionbable, if not illegal, shenanigans by Irish Life & Permanent Plc and Anglo Irish Bank and declared ignorance by the boards of these banks about these matters. The Bank of Ireland promptly announced, directly after the Government decision, that it would report a loss for the second half of this fiscal year and increased its three-year expectation for loan impairment charges to around €4.5 billion from €3.8 billion

When Governor, Richard Burrows, announced the appointment of Boucher on 25th February, he described his banking experience as ‘broad range’ and his ‘outstanding leadership’ as the credentials that inspired confidence. One might have anticipated, at this time of great uncertainty and threatening widespread hardship in Ireland, such a bland endorsement from a doddering actor in an episode of Yes Minister, but not from the governor of an institution that is so central to the welfare of so many and which is about to consume very substantial dollops of State support.

The prospect of new thinking, new credentials, new outcomes and enhanced credibility was ignored, leaving shareholders, customers and the public sniffing for clues, like canaries in a coal mine. Mr Dermot Desmond, whose current shareholding is worth in the region of €1.85 million down almost €6 million on his original Bank of Ireland investment, expressed ‘dismay’ at the Boucher appointment on the grounds that Boucher’s involvement and exposure to excessive property lending, some of which were based on overstated land values and inadequate, or rapidly diminishing, collateral.

Two days following your announcement, on Friday 27th February, the €7 million robbery took place at College Green branch perpetrated by an employee, under duress, without, apparently, the interception of any human being or electronic surveillance device. This was the largest ever robbery of a bank branch in Ireland. Despite being under duress it is baffling to comprehend why the person who perpetrated the robbery chose to take €7 million, a very bulky consignment to put into an average car. Why not more, why not less cash given that there was apparently €300 million on the premises as it is a district cash distribution centre for branches in the Dublin vicinity? It has also been subsequently disclosed in the media that Bank of Ireland may not recover any insurance money arising from this because standard procedures were not followed. Coincidentally a cashier employed at the College Green branch was convicted of using an illegal magnetic skimmer that resulted in 87 branch customer having €320,000 stolen from their accounts. This took place between October 2006 and February 2007. The accomplice in this instance was an Eastern European.

What does this tell taxpayers about the leadership credentials of the new chief executive, his capacity to choose dependable, trusted support staff that ensure vital procedures work effectively in practice? Should they consider this incident an apt validation of his coronation and of the judgement of those who selected him?

Mr Boucher has also been directly involved in generating exuberance and practices in the financial services industry that is now compromising the economic stability of this country and its international reputation. The proposed Dunne development at Ballsbridge, for example, was partly funded by Bank of Ireland. The scale of funding provided was enormous and enabled a site to be sold for a price in excess of €50 million per acre. It is yet another example of a bank ignoring the warnings from the Central Bank and Financial Services Authority since August 2007. If the funding was not so abundant the price would have had to be lower and the purchasers' of the development might have obtained better value had the development been approved and proceeded. But when there is a culture of 'more', 'more' and 'more', these are not considerations that matter.

The only basis for the viability of this ‘investment’ lay in the prospect of enormous property appreciation and the risk of converting Ballsbridge into a Calcutta-like slum. Mr. Boucher also personally advocated with the planning authorities on behalf of this development thus demonstrating an indifference as to whether the skyline of Dublin emulated that of Dubai and not a great deal of personal civic spirit or social intelligence. He was a fervent slave to what urgently need to become 'the old ways'.

The spiralling increase of the bad-debt provision at Bank of Ireland also indicates a rampant record of funding borrowers who should not have borrowed and whose incomes were clearly quite insufficient to repay capital and interest, whatever the course of property and general economic trends. The Bank of Ireland, in common with other Irish banks, is at the first stage of this chain and, tragically, mafia-like figures and other gangsters are at the other end acting as ‘debt collectors’. Are these factors that warrant widespread support, acclaim and public confidence?

How will Mr. Boucher rehabilitate confidence in Bank of Ireland shares and the expectations of those dependent on dividends? Some traders in large London firms, astounded by the venality and incompetence that was generally tolerated in Ireland, have closed all positions on Irish shares because these cannot be analysed on their computer models due to the opacity of the underlying balance sheets.

This is certainly one opportunity missed to define a new future and a more promising for Bank of Ireland and another example of the narrow golden circle described in True Economics by Constantin Gurdgiev?

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