Tuesday, April 28, 2009

Irish Life and Permanent board: should they be endorsed for anther year of brilliant stewardship?

It is outrageous and unconscionable that the board of a bank that has presided over appalling performance that has squandered shareholder wealth and mugged the taxpayers of Ireland for critical support to sustain the business, should even consider seeking a renewed manadate. But that is precisely what is to happen at Irish Life & Permanent Plc.

99% of the 135,484 shareholders in Irish Life & Permanent Plc (IL&P) are holders of 5,000, or fewer, ordinary shares but they only control 21% of the total equity. All shareholders will have an opportunity to have their voice heard at their version of Dance Hall Q's and Hucklebuck Shoes, also known as the AGM, on 15th May at the RDS and voice their pained reaction to:

  • An 86% collapse in share price

  • Abandoned dividends

  • The rogue deposit in Anglo Irish Bank after the Government bank guarantee covering deposits, senior unsecured debt and asset-covered securities was announced

  • Losses of €122 million arising from transactions with Lehman Brothers and an Icelandic bank

  • Customers unable to obtain personal or business credit

A share price of €11.89 meant that the value of IL&P at the start of 2008 was €3.28 billion. A share price of €1.60 at the end of 2008 meant the group was worth €443 million, a drop of over 86%. The corresponding drop in share value at Bank of Ireland and AIB in 2008 was greater. The appetite for shares in Irish financial institutions is severely impaired by the ambiguity connected to their extravagant property loans.

The calamitous drop in wealth and absence of income is devastating for so many but the implosion of pension funds is crucifying a huge number of pensioners whose providence was meant to equip them to be wholly independent members of what is now referred to as the coping class. But it was the €7.3 billion deposit in Anglo Irish Bank at the end of September 2008 by Irish Life Assurance Plc, apparently without the sanction of the board of IL&P, that has fatally destroyed the reputation of this group, which was once hailed as an emblem of providence and prudence. They must have all been fast asleep in their showband bus after a late night gig in Claremorris and the roadies decided it was better not to disturb them!

This AGM is to take place without any explanation of this transaction and it defies credibility that the existing board members, with one exception, are seeking election on a platform of astute, unrelentless, brilliant but light-touch, vicarious stewardship. Wow!

Many are curious as to how a modest-sized institution, which IL&P is, could be in a position to invest such an enormous sum outside its business. The core capital of Irish Life & Permanent is of the order of €4 billion. Could this have been compromised by this transaction?

Cash balances at 31 December 2007 were €253 million but dropped to €200 million at the end of 2008. IL&P was more depndent on debt funding in 2008 than previously. It had to raise €1 billion through an internal transaction with Irish Life Assurance to support its own bank in the middle of 2008. Irish Life Investment Managers that none of its clients assets were utilised in the Anglo Irish transaction. How could the board not have been made aware of what was going on by the chief risk officer both in the context of scale and context?

If IL&P did not have access to cash resources of €7.3 billion was cash provided through another Irish bank and, if so, which one?

If the transaction did not involve cash changing hands but was based on some form of IOU, does this introduce a fraudulent consideration with a possible criminal case to be answered?

Are the incumbent board members motivated by narcissism? Perhaps the prospect of sharing close to €1 million in fees to attend 9 meetings cannot be disregarded. But a dispassionate observer might opine that this particular showband ought to have performed The Hucklebuck for the last time and that an encore was unnecessary, given that the curtain hem of credibility is already dropping close to floor level.

One of those seeking the trust of the shareholders is former Financial Regulator, Liam O'Reilly one of whose other sinecures is chairman of the Chartered Accountants Regulatory Board. The bean counters are investigating the role of former finance director, Peter Fitzpatrick, in the Anglo Irish Bank transaction. Will we see the cronnies tripping each other up?

There are occasions when the reputation of an entity is so compromised that the prospects of redeeming it without a change of personnel is even less promising than the prospects of Leitrim winning the Sam Maguire Cup. I don't even think that if Gillian were to don a Tina Turner wig and belt out a rendering of Simply the Best would change the mood of angry shareholders. Her eforts, I’m afraid, would be in vain, if the institutional cronies fail to hunt in a pack.

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