Sunday, November 8, 2009

Pathetic half-year at Bank of Ireland

Bank of Ireland THE Interim Report of the Bank of Ireland for the six months ended 30 September 2009 provides the first public insight into the stewardship of chief executive Richie Boucher, the insider chosen by the Court of Directors, to be chief executive last February.  The results will do little to fortify shareholders or inspire taxpayer confidence either in him, or in the Court of Directors that selected him

A loss of €979 million is recorded.  The level of impaired loans has increased by a whopping 61% from  €3,249 million to €8,571 million – 2.4 times the amount invested by taxpayers this year

The impairment charge on loans and advances to customers increased to €1,787 million (+561%)  for the six months ended 30 September 2009 and compares to a charge of €267 million for the six months ended 30 September 2008. Income declined €273 million from €2,003 million to €1,730 million while operating expenses were €99 million less.

The accompanying presentation includes many expression in pidgin English including the mandatory crap about the ‘challenging operating environment’ .  Do these morons’ ever acknowledge that ‘outlook’s’ are always ‘challenging’.  ‘Challenge’ is the essence of the free market environment.  Competence to challenge effectively and successfully is the elusive ingredient that separates the reassured performer from the fly-by-night chancer.

The leadership of the Irish financial sector are the authors and architects of that operating environment and they are now its pall bearers.  Ego-centricity, insatiable greed and unadulterated hypocrisy are their defining features of those who kicked and mutilated all vital economic organs of Irish society.  They were as content seeing house buyers ripped off over the past five years as they are putting their snouts into the taxpayers’ resources to compensate the venality.

The word ‘challenging’ should be left to Mr Barrington and his colleagues on the board of Aer Lingus while the financial sector could usefully use the word consequences much more extensively instead. The ‘good businesses’ and ‘resilient business models’ of Bank of Ireland are mentioned several times.  But is there anything that is either ‘good’ or ‘resilient’ about these results?  Perhaps the expression ‘delusional’ would have been more honest.

The slogan that really piqued by curiosity was “we are committed to achieving more conservative balance sheet metrics”.  Perhaps someone who has contacted a sexually transmitted disease is just as similarly to say “I am committed to achieving a more sustainable and defensible lifestyle and I promise not to continue infecting innocent people”

The Boucher Legacy

These results are the first instalment of the Boucher legacy. Are any further instalments necessary?

Boucher was in charge of Retail, Republic of Ireland since November 2005 and he flooded the supply and buy side of the property sector with credit.  This Division returned a loss of €655 million against a divisional income of €720 million.  Chief executives in the US and other markets who return results as appalling as these are typically fired before they even reach the public domain.

Ireland accounts for €34 billion of the €87 billion in the Bank.  Loans to Irish customers in the most recent six months totalled €62.4 billion and the total loan book was  €135 billion. 

€28 billion of retail loans were in Irish residential mortgages; €16 billion was lent to the property and construction sector in Ireland; €15.4 billion was lent to the productive small and medium Irish enterprises and €3 billion was lent to Irish personal customers.  In summary – 70% of loans in Ireland were to the property sector and total Irish lending was equivalent to 183% of Irish customer deposits.  Ireland provides 39% of total deposits at Bank of Ireland but accounts for 46% of its loans and advances which are heavily skewed in favour of the property bubble.  That is Boucher’s direct legacy. 

The market capitalisation of Bank of Ireland is in currently in the region of €2 billion.  This compares to the €3.5 billion provided this year by Irish taxpayers to shore up a rapidly eroding capital base.

Bank of Ireland Life actually returned a profit of €57 million in the six months to 30 September 2009.  The person in charge of this was Des Crowley who preceded Boucher as Head of Retail in Ireland.  He has not taken over Boucher’s poisoned retail chalice.


Executive Director Shareholding

There has been a long-standing policy at Bank of Ireland that executive directors would over time build a beneficial share ownership in Bank of Ireland equivalent to 100% of salary.  The following summarises the extent to which this policy has been executed.

Maurice A. Keane

Keane was group chief executive from February 1998 to February 2002.  His total remuneration in 2001-02, his final year of tenure was €955,000.  He owned 1,189,280 shares at 31 March 2002 which were worth €14.75 million at that time.  He fully complied with the policy.

Michael D Soden

Soden was group chief executive from 1 March 2002 until he abruptly resigned  29 May 2004 after it was discovered that he was trawling the web sites of escort agencies in Las Vegas on his office computer.  Soden earned €3.18 million during his two years and two months at the helm.  But his ownership of Bank of Ireland shares only increased from 87,595 to 89,756 and these had a value of €1.22 million when his dreams of good times in Las Vegas were at their most intense.  This would have been equivalent to 78% of Soden’s salary in 2003-04

Brian J Goggin

Goggin had worked at the Bank since 1969 and had high hopes of succeeding Keane only to have his eye wiped by Soden.  He succeeded Soden as group chief executive on 3 June 2004 and held that position until February 2009.  He earned a total of €14.5 million in remuneration as chief executive.  Goggin owned 334,126 Bank of Ireland shares when he got the top job and these were worth €3.5 million in June 2004.  His shareholding increased to 600,260 on 31 March 2008, the last date his shareholding was reported in the annual report, and would have had a value of €5.65 million then but would have been worth €312,135 by March 2009. This shareholding in 2008 would have exceeded Goggin’s highest level of total annual remuneration of €3.998 million - in 2006-07.

Richie Boucher

Boucher only owned 1,906 shares when he was first appointed to the Court of Directors in 2006.  He owned 33,127 ordinary shares on 31 March 2009 after he was appointed group chief executive.  Boucher’s shares are currently worth approximately €66,000.  The porters’ at some of the Bank’s branches probably own more shares.  But what can one presume other than his shareholding is a reflection of his confidence in the Bank?

The two other executive directors own significantly more shares.  Des Crowley owns 128,915 ordinary shares and John O’Donovan owns 108,326 ordinary shares. Boucher’s soon-to-depart counterpart at AIB owns 256,780 ordinary shares in AIB.

Boucher’s remuneration from the time he became a member of the Court until he became chief executive was €3.5 million.

1 comment:

  1. Good assessment of the poor performance of almost every senior exec at BOI but I would dispute your claim that in a US multinational the architects of such disaster would be quietly wiped off the company payroll. I work for a large, southern company which specialises in outsourcing. Over the last year we have systematically lost the 2 largest contracts with our largest commercial customer, amounting to a loss of about 100 million dollars over 5 years. In fact we made such a shambles of these service contracts the client actually built an alternate services group doing the same thing about 1 year before the 2nd contact collapsed. The responsible exec for the delivery of the agreed contracts, is not only, surprise surprise, Irish, but spent most of his career in the very bank mentioned by yourself above. He projects a myth to employees, 200 of whoms' jobs are now under threat (not counting about 50 who have already lost their jobs) that the customer planned this all along and had no intention of renewing at the original contract ends, but I did notice that my former employer, which coincidentally manages another large contract with the same client (and whose equivalent to this Gombeen is an old friend) renewed their contract for the second time last year. And they would not be regarded in the industry as a particularly high quality supplier.

    So has the ex banker Gombeen been canned as you suggest most US companies would do? Certainly not.

    Guess what? They promoted him.
    (For very obvious reasons you will understand that I have to remain anonymous). Keep up the good work.