How will the Central Bank Commission earn respect among those it must impress?

The stakes for Ireland have never been higher.  Generations of Irish people are extremely vulnerable after the catastrophic and systemic collapse in September 2008 of the financial system, the Central Bank and the Department of Finance - in its role of global overseer and talent scout.

Citizens would expect that the membership of the newly inaugurated Central Bank Commission would comprise outstanding and distinguished individuals whose authentic stature and relevant experience would be an asset to the Governor and Financial Regulator. They would also be expected to act as a countervailing influence to them on the basis of knowledge, insight and most importantly, credibility. This is, after all, Ireland in reform mode and the Department of Finance demonstrating how it can pull an A-team together.

The last board of the Central Bank included a menagerie of well-meaning grandees, retirees and all sorts of extremely important, loquacious people. But they were no match for the quartet of delusionary muppets that disported themselves as the Board of Irish Nationwide Building Society.

They facilitated Michael Fingleton to obtain remuneration of €16 million from 1 January 2003 until he left Irish Nationwide (with ‘holiday pay’ of €450,000, to compensate his untaken leave), the gouging by him, in 2007, of a pension fund of €28 million leaving a residual fund of €4 million (in deficit) to cover the remaining 400 employees and, of course, his €1 million bonus that Fingleton gouged when his wretched building society was utterly insolvent.

Why did the Department of Finance choose Des Geraghty and Michael Soden to be members of the first Commission?

 

DES GERAGHTY

Des Geraghty (67) retired as President of SIPTU in 2003 and was subsequently a member of the board of the FÁS, the Cradle of Corporate Governance.

That board was stood down in disgrace this year when an investigation by the Comptroller & Auditor General revealed outrageous breaches of corporate governance resulting in large losses to the State. There have also been allegations of fraud on the part of third-parties employed to conduct training on behalf of the agency. Trainees have been unable to obtain certification for courses they believed they satisfactorily completed and an EU audit has delayed payment of funds from that source. There are therefore most serious questions about corporate governance and trust at that agency. The Public Accounts Committee have yet to issue findings on their investigation of FÁS.

It is not at all clear if Geraghty has any related education, qualifications, experience, insights or understanding of the financial industry that would commend him to serve on the board of the Central Bank Commission. His passion is poetry and he has published a couple of books.

What particular reform qualities will Geraghty be bringing in his kit bag from Baggot Street? How about credibility with the EU Commission, business process expertise and know-how, a skill in analysing budgets and overseeing subsequent expenditure? Perhaps he qualifies as the centurion guard of corporate reputation and the ‘men-in-red-braces’ who determine credit ratings, interest rates on sovereign debt, credit availability, bond spreads will be suitably impressed, despite their coldness from time to time. Those who expected to receive certificates of accomplishment for training from FÁS could be skittish about his capacity to represent the interest of the consumer in his new role.

Mr Geraghty, of course, would also have an unambiguous measure of the Department of Finance following the negotiation of the Rody Molloy ‘kiss-and-goodbye’ package (+car) and he will have observed how Pat Neary has been saved from distressing penury while the population at large are about to be pistol-whipped in the next Budget to fund his exit from College Green.

 

MICHAEL SODEN

Michael Soden seems to like the sound of his own voice and the megaphone he uses to bellow at café society.

An exponent of the ‘Why Not? Academy of Lateral Thinkers’ he suggested three days after his appointment to the Commission that if everyone in Ireland worked a 5½-day week there would be a 10% linear improvement in national productivity.

His most recent rambling was ‘Let’s quit the EU and join the US’ thus demonstrating his capacity to prostitute our national sovereignty.

The Department of Finance have now given him a pulpit and a mandate from which to bellow through his megaphone and entertain the high-polloi of the EU, the European Central Bank, the IMF, the rating agencies and the men-in-red-braces. Perhaps if a capacity to entertain was the criteria of the Department of Finance based their choice of candidate on, it is strange that they overlooked personalities such as Twink, Sinead O’Connor, Bob Geldof and Fr Brian D’Arcy as potential members of the Central Bank Commission. Given infinite reach of Soden’s wisdom perhaps Jay Leno could have enriched the Soden’s rose-tined and starry-eyed US perspective.  What can Soden offer that they could not?  They are all entertainers!

 

National Australia Bank

Soden was one the top-13 executives at National Australia Bank (The National) from 1994 to 2000. He reported to Donald Argus, Chief Executive and Managing Director from 1989 to 1999 and to Frank Cicutto who succeeded Argus in 1999.  Argus was a director of National Irish Bank (NIB) and National Irish Bank Financial Services from the time it became a wholly owned subsidiary of The National in 1987.

The High Court appointed Inspectors to investigate NIB in March 1998.   This took six years to complete and covered a series of major transgressions of company law from 1988 until 1998.  NIB was severely criticised in the Final Report of the Inspectors on the basis of findings of the utmost gravity, involving well in excess of a dozen persons, that were the consequence of a catastrophic lapse in the standards that customers and third parties dealing with any bank are entitled to expect.

The catalyst for the appointment of Inspectors was not the policing and enforcement competence of the Central Bank during the tenure of two Governors, the late Mr Doyle and Mr O’Connell. The incompetence of the Central Bank to police the Irish banks was exposed by the curiosity of two investigative reporters from RTE.

RTE reported in March 1998 that interest charges had been increased, without legitimate reason, and without customer knowledge in four branches. They also reported that customer fees had been uplifted in one branch in November 1989 without customer knowledge, or underlying justification. They stated that these practices were systematic within NIB and were motivated by a desire for enhanced profitability and career progression. It was these characteristics and values that attracted the vicarious patronage of Argus. It was these RTE reports which prompted High Court intervention less than a week later.

The matters investigated involved large sums of money and demonstrated a lack of commercial probity that cost NIB €64 million. The inspectors’ findings included:

• The opening and maintenance of bogus non-resident accounts in NIB branches enabling customers to evade tax through concealment of funds from the Revenue Commissioners
  
• Fictitiously named accounts opened and maintained that enabled customers to evade tax
  
• CMI policies were produced as a secure investment for funds undisclosed to the Revenue Commissioners
  
• Special Savings Accounts had DIRT deducted at the reduced rate, notwithstanding that the applicable statutory conditions were not observed – a curtain raiser to the establishment of the DIRT Inquiry by the Public Accounts Committee in 1999.
  
• There was improper charging of fees to customers
  
• There was improper charging of interest to customers

At no time prior to the appointment of the Inspectors did NIB address the issue of a potential retrospective liability to the Revenue Commissioners for tax arising from the irregularities in the operation of DIRT.

NIB, under the direction of its executive leadership in Australia, had therefore debased several major institutions of this State, including the Central Bank and the Revenue Commissioners and ruined the reputation of Ireland as a trusted, respected component of the global financial sector. What was discovered made Nigeria scam merchants’ seem virtuous, noble, respectable and trustworthy.

The response of The National to the appointment of Inspectors by the High Court was: “During the year (1998) NIB was the subject of investigations arising from allegations against certain parts of its operations. While involving unfavourable publicity, none of these investigations demonstrated widespread, or systematic, misconduct and the Bank will continue to work constructively with the authorities in order to resolve these matters” (The National 1998 Annual Report). These are the views of the executive leadership The National that included Soden at that time.

Major breaches of the Companies Acts seemed to have had as much impact on Mr Argus and his leadership team as an intermittent episode of trapped wind, corporate heartburn and halitosis. There was no evidence of Matthew Elderfield’s vision of intrusive supervision between 1988 and 1998 in the relationship between The National and its own wholly-owned subsidiary in Ireland.

When the Inspectors’ Report was published in 2004, after Soden left Bank of Ireland, The National issued its second press release on the subject of the NIB investigation. It stated that “the Director of Corporate Enforcement in Ireland today (30 July) released the Report of the High Court Inspectors into certain past business activities of NIB. The events go back a long time” - an antiseptic response to what transpired to be a plague of rapidly deteriorating bad behaviour as Irish banks engaged in ‘follow-the-leader’.

The Director of Corporate Enforcement was subsequently to begin a process to seek the disqualification of nine senior managers of NIB. Disqualification prevents the person concerned from acting as an auditor, director, or other officer, receiver, liquidator or examiner – or be in any other way, whether directly, or indirectly, concerned, or take part, in the promotion, formation or management of any company or society registered under the Industrial and Provident Societies Act 1893 to 1978.

Mr Justice Peter Kelly stated on 26 October 2005 with respect to NIB “the edifice of banking is built on a foundation of trust. On the Inspectors findings there was a breach of trust by dishonesty. The operations were carried out over a period of years in a deliberate fashion on the part of the Bank”.

 

Bank of Ireland

Soden was employed by Bank of Ireland from 1 September 2001 until 29 May 2004, a period of 1,001 days, for which he received remuneration of €4.79 million. He joined the Court on 11 September 2001 and became Group Chief Executive on 1 March 2002. Soden held this position until he abruptly left the employment of Bank of Ireland on 29 May 2004.

Soden’s career at bank of Ireland was generously described by Laurence Crowley, the Governor, on 29 May 2004, as “having made an enormous contribution” and having placed the Bank of Ireland “in a position of solid strength for future growth”.

During the 820 days that he was Group Chief Executive, 61% of total Bank of Ireland loans were in respect of residential mortgages, property, construction and commercial mortgages. How comfortably does this fit with Matthew Elderfield’s views on lending standards? Soden is also an example of the over-remunerated asset acquirer – who vigorously pursued Abbey National, the former UK building society, in 2002, until he was shunned.

Lending growth by Bank of Ireland to the Irish residential mortgage sector, under Soden, was achieved through increasing lending, from 12% to 20% of total loans to new Irish borrowers, in respect of properties with a loan-to-value ratio of between 91-95%.   Lending to new Irish borrowers in respect of properties with a loan-to-value ratio of 75%, or less, concurrently reduced from 53% to 45% of total loans to that category. Mortgages were also extended to British customers towards properties with a loan-to-value ratio in excess of 95%.  How does this practice connect to Matthew Elderfield’s views on risk management arrangements?

It clearly had catastrophic risk implications because the Irish taxpayer was forced to provide €3.5 billion to supplement its capital and NAMA will be taking over €12 billion in loans at a discount of 42%.

When describing the impact of his leadership at Bank of Ireland  Soden stated that “this very consistent performance is the result of focused management attention to the needs of our customers and clear strategies for growth.  The achievement of our strategic goals is also supported by an excellent credit culture, a commitment to the highest standard of corporate governance and behaviour”. (Group Chief Executives Operating and Financial Review - Annual Report 2003).

But it was his own hypocrisy that hastened Soden’s departure and the ‘embarrassment’ that he caused his counterparts on the Court of Bank of Ireland, - prominent individuals such as Denis O’Brien, Ray MacSharry, Maurice Keane and Richard Burrows among them. Is it realistic that Soden, as a member of the Central Bank Commission would be overseeing the effectiveness of the board member at Bank of Ireland who was a contemporary of his in 2004 when he ‘embarrassed’ his colleagues?

Embarrassment at Bank of Ireland, comes with a hefty price tag, which in this instance was €96 million, as reflected in the drop in share price from the 20 to 29 May 2004, when Mr Soden’s foibles with adult content on the internet during business hours came to light.

PERCEPTION OF CENTRAL BANK COMMISSION

Perception counts for much in the assessment of credibility the calibration of credit rating, bond spreads and sovereign interest rates. What credibility will this Commission have?  Why must it be necessary to waste time explaining its make-up?

Credibility made it possible for William Howard Taft to become the 10^th Chief Justice of the United States Supreme Court eight years after he left the White House in 1913 and it was not possible for Richard Nixon to emulate him 60 years later. That would also explain why senior members of the Christian Brothers order do not appear in the leadership ranks of rape crisis centres’ located in major metropolitan locations.

Irish people deserve better from their Government and their Department of Finance.  Thoughtful consideration of what is really in the national interest is like MasterCard – priceless.

Rescue remedy needed for training and education system

The viability, reputation and stature of our national training and education enterprise is sailing like the Titanic en-route to the iceberg and there are no life jackets on board.

Despite recurring and widespread allegations of systemic malpractice and accounting failures at FÁS, SIPTU announce glibly that the ‘problems’ at FÁS can be overcome, a perspective not apparently echoed by IBEC. Is this a case of mutual recognition by birds of a feather, or does it merely imply that SIPTU has a higher than desirable tolerance of mediocrity and slovenliness and an aversion to change and radical reform?  FÁS is a creature of a social partnership process that has self-destructed as a result of insular thinking, incompetent, delinquent and politically compromised leadership. The best days of FÁS are behind it and only those with deep vested interests, most precious to themselves, refuse to recognise this while those most effected deserve a much more enlightened and inspiring response.

Secondly, a stronger level of Government supervision is urgently needed over the plethora of private third-level colleges emerging in this country. This could take the form of an operating licence reflecting the conformity of its teachers and courses to designated national standards.  Some of these so-called colleges are purely money-making rackets promoted by individuals with no background in education and no substantial personal academic credentials. They should be immediately banned from advertising courses that have no Irish State accreditation rather than playing on the desperation and gullibility of an unsuspecting public, presumed to believe that any entity with the initials C D in its identity automatically has the prestige and resourcefulness of a distinguished university. When there is incisive and scathing official criticism of a private college it is no defence whatsoever to state that such criticism is "not as positive as we might have hoped".

Thirdly, the realisation that 40% of our adult population struggle with primary school maths and that 10% of the candidates for ordinary maths in the 2010 Leaving Certificate failed is a symptom of a fundamental failure in leadership at an institutional and also at a political level. If that trend is not successfully arrested the prospects of our society being able to sustain the standard of living it aspires to will be sorely compromised and those adversely affected will find it increasingly difficult to obtain meaningful work at home and abroad because such a wide range of skills are based on some understanding of maths and mathematical relationships.

SIPTU planning lucky-dip strikes and disruption by whoever wants to muck in

SIPTU are planning strikes, a pre-Budget showdown, so that 34,000 members in the HSE can obtain the first 3.5% increase agreed under Towards 2016.  The David Begg enterprise at ICTU is planning a parallel campaign, to solicit a ‘fairer’ and ‘better’ way to economic recovery.  Fairy tales for the disillusioned, the disappointed and the gullible.

That partnership agreement was nodded through in radically different circumstances than those prevailing and, worse, threatening.  The Social Partnership process has become a meaningless puppet theatre populated by stakeholders with shrinking memberships and no evident national mandate. 

The total number PAYE taxpayers in 2006 was 2,050,897.  The number claiming tax relief on trade union subscriptions in 2006 was 294,300 – 14.3% of the total labour force. The public service  organisation component of the labour force in 2006 was 26.6%.

There are currently 186,026 active companies registered in Ireland. I cannot say how many of these employ people or how many are represented by employer lobby groups but if they had a strong mandate the public would hear about it. The average number of companies formed each year between 2003 and 2008 was 17,164.  The number of companies formed so far in 2009 is 10,294 ~ 60% of the average annual rate, reflecting leaner times.

The impact of the recession, the rise in unemployment and the number on the Live Register has adversely impacted trade unions and lobbyists

The purported purpose of Social Partnership was to create conditions of fiscal stability, improved living standards and a framework from which to respond to the challenges society faces.  It has had its day because it has evolved into a charade where there is no apparent potential capacity for stakeholders to achieve anything of mutual value that enhances the common good. The restoration of competitiveness is challenge #1 and trade unions and lobbyists need explicitly articulate how their various shenanigans advance that objective.  Welfare funding is a by-product of a competitive economy, not an imploding one.

Jack O’Connor advises that the strikes will not be focused on any particular sector and he expects support from trade union members generally.  Given the precarious predicament that those hanging on to their jobs are in, it will be most interesting to see how extensive, passionate and sustainable the ground-swell of support for this action is. How many days pay are people prepared to forego in the run up to Christmas to secure a pay increase for somebody else?  The Saturday march last Spring against the tax levy, I suspect, was the highpoint of mass protest allowing people to respond to their sense of trauma and distress that an abrupt contraction in living standards brings about.

Tax revenues to the end of September was €4.772 million less than the first nine months of 2008 and they €965 million short of the target set when the supplementary Budget was presented on 7 April.  Jack, the cupboards are bare.  I suspect that other trade union members are in no mood to pay additional taxes to fund this ego trip of self-justification.  Furthermore, how many of the potential recipients of this increase would have to be made redundant to fund these increases?

The evening news featured a computer-generated image of the proposed replacement for Liberty Hall.  The bargaining power and public stature of all lobbyists in Ireland is greatly diminished and marginalised.  The public are growing weary of their one-dimensional siren call ‘feed my infinitely self-indulged, cosseted and bloated pigs with more of your taxes’, me, me, me’  If SIPTU don’t get their act together they will be as viable as Aer Lingus by the time this proposed structure is built and the credibility of their leadership will be as comparable.

Having listened to the David & Jack charade over recent days, I can’t help thinking that the trade union movement are responding to this crisis as if it were the property collapse that occurred in Ireland in the 1870’s, directly after the disestablishment of the Anglican Church.  There were many similarities,  not least being the evaporation of credit and no property transactions.  At that time the dreaded landlords controlled estates that cumulatively were equivalent in size to the land mass of five Leinster counties!  There are no such deep pockets of obvious wealth now. 

The FÁS debacle is the granite tomb-stone of social partnership complete with a photograph of Rody Molloy, Christy Cooney, Danny McCoy and Peter McLoone.  That IBEC/trade union playground frittered €1 billion every year on dubious  ‘social partnership’ objectives and whatever else randomly came into their ever-entitled, manipulative, imaginations laced, as became clear, with a strong veneer of peasant-cunning.

The public of this country will no longer be stampeded into more cul-de-sacs either by ‘social partners’ or that other pariah,  the Construction Industry Federation – who would like nothing more than millions of € in subsidies to compensate for the unsalable, unwanted and extortionately priced mud-huts that are scattered across the length and breadth of the country.  CIF need to descend a steep learning curve to understand some basic economic lessons about demand, supply, integrity and value.

Jack O’Connor wants a social banquet

Our Taoiseach, Brian Cowen, clings tenaciously to the concept of social partnership to create a roadmap to economic recovery.  But the consequences of the economic collapse has made the same social partners as effective as neutered rabbits on a sunny Spring morning.

They have traditionally positioned themselves as the providers of incremental benefits.  But with no resources to allocate the new game plan is subsidy bounty-hunting. 

IBEC want millions to subsidise exporters. 

The IFA want millions to subsidise hobby farmers.  They will hold public tantrums to avenge their rage and throw eggs at whatever lactating political breast they believe they can beat into submission.

The religious congregations remind us of our ‘solemn obligations’ to provide hundreds of million of euro for their Third World clients and that the return on this expenditure will be ‘kudos’ and a reputation for the country ‘punching above its weight’.  They are not too concerned if the resources provided are derived from income or debt.

Jack O’Connor, General President of SIPTU and currently President of Irish Congress of Trade Unions is the latest actor to step forward.  O’Connor wants the primary legislation to establish the National Assets Management Agency (NAMA) to incorporate a “social dividend”.  Is that not a lovely, cuddly inoffensive euphemistic thought, just like Wexford strawberries cream on the beach in June?  The little teddy bear should even have its very own beating heart.  Can you believe it – a 21st century Butlin’s with redcoats entertaining the new arrivals at Nirvana and ‘adult party’ weekends!

Jack advocates that what is to become the largest property institution in the world, whose primary function is to realise collateral for bank loans, should have a social dimension. in the form of providing houses, schools, health centres and, even, sports and community facilities.  Santa Claus has rode into town in August and Jack is making a list and checking it twice.  Local authority waiting lists will disappear and there will be no private facet to the dinosaur that is our health service.  Nirvana is at hand!

I don’t think that economic literacy is Jack’s strongest card.  Everything has a price but Jack omits to mention who is to pay for his dream of a social dividend.

It would have been interesting if Jack had aspired to an economic dividend – a gesture that might create the wealth from which the social dividends could be provided.  But that would be so boring from Jack’s perspective. 

It was only 3 months ago that Jack was promising mayhem on the streets of Ireland as union members would protest about their grievances.  But there hasn’t been a whisper about that since. I suspect that unions members are taking their own counsel as to how far-reaching their protests will be and how they will spend their political capital.

The chilling reality is that unemployment in Ireland is now 228,000 – almost three times as high as 2006.  There are 418,000 on the Live Register.  Short-time working and pay cut backs are the order of the day.  Day to day economic activities such as shopping, eating out, purchasing a car, taking a holiday are no longer possible on the level of a short few years ago.  This has also impacted the membership levels of SIPTU and their counterpart unions. 

Jack’s real priority nowadays is two-fold: protect the SIPTU membership base and the income derived from it and to choose topics for public discourse that could validate the union’s existence and make Jack appear to be a compassionate soul, a Robin Hood of modern times.  The latter has to be in a form of a good, appetising banquet, the cost of which is always somebody else’s problem!  Belch!

Each of the social partners need a good banquet from time to time.  Otherwise they will starve to death.  Their irrelevance will become too glaringly obvious and if the membership walk their public spokesmen will be out of job and off the invitation lists.  The absurdity of the menu for these banquets can be directly correlated to the desperation of the group placing the order!

Jack has stated the Ireland’s social partnership process offers no potential on a deal to enhance the prospects of economic recovery.  This is not surprising and reinforces the notion that this process is simply about more, more, more.  The latest hot potato concerns a possible reduction in the minimum wage.  Ireland’s minimum wage is apparently second highest to the minimum wage in Luxembourg but when adjusted for purchasing power its also ranks mid way after the minimum wage in Holland, Belgium, France and the UK.

Of course, the minimum wage level and the disparity in wages between Ireland since 2001 is a consequence of the very same partnership process – so perhaps it is time for a new and more creative approach.