Gravy train for top echelons in Irish State companies

UCD economist Colm McCarthy published a review of the Irish commercial State companies this week as a prelude to the Government considering their possible sale.  The media have been commenting on the high level level of pay at the top of these organisations.  The average employee remuneration in all of them is €54,600 but I thought it would be interesting to set out the the average pay in each of them and the multiple of that average which the chief executive receives.  The data relates to 2009.

Entity	CEO Remuneration in 2009 €	Average Employee Remuneration in 2009 €	Multiple of employee average received by CEO
CIE	251,160	49,100	5.1
ESB	752,568	75,500	9.9
Bord Gais	394,000	67,300	5.8
EirGrid	407,000	83,400	4.8
Bord na Móna	392,000	44,800	8.7
Coilte	417,000	54,267	7.6
Dublin Airport Authority	568,100	49,300	11.5
Irish Aviation Authority	324,000	95,600	3.3
Dublin Port	317,000	67,900	4.6
RTÉ	326,000	59,700	5.4
An Post	500,000	43,300	11.5

The Minister for Finance, Brian Lenihan,  announced in his Budget speech last December that ‘there should be a maximum salary rate of €250,000 in the public sector and that the position of the Minister for Finance as a shareholder or the statutory shareholder can be used to enforce the objective of the maximum salary within a reasonable timeframe’.

Lenihan’s ‘capacity to enforce’ was not apparent when the former managing director when he demanded the resignation of the former managing director of AIB just weeks earlier and he departed having pocketed benefits worth €3 million after one year in that role

Fianna Fail circus heads for the knackers yard

Fianna Fáil seems to be travelling in a parallel trajectory to that of the Ulster Unionist Party and are as likely to end up in the same long-term predicament. Lapses in political judgement and common sense this week illustrate how dislocated FF has become from its centre of gravity, its duty accountability and responsibility and, even, its raison d'etre. 

The carry-on was reminiscent of a badly produced circus and a crass attempt at the crudest political expediency for which no price seems to be too much to pay. Do Brian Cowen and Mary Coughlan really think that voters are gormless fools who will tolerate well paid individuals walking away en masse from important roles before the job is complete, leaving the conduct of government like a ghost housing estate? Were those who fled really team players, or merely a collection of eccentrics, oblivious to the public interest but with an exclusive focus on suiting their own whims, personal priorities and preferences?  A master craftsman who starts a job is expected to finish that job – not hand it off to a novice apprentice.

Have there not been enough episodes of atrocious governance, both within and beyond the political system, not to have a situation arise where there was a major lacuna in the control of the most important departments of State - justice, health, enterprise and public transport? 

Fianna Fail could have made a case to the electorate on the grounds that much has been learned from their lousy economic policy judgement and atrocious leadership of the economy from 2003 to 2007 but, instead, this week’s events demonstrate the opposite with Brian Lenihan and Mary Hanafin talking from both sides of their political mouth about Brian Cowen as though he is a fig roll – ‘I like him as a biscuit, but not as a bar’!

Ireland has made no political progress or accomplished any greater maturity towards stability than was the position when Rody Molloy drove home from his chief executive’s office in his FAS owned car for the last time - with the blessing of the Department of Finance.

Are public interest directors effective?

The Court of Directors at Bank of Ireland nominated two non-executive directors to represent the public interest at the behest of the Government following the introduction of the Government guarantee. They are Tom Considine, Secretary-General of the Department of Finance from March 2002 to June 2006 and former Fianna Fáil TD and minister, Joe Walsh.

They were paid €119,000 in the nine months ended 31 December 2009.

The Minister for Finance, Brian Lenihan, advised the Dáil barely a month ago that public interest directors “owe their duties to the company”; that “the interests of the company are paramount”. Public interest directors, he explained, “bring civic mindedness and a sense of what is in the public interest but that, to a great extent, the public interest and the covered institutions interest are likely to coincide”.

What are the consequences when this is not the case? The decision by Bank of Ireland to make outrageously extravagant bonus payments directly contravenes public policy articulated by the Department of Finance and utterly defies the role of society in keeping Bank of Ireland viable.

The Covered Institutions Remuneration Oversight Committee (CIROC) established by the Department of Finance were informed in early 2009 by the covered institutions that they did not intend to pay bonuses in respect of 2008 and CIROC recommended in February 2009 that bonuses should not be payable then, or for the period of the Government guarantee.

The membership of CIROC comprised:

• Vivienne Jupp, a former executive of Accenture Ireland’s Government Operating Group. The Irish Government appointed her a member of the Broadcasting Commission and the Review Body on Higher Remuneration in the Public Sector. She is a member of the Finance Committee of Concern Worldwide and a board member of the Irish Hospice Foundation.
  
• John Purcell former Comptroller and Auditor General
  
• Eddie Sullivan, Secretary-General for Public Service Management and Development. Sullivan served as interim director of FÁS following the Rody Molloy debacle

How can the public interest be adequately served when the duties and obligation to serve the public interest are so ill defined by the Minister and there is apparently no communication to Government when public policy is contravened and the Dáil is blind-sided by inaccurate information provided by Bank of Ireland? What will the consequences be and who will bear them?

Brian Lenihan’s illness, John Crown and TV3

It was on the News @ 5.30 on St Stephen’s Day 2009 that TV3 broadcast that Brian Lenihan was seriously ill.   This report, included a contribution by the distinguished cancer specialist, John Crown, in which he described his expert knowledge of pancreatic cancer, including the implications of both timely and untimely diagnosis.

The report prompted a considerable number of complaints to the Broadcasting Authority of Ireland, including one from me.  The Authority issued a finding on 9 March 2010 that this broadcast was within the requirements of the fairness, objectivity and impartiality rule, as defined by the Broadcasting Act 2009.    The Authority found on viewing the report that the reference to the type of cancer was editorially justified and in the public interest. 

But the Authority also found that the content of the report could have been considered by some viewers as distressful and / or offensive. TV3 stated that it is solely responsible for its decision to broadcast the news report, including the timing and the manner of the report and TV3 acknowledged that its news bulletin caused genuine upset.

I wish to retract my criticism of Mr Crown’s contribution to the report and express regret for any personal offence, or hurt, that he might have felt as a consequence of my criticism.

Inflated, bloated executive salaries at Irish Nationwide Building Society, despite CIROC recommendations

The response by Brian Lenihan to a question posed by Deputy Seán Barrett TD about the level of executive remuneration at Irish Nationwide Building Society was curious.  The question was put on May 12 – asking Lenihan ‘what steps he will take to ensure the Irish Nationwide Building Society complies with the recommendations made by the covered institutions remuneration oversight committee; and if he will make a statement on the matter’.  The response was “I am advised by Irish Nationwide Building Society that the remuneration of Directors and senior staff at the Society is in compliance with the recommendations of the Covered Institutions Remuneration Oversight Committee.”

This wretched building society has already reported a loss of €2.48 billion in 2009.  It devoured €2.7 billion of public money.  Ninety six percent of its €2.7 billion impaired loans relates to speculative commercial property transaction, much of it not even in this country,

The six years of delinquent financial regulation was characterised by what appears to have been a very passive relationship to this Society.  It is astonishing that the Brian Lenihan’s advisers chose to rely on information from Irish Nationwide about the issue of executive remuneration because a casual perusal of the 2009 Annual Report would suggest otherwise.

Rather light-touch, I would have thought, on the part of the Minister's advisers. The debacle that Ireland is now in is attributable to excessive reliance on the representations of this entity and its counterparts rather than vigilance, understanding and verification; an attitude more Greek than German.  The two directors representing the public interest, for example, were paid €38,000 more that CIROC recommended they be paid. 

The Covered Institutions Remuneration Oversight Committee (CIROC) report was published by Minister Lenihan on 27 February 2009 and given the crisis that prevailed then and the sense of urgency and caveats which the report  reflects, one presumes that its recommendations were to be promptly effective from 2009 financial year.

The CIROC report recognised that reduced salaries for some executives may require the revision of existing contractual arrangements; that there must be sufficient headroom between the recommended remuneration of a chief executive and the salaries of those reporting to the chief executive, such as the chief financial officer. Any departure had to be justified on case-by-case basis. It also noted that top-level individuals in financial institutions did not generally contribute to their pension funds and recommended that a review should reflect an appropriate balance between the personal contribution of all employees and that of the employer.

The CIROC report recommended the following levels of base annual remuneration in the case of Irish Nationwide Building Society:

• Chairman €144,000 (40% of chief executive's base salary)

• Chief Executive €360,000

• Ordinary board member €29,000 (20% of chairman’s fee)

• Board member chairing major committee €36,000 (25% chairman’s fee)

The Annual Report reveals:

• The role of chairman of Irish Nationwide was remunerated in 2009 within CIROC guidelines.

• The role of chief executive was paid €494,000, that is €134,000 in excess of what CIROC recommended. Mr Fingleton, as chief executive from 1 Jan – 30 April, was paid €221,000 for that period - €101,000 more than CIROC recommended.  The current chief executive, Mr McGinn, received, on a pro rata basis, €22,000 more than CIROC recommended. Mr McGinn apparently has the use of a residence leased by the Society towards which he paid a personal contribution of €6,050 from 15 Jul to 31 Dec. It is not clear if there is an undisclosed subsidy amounting to the difference between this sum and the actual rental for this period.

• Each of the current non-executive directors is a chairman of a major sub-committee of the board of the Society but the remuneration of each of them exceeds CIROC recommendation by a cumulative sum of over €68,000 - details attached.

• The role of chief financial officer which ought to attract a remuneration ‘with sufficient headroom below the remuneration of the chief executive, €360,000’ was paid a total of €539,000. This includes the remuneration of the former executive director and Secretary, Mr Purcell, who was paid €385,000 in 2009. I would question in this instance, that apart from breaching CIROC recommendations, there is information in the public domain that the records of this Society are in such a state that the current chief executive severely criticised the impact of the lending policies and practices of the previous management and that the determination of the final losses of the asset portfolio remain highly uncertain. Does this not raise fundamental questions relating to the corporate governance of this entity as the Government rushed headlong into committing €2.7 billion to it, only to realise that billions more in State funding are needed if it is to be kept on life-support.  Under what circumstances could Minister Lenihan have entertained a derogation from CIROC recommendations in the case of Mr Purcell, if one was sought, against the background of the information now in the public domain?

Readers may not be realise that in addition to the €28 million personal pension fund paid for by Irish Nationwide and received by Mr Fingleton in 2007 that he also remunerated himself in the sum of €10 million from the period our property bubble began inflating, 1 January 2003 until he departed on 30 April 2009.  This puts the €1 million pre-contractual bonus that he paid himself in 2008 in a wider context. 

Incidentally, the pension fund for the 399 staff of the Society, whose average annual pay is approximately €41,000, is €4.4 million - one seventh of the sum Mr Fingleton personally obtained.  The employees pension fund  bore a deficit of €700,000 on 31 Dec 2009.

Is the reformation of our financial system not in some ways comparable to the reform process that Mayor Giuliani deployed in cleaning up New York – where discipline started with the seemingly inconsequential issues, like removing graffiti from the subway system?  But in this instance, is compliance with top-level remuneration CIROC not a most obvious example of a similar discipline?

Reporting the Lenihan diagnosis

THE Sunday newspapers report a widespread adverse reaction by the public to the broadcasting of details of a medical diagnosis of an individual by TV3 News - a reaction that is not at all surprising.  If any of your readers are particularly infuriated about the reporting of this matter, or even distressed by the principle of such news reporting to the extent that they believe that it constitutes an infringement of the privacy of an individual, there is a potential remedy.  Members of the public may register a written complaint with the Broadcasting Authority of Ireland (BAI) under S48(1)(c) of the Broadcasting Act 2009.  This section covers the broadcasting of matters that contravenes the privacy of an individual.  It would be an appalling development were this type of voyeuristic news reporting to become a recurring feature of what would inevitably become a diminished standard of news dissemination in this country. 

Complaints must be made to the Authority in writing within 30 days of the date of broadcast in question and include a summary of the basis of the the complainant.  Full details of the appropriate procedure and the complaint form are available on the BAI web site at www.bai.ie. 

NAMA – Crucial considerations from a consumer perspective

THE European Central Bank has exhorted the Irish authorities not to overpay for assets that the proposed National Asset Management Agency (NAMA) is set to acquire. Mr John Mulcahy, a chartered surveyor who has been seconded to NAMA, opined at the meeting of the Joint Committee on Finance and the Public Service on 31 August, that “there has always been a recovery in the property market, although sometimes it has been more vigorous than in others. In general, the commercial market has recovered over a seven year period to an average of about 88% of where is was in the trough. For residential property, the market has recovered in seven years to a figure of about 96% of where it was in the trough”.

Two fundamental questions must be addressed before these opinions can be relied on to become viable propositions.

“Is recovery to be based on individual continuing to take on mortgages based on a wholly unsustainable income-to-loan and loan-to-value ratios, as has been the case over the past several years? If so, the proposal is doomed to catastrophic failure”

Residential mortgages are the largest single component of private sector credit in Ireland. The economic crisis that this country is now inflicted with is a direct consequence of sclerotic levels of credit being made available by delinquent banks and building societies since 2002 – loans that are too many multiples of gross income, or loans that are equivalent to almost 100% of the value of the underlying asset, obliterating any potential equity element.

Traditional prudent lending practice dictated the following maximum limits for house loans:

• Not more than 2½ times annual gross income. If a spouse or partner has an income, a sum equivalent to that person’s annual income can be factored into the calculation of the maximum sum that can be borrowed.

• The loan should not exceed 90% of the value of the mortgaged property

The evidence of recent Irish banking practice and the lack of adequate oversight can be traced through the following table:

Actual Income to Loan Ratio 2002 - 2006

€ Million	2002	2003	2004	2005	2006
Collective gross income of mortgagees1	18,671.29	20,537.96	22,757.63	24,859.01	28,143.10
Prudent borrowing capacity (2½ times gross income)	46,678.22	51,344.90	56,894.07	62,147.52	67,857.75
Actual residential mortgage lending2	47,212.00	59,242.00	77,029.00	98,956.00	123,288.00
Excess lending : ‘bubble’	534	7,897.10	20,134.93	36,808.48	55,430.25
Loan : Lending ratio	2.52	2.88	3.38	3.98	4.38

1 Based on data contained in Revenue Commissioner Statistical Reports Tables IDS 1 and 15
2 Source Table A2.2 ‘Residential Mortgage Lending to Irish resident’s, Central Bank Quarterly Bulletin

² Actual residential mortgage lending includes outstanding securitised mortgages (the initial amount of the securitisation less all repayments of capital made by borrowers’).

The consumer housing credit bubble started in earnest in 2003, the year Ireland ceded control over interest rates to the European Central Bank and the year that The Financial Regulator came into being.

The pace at which this bubble gathered momentum is staggering. It grew within eighteen months to over €20 billion, equivalent to 88% of the gross income of all claimants of mortgage interest tax relief in 2004.

When it reached €55.43 billion at the end of 2006, the bubble was over 197% of the estimated gross income of all those claiming mortgage interest tax relief that year. The consequences of this credit bubble after 2006 has to be considered in the context of even greater debt and prevailing adverse economic circumstances.

This pace of the housing bubble was almost reminiscent of Moore’s Law which was defined by a founder of Intel, Gordon Moore. It describes a long-term trend in the history of microprocessors that the number of transistors that could be placed on an integrated circuit doubled approximately every two years. While that pace of incremental change is sustainable in the computer world, it is certainly not sustainable in the residential mortgage market.

The bubble took shape following a 43.8% increase in the total gross income of all Irish taxpayers from €36,899 million in 2001 to 53,090.7 million in 2002. The number of taxpayers increased from 1,763,859 in 2001 to 1,824,878 in 2002, an increase of 3.4%.

Programme for Prosperity and Fairness 2000

The social partnership agreement, Programme for Prosperity and Fairness 2000, covered the 33 month period between 2000 and 2002. The agreement provided for the following increases in basic pay as it applies in each particular industry:

• 5½% of basic pay for the first 12 months

• 5½% of basic pay for the second 12 months

• 4% of basic pay for the next 9 months

Statutory minimum pay was adjusted to £4.70 (€5.97), on 1 July 2001; £% (€6.35) from 1 October 2002. PPF also provided for the benchmarking of public sector pay vis-à-vis  the private sector. These rates of increase do not account for the entire actual increase in gross income of €16.19 billion across all taxpayers’.

Role and Impact of The Financial Regulator

The Financial Regulator does not have the power of utility regulators to price financial products.

The Chairman of The Financial Regulator, Jim Farrell, commenting in the 2008 annual report, stated that their strategic approach to regulation was framed in a much “more benign environment” but the Regulator “had taken steps to slow bank lending, in particular in 2006 and again in 2007”. The steps taken did not achieve the intended goal.

The evidence presented above does not indicate that the environment was as benign as Mr Farrell intimates. Residential mortgage lending to Irish residents increased from €98.56 billion in 2005 to €123.28 billion in 2006 and to €139.84 billion in 2007. The latest figures indicates that residential mortgage debt sat the end of May 2009 was €148.2 billion.

The former chief executive of the Regulator, Liam O’Reilly, stated in the 2005 annual report that

“Along with the Central Bank, we are concerned about the rapid rise in the levels of indebtedness in the economy and are well aware that if conditions change adversely, many people could be severely affected. We monitor and require institutions to anticipate and prevent risk issues now rather than to have to address problems down the line. There has been much debate about high loan-to-value ratios in recent days for mortgage borrowers. In this debate, the critical issue is the ability of borrowers to repay the loan in full. It is the responsibility of each financial institution to ensure that their credit standards, provisioning policy and levels of capital are appropriate to provide not only for today, but, in the event of any future downturn in the market. So long as the quality of credit is maintained and the ability to repay is not compromised this is not a problem. We have a responsibility to inform consumers which we are doing through our publications, which set out the risks and benefits of various financial products, including mortgages and personal loans.”

How Responsible Are Banks in Ireland?

 

Private sector credit to Irish residents expanded from €142.6 billion (109.5% of GDP) in 2002 to €317.7 billion (179.8% of GDP) in 2006. It reached €389.1 billion by May 2009 (216% of GDP). Iceland was the only country in 2005 to have exceeded the PSC-GDP ratio of 200%.

Residential mortgages are the largest element of private sector credit.

The construction sector component of this increased from €4.4 billion in 2002 to €20.7 billion in 2006 – from 3.2% to 6.5% of GDP and is significantly smaller than the residential element.

The catastrophe that has now unfolded indicates that the chances of avoiding lethal consequences as a result of relying the standards of responsibility of Irish banks is comparable to the chance of avoiding death, having been bitten by a rabid dog.

Consequences of Housing Credit Bubble

 

The house building cost index increased from 171.8 in 2002 to 194.2 (13%)

Average new house prices outside Dublin increased by 51% from €206,879 to €313,087. The average price of a second-hand house, outside Dublin, increased by 56% from €241,054 to €375,577. Prices bore no relationship to costs and were escalating because credit restrictions were effectively non existent.

Conclusions

The apparent economic climate at the end of 2006 was one of calm before the tsunami. The construction sector completed 350,035 new houses during the preceding five years sufficient for an additional population of 840,000 persons. But the population of Ireland only expanded by less than 323,000 in this period.

There are approximately 1,469,000 households in the country. The following table summarises the number and value of mortgages paid between 2002 and 2006:

	New	Used	Total
Number of mortgages paid	221,316	260,767	482,038
Value of mortgages paid € Million	€50,454.0	49,669.8	€100,123.8

Source: Department of the Environment, Heritage and Local Government

Over 32% of the nation’s housing stock has been caught up in this bubble. Mortgagees’, with indebtedness of over €100 billion, are now subject to the consequences of negative equity as well as the other implications of the most severe economic downturn in living memory.

A crisis of a similar nature occurred in Ireland as a consequence of the agricultural depression of the 1870’s. It followed a 20-year period of economic expansion following The Famine. But rents became unaffordable and land values collapsed. Credit became unavailable as the insurance companies who provided it vanished from the marketplace. That downturn lasted until 1914.

If the malignancy of the credit bubble that now paralyses our economy is not eliminated Ireland will never successfully escape this downturn. The only course that will protect society is to legislate the maximum gross income-to-loan and loan-to-value ratios that are prudent and sustainable.

It is abundantly clear that the passive advocacy of The Financial Regulator has been wholly ineffective. The history of the relationship between the leadership of Ireland’s banks and Irish society is not based on shared values or the common good. If it were the Exchequer would not have lost hundreds of millions of € when the Irish banks facilitated the setting up of illicit off-shore accounts. Rampant customer overcharging would not have occurred and the ranks of the leadership of the banks’ would not have been cited for personal income tax evasion, when they were on 28 March 2006.

Bankers’ now claim they made ‘regrettable mistakes’. The did, in fact, engage in delinquency of a treasonable scale and nothing short of stringent legislation will restore a balance and sentiment from which stability and sustainability has some hope of being nurtured.

Eighty per cent of all those claiming mortgage interest tax relief earn less than €75,000 per year and many earn significantly less. Over 43,000 mortgagees earned less than €20,000 per year in 2006 when the economy appeared to be significantly more buoyant. Their interests deserve the protection of the State from predatory banking practices.

The peril of NAMA and the blind faith of the taxpayer

Scope and role of NAMA

IRELAND’s National Assets Management Agency (NAMA) is being set up to buy the most dodgy loans to property developers’ on the balance sheets of Irish banks. The existence of these loans is said to be preventing the banks from lending to the authentic, productive segment of the economy and enabling that segment to stimulate economic recovery.  They lent too much to too few property developers and speculators but it acted as steroids would for bankers’ bonus enhancement.  Many a good Sunday afternoon in the corporate boxes at Croke Park, Punchestown and the Curragh was enjoyed on the strength of it!

These loans are to be valued on the basis of a prescribed methodology, as defined in the Bill. Their valuation will be lower than that recorded in the balance sheet of the lending bank. Valuation is not to be determined by the inflated assumptions and price structure on which they loans were first approved. The assets which were provided as security for the loans will be valued on the basis of a price is realistically achievable in the medium to longer term in term. NAMA will be the largest property owner in the country and will have the bargaining power that goes with this status. This means that it should be able to choose when to put property on the market without depressing market prices unduly.

It is intended that the elimination of uncertainty and the cleaning up of bank balance sheets to more truly reflect the genuine underlying values of their assets and liabilities will revive our financial system and provide credit to businesses that need it and the interests of depositors will also be more secure. 

The recent court case involving ACC Bank could put a spanner in works of NAMA if emulated.  Not all banks will entertain the NAMA agenda as evidenced by the approach of its parent since 2002, the Dutch AAA rated Rabobank,

 

Can Irish banks be trusted?

All of the foregoing is predicated on the Government having no role in the commercial conduct of Irish banks.

The Government has rejected, at least for now, the option of nationalisation, arguing that it is better that the banks’ maintain a presence on the stock market and conduct themselves within the constraints and disciplines of that marketplace. But is this great act of faith not a bridge too far for the Irish banks? It sends a shiver through my spine that almost frightens the living daylights out of me to see these morons’ self-policing.  Some of them are not fit to be the janitors removing cigarette butts from the latrines in the staff toilets, even with the protection of plastic gloves and goggles!

Were these banks not supposedly operating within the constraints and disciplines of the investment market for decades only to end up as the basket cases that they now are? The same disciplines that allowed them foster a nationwide culture of tax evasion (including personal tax evasion by themselves), offshore accounts for indigenous residents, scam charges on customer accounts and the cute-whore approach did not seem to conflict with their notion of discipline.

When one peruses the annual and interim reports of these awful banks it is abundantly clear that their all-consuming love affair with the property sector was intense, passionate, titivating and, of premier importance,  bonus yielding. But have these dysfunctional gobshites any understanding of the needs and dynamics of authentic economy?

I frankly fear they do not and are incapable of learning and the more I see of their Windsor Tie Knots, their grimaces of injured innocence and the ugly oversized cuff-links perched on their starched white shirts, the less convinced I become.

As the nation awaits the debate of the NAMA Bill in the Oireachtas next month many of us are utterly mesmerised by the complexity and scale of the proposed NAMA project and the level of risk that it involves is beyond the comprehension of the average person. The value of the assets concerned, around €90 billion, is equivalent to the total personal expenditure of all the citizens of the State in an entire year in good times. It is three times the amount of tax the Revenue Commissioners will collect in 2009 and it is over 50% of the likely GDP in 2009. 

 

Impact of lower credit ratings’

Many are being hurt by mortgage interest rate and cost increases.  But the Government see these as reflecting commercial marker realities.  They are careful not to spell out what these realities are.  But could they have anything to do with degraded ratings and subversive transactions for which no one has been held accountable in a court of law?

The investigation by the Chartered Accountants Regulatory Board was being overseen until recently by the board Chairman who is also a director a bank being investigated.  Can you imagine the bean-counters even allowing such a juxtaposition to materialise for the sake of their own credibility in society?

Apart from being clueless about the authentic economy our friends with the golden cuff links had no difficulty ramping up credit until it surpassed 200% of gross domestic product as though it were competing with Iceland in the financial services Olympics.  The could do this because the vey same Government “had no role in the day-today commercial operation of the Irish Banks” – so they could do what they liked and to hell with the consequences, as long as it did not impair their personal remuneration.

NAMA does not have a mandate now to deal with dodgy residential loans.  The individual mortgage bearer is not as  ‘systemically important’ enough to matter as Anglo Irish Bank, a bank where no fewer than five chartered accountant ran they show.

 

The Alan Greenspan influence on Irish banking

Capitalism in the United States and elsewhere was energised by an approach proselytised by Alan Greenspan the Former Chairman of the US Federal Reserve Board (the Fed) to the effect that the enlightened self-interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring and managing their firms’ capital and risk positions. It was against this background that a plethora of so-called financial instruments, derivatives, sub-prime mortgages and securitised assets.

Greenspan was a passionate advocate of the free market. He was appointed to the chairmanship of the Fed by Ronald Reagan in August 1987 and held this position throughout the presidencies of George H Bush, Bill Clinton and George H W Bush until he was replaced by Ben Bernanke in 2006. The 1987 stock market crash coincidentally occurred the following October. Greenspan used the tools of monetary policy to guide the US economy.

This means controlling the availability and cost of money – so varying the interest rate was a central feature of the Fed’s tool kit throughout his tenure to particularly control the threat of inflation and maintain the value of the US $ at a satisfactory level on foreign exchange markets. The Republican Party, starting with Reagan, was a very strong advocate of reducing government influence and this meant that the Fed avoided the toolkit of fiscal stimulus – government borrowing, spending and taxation, to guide the economy. Their approach was to allow the market determine virtually everything.

The crucial difference between these newer financial products and traditional financial assets, such as stocks and shares, is that cash is directly exchanged for an asset concurrently in the case of a share purchase. Credit problems do not fester like rats in a sewer.  The incidence of risk is minimised so the calculus of a bookmaker are not as necessary. Auditors can audit share transactions.

Derivatives and similar financial products are based on underlying contracts that can remain unsettled for very long periods. Some of the more complex derivatives can involve thousands of contracts and hundreds of contracting parties. Values are determined by an independent index – such as FX rates, interest rates, share prices etc.  If there is an adverse movement in a relevant index of indices there may, or may not be a guarantee in place to trigger a payment.If there is no guarantee, or collateral underpinning a derivative their value is a function of the credit worthiness of the various connected parties but the apparent profits are recorded as earnings before money changes hands. 

What happens in practice is that banks involved with derivatives and similar assets accumulate large quantities of ‘paper assets’, liabilities and counterclaims – an opaque cobweb of mutual dependence and dependence on third parties that are often unidentifiable. This minefield has yet to raise its head in the context of the assets and liabilities of Irish banks and building societies.

This meant that investors are not in a position to understand and analyse banks and financial institutions because these instruments can be underpinned by thousands of contracts and hundreds of counterparties. Their value and the value of their underlying financial assets can therefore be over or understated by a crippling variation, as was demonstrated by the collapse of Bear Sterns.

 

Limitations of transparency

Transparency is a much bandied word especially when it comes to averting future problems. Bu there is no reporting mechanism that can either define the risk of measure the value of a complex set of derivatives. They are not audited and they are not regulated.

I will be interested to observe the level of transparency that applied to NAMA.  The nationalised Anglo Irish Bank has billions of € in impaired loans, including loans to directors and managers,  but it is not possible to ascertain if these include the loans approved for the purchase of the Irish Glass Bottle site at Ringsend, Dublin to which the State’s Dublin Dockland Authority is a joint venture partner, notwithstanding that the current Government appointed Executive Chairman of Anglo Irish Bank was also the Government appointed Chairman of Dublin Docklands Development Authority in succession to Lar Bradshaw, formerly a director of Anglo Irish Bank. The current Chairman of Dublin Docklands Development Authority, Niamh Brennan, is an accomplished UCD professor and the leading academic advocate in Ireland of transparent, credible corporate governance!  Will our patience ever be rewarded?

Ireland’s Minimum Wage in the cross hairs!

Wage growth moderation from 1986 to 2001 was one of the legacies of Ireland’s social partnership model.  Social partnership agreements between the representatives of trade unions, employer representatives and other stakeholders produced a series of multi-year partnership agreements since 1987 that included a national approach to pay increases.  This facilitated a prolonged period of stable industrial relations and improved work practices.

However, the index of average hourly earnings rose from 139 in 2001 to 196 in 2009.  This compares to an average rise from 121 to 256 in the case of Ireland’s major trading partners.

However, a minimum wage is set under the terms of the National Minimum Wage Act of 2000 and this has been €8.30 per hour since 1 January 2007 and this applies to any employee who has an employment of any kind in any two years over the age of 18 years.

Brian Lenihan TD, the beleaguered Minister for Finance intimated last night at the MacGill Summer School in The Glenties, County Donegal that the minimum wage level “may need adjustment”

The minimum hourly wage in 2006 was €7.65, equivalent to €15,912 per annum.  This was a time of boundless optimism!  The cumulative value of residential mortgages, at €121.2 billion, had increased by 25% in a year, thanks to our harum-scarum banks.  The number unemployed was less than 100,000.  The number of persons on the Live Register was 155,389 - compared to the current number of 418,000.  We were yet to be burdened by the catastrophic consequences of those individuals and entities that are defined as being 'systemically important' - whose appetite for taxpayers cash is voracious and who have the capacity to panic the Government into acceding instantly to their demands.

The latest Statistical Report published by the Revenue Commissioners provides some interesting insights into the potential impact of any reduction.  Some 675,086 persons of the total of 2,261,138 persons paying income tax, earned less than €15,000 per annum in 2006.  They collectively earned €4.77 billion.  This would be equivalent to an average of €3.40 per hour, per person - although I presume that many may of them may not have been in full-time employment.  The gross income earned by all income tax payers in 2006 was €81.51 billion.  This means, that at the height of the economic boom, 30% of all individual paying income tax collectively earned less than 6% of the the gross income of all income tax payers.

Given the current diabolical state of the economy these insights clearly indicate that the degree of neediness in Ireland is probably far greater than generally realised.  A huge percentage of those not on welfare are existing on incomes at, or close, to a very basic level of subsistence and a reduction in minimum earnings will have very painful consequences for hundreds of thousands of people.  It will also aggravate the credit crisis as more individuals are not in a position to repay bank loans.  A decision to reduce the minimum wage could well be a case of the Government chasing its tail because unanticipated consequences may overwhelm anticipated benefits.

Wage trends in Ireland have moderated very significantly with onset of the economic crisis and the adverse impact that this is having on employment and investment levels.

Moral hazard of nationalising Anglo Irish Bank

The response of many prominent Fianna Fáil politicians to the result of the elections last Friday was to plead for more effective communication of Government actions. The saga of Anglo Irish Bank must provide a specimen illustration of ineffective communication.

It was nationalised on January 15^th, less than a month after the abrupt resignation of former Chairman, Seán FitzPatrick, fellow director, Lar Bradshaw who has been the Government appointed director of the Dublin Docklands Development Authority, David Drumm former Group Chief Executive, William McAteer, Group Financial Director and Chief Risk Officer, to mention but a few. McAteer is a former partner of PricewaterhouseCoopers. The current chairman of the nationalised bank was managing partner of that firm for a number of years. But the Government has failed to educate and convince the public that maintaining Anglo is in the national interest.

John McManus, has written a very compelling article in today’s edition of The Irish Times that argues the time has come to shut Anglo Irish Bank for good and the argument that it is too costly to close it is false.

No State money was invested since nationalisation but the begging bowl is out now. When the 6-month report to 31 March was issued on 29 May there was an immediate demand for €4 billion of additional capital. It was also signalled that further losses of €3.5 billion are anticipated. Anglo had assets of €101 million when it was nationalised. But the results at 31 Mar have diminished to €88.5 billion in a matter of 75 days since nationalisation.

The nation's capacity to bail out zombie banks is not infinite, nor is there much faith in their capacity to redeem themselves without extensive changes at the top. The National Pension Reserve Fund was valued at €15.5 billion on 31 March, having lost 30.4% of its value in the previous year. €7 billion of this has been invested in AIB and Bank of Ireland and if €4 billion is to be immediately committed to Anglo and a further demand for €3.5 billion is lurking in the shadows, the nation's sovereign wealth will amount to a mere €500 million.

The incidence of moral hazard is never far away when a fairy grandmother emerges to bail out an errant entity, and the former discipline of the stock market no longer prevails. It has emerged that Anglo made loans of €175 million to 10 directors and that €31 million of these are impaired. Would this impairment arise if the State was not involved and the stock market had to be impressed by the prowess of the business?

Apart from FitzPatrick who owes €106 million, Bradshaw, Drumm and McAteer the former directors were Tom Browne, Fintan Drury, Noel Harwerth, Anne Heraty, Michael Jacob, Gary McGann, Ned Sullivan, Declan Quilligan and Pat Whelan.  The former board received emoluments of €11.5 million in 2008, a slight reduction on the €12.9 million doled out in 2007.  But these far-sighted people decided that, had they remained, fees for non-executive directors would have been reduced by 20%!

This success of nationalisation is predicated on maximising the collection of outstanding liabilities. What signal is conveyed by a high incidence of impairment in the directors' loan account? There should be no directors loans whatsoever outstanding in a nationalised company.

The immediate call on State support of €4 billion immediately, is apparently to be made before the investigation of the Garda Fraud Squad and Office of the Director of Corporate Enforcement is completed. Impaired loans amount to €10.7 billion and a further €12.9 billion are deemed, at this stage, to be 'past due, but not impaired'. But they could be against this background. Loans of over €300 million, provide by Anglo to its own customers to buy Anglo shares, are now impaired and await the pleasure of the Irish taxpayer.

The cost of running Anglo Irish Bank, now a State enterprise is exorbitant. The average salary for the 1,753 employees for six months was €48,488 (equivalent to €96,976 per annum). A comparison with those public entities that engage with Anglo reveals that the average salary at the Department of Finance in 2009 will be €58,601, while the average salary of staff in the Office of the Director of Public Prosecutions is anticipated to be €64,946.

The Minister for Finance advised that nationalisation would mean "drawing a line under past activities". As the Minister is the only shareholder, why was it even necessary to engage a public relations firm in connection with the publication of the first interim statement since nationalisation? If the intention is to signal the drawing of a boundary with life under the ancient regime, why would the new board of directors and not be bold enough to 'go for change' rather than choose Drury Communications, a public relations firm established by Fintan Drury?  Drury was a former director of Anglo Irish Bank until June 27 2008. He was paid €85,000 in 2008 as a retainer to attend 4 board meetings and 6 meetings of the Anglo Risk and Compliance Committee and 2 meetings of the Nomination and Succession Committee.  Surely there is some due out of a staff of 1,753 that could coherently articulate what is happening, or have all those with these qualities already resigned?

The Government has not done enough to convince the public of the systemic importance of either Anglo Irish Bank or Irish Nationwide Building Society. The McManus article suggests that since it is most unlikely to redeem its reputation. Customer funding has dropped from €47.8 billion on 30 September to €34.1 billion on 31 March – driven by “a market wide aversion to risk”. But is also reflects the decrease of €7.3 billion of customer deposits received from Bowler’s Irish Life Assurance Company that was designed to hoodwink stakeholder at the end of the last financial year – 30 September 2008. 

Customer lending, to existing customers, increased fractionally from €71 million to €72.3 million and €700 million of this concerned capitalised interest and the roll-up of other interest outstanding.  Basically it is a matter of endemic stagnation combined with a ruined reputation and an open-ended drain on public funds.

Ireland’s credit rating was reduced on June 8th to AA negative by Standard & Poor’s on account of the fiscal cost of weakening bank sector asset quality.

Anglo Irish Bank -Taxpayer: ‘open your wallet’!

The publication of the latest 6-month results from recently nationalised Anglo Irish Bank, to 31 March 2009, have been described as ‘very disappointing’  by the Minister for Finance.   Chairman, Donal O’Connor, says they are a reflection of trading conditions that have been ‘very challenging’ and a funding environment that is ‘extremely challenging’.  All of this is now to be ‘very challenging’ for the Irish taxpayer who will be asked to immediately fork out €4 billion in additional capital out of ‘very disappointing’ Irish tax revenues in 2009 – not anticipated to surpass €34 billion.

Anglo has incurred a €4.1 billion loss including a specific impairment charges of €3.7 billion and collective charges of €400 million.  But there will be more, much more, perhaps as much as €3.5 billion more.  These calls on public resources have absolute precedence over all others, including special needs education, medical cards for older citizens because Anglo Irish Bank is of ‘systemic importance’  Citizens’ are not systemically important in this republic.  They are expendable pariahs’, apart from their capacity to sustain Ireland’s crony capitalists and the herd of politicians who feed of them.  The comments and supplications of economists employed by Irish banks’, brokers and representative bodies – reveal the insight of eunuchs with possibly a junior certificate grasp of economics and an overwhelming sense of their own self-importance.

It is particularly distressing to observe that a €31 million impairment charge relates to loans to directors of Anglo Irish Bank, including €8 million granted on ‘non-recourse’  terms but renewed on ‘full-recourse’ terms.  Directors’ loans total €175 million at 31 March 2009 before the impairment split between 10 directors, none of whom held office at 31 March 2209.  There are also loans of €7 million due from two senior managers.  Directors’ deposits at €20 million are €7 million less than on 31 March 2008.  The risk management processes at Anglo Irish Bank were as effective as splashing after shave on a skunk in order to eliminate foul odours.

The €175 million directors’ loan figure includes €106 million due from the former chairman, ‘Seánie’ FitzPatrick.  He owed €83.3 million on 30 September 2008 and €119.8 million on 31 March 2008.

Total loans outstanding increased slightly to €72.3 billion.  The proportion of this classified as ‘good’, ‘satisfactory’, ‘lower quality, but not impaired’ is €48.6 billion, compared to €68.44 billion on 30 September 2008.

Those that are ‘past due, but not impaired’ are €12.9 billion and, of great concern to taxpayers, the proportion of the loan book that is impaired is €10.7 billion.  The combined sum, €23.6 billion compares to €2.53 billion just six months earlier.

The are also some interesting changes in staff levels and remuneration following the disposal of Anglo’s Swiss and Austrian private banking businesses:

 

Anglo Irish Bank	6-Months to 31 March 2009	6-Months to 30 September 2008
Staff remuneration	€85,000,000	€114,000,000
Staff numbers	1,753	1,922
Average pay for half-year	€48,488	€59,313

 

When restated on an annual basis, the average pay at Anglo Irish Bank is €97,776, now funded by increased government borrowing.

The Moral Hazard of the Banks' Bail Out

Six Irish banks are being bailed out by the State because of their systemic importance. This is supposed to mean that the consequences of their failure would have an adverse, far-reaching impact on the economy and the financial welfare of the country. Taxpayers are naturally concerned that if large scale public resources are committed that these are used to create repair a problem not to make those who caused the problem richer and this can arise in many ways including the valuation of assets and liabilities and through the derring-do of executive and non-executive leadership.

The resources required in Ireland to bail out banks are enormous in the context of our resources – potentially 50% of Gross Domestic Product. If Ireland were to experience a 10% drop in GDP this year, which could happen, the recession we speak of would become a depression. Foreign lenders are becoming ever more cautious. Tax revenue has collapsed from €47 billion in 2007 to a potential €34 billion in 2009. Taxes and levies have been raised several times in the past 12 months and Government spending has been curtailed. These initiatives are designed to impress lenders and the rating agencies' but it will aggravate the downturn. The guarantees and the direct investment provided to the banks could even strain the long-term solvency of the country and this puts further strain on the country.

There are many uncertainties in relation to the bank bailout and one of these is the consequence of moral hazard. Moral hazard arises when banks make choices in the light of Government support that would not make were this not available. A glaring example relates to the disclosure of losses arising from impaired loans. Last week AIB announced that it has increased the amount being set aside to cover impaired loans from €106 million to €1.8 billion. Irish Nationwide Building Society has announced a loan loss impairment charge of €464 million, increased from €48.8 million in 2007. The loan loss impairment charge was €17.6 million in 2006; €27.2 million in 2005 and €6.5 million in 2004.

Following the publication of a 9-bullet point press release last Friday, the Taoiseach has announced that this institution is to join the bailout fraternity. Irish Nationwide announced a loss of €243 million after this very large loan loss impairment charge. The common understanding of a building society is that of providing house loans to members from the proceeds of members' savings. The risks involved would be fairly widely dispersed and thus moderate.

Irish Nationwide had residential mortgages of €2.547 billion in 2007, down from €2.599 billion in 2006. 98% of these were in Ireland and 28% related to houses in Dublin. But Irish Nationwide also had commercial mortgages amounting to €9.785 billion of which only 37% were in respect of Irish properties (16% in the Dublin area). 53% of the commercial mortgages were in Britain (34% in London). The total loan book in 2007 was €12.332 billion. This has was reduced to €10.474 billion in 2008.

Ireland had become very dependent on tax revenue derived from construction such as capital gains tax, stamp duty and corporation tax. But the drop in tax revenue from these sources has been dramatic reflecting the burst bubble of the construction sector. Capital gains tax has dropped by 54%; stamp duty by 48% and corporation tax by 20%.

The reserves of the Society in 2008 were stated to be €1.2 billion, a reduction from €1.51 billion in 2007. However, the 2007 figure included a property revaluation reserve, of which €67 million, but the property values of 2007 no longer prevail.

Irish Nationwide makes a point each year of commenting on its cost-income ratio which in 2007 was 17%, “which continues to be the lowest of any Irish financial institution”. A wonderful accomplishment when directors’ emoluments amount to €3.49 million – 78 times the average annual pay of the 400 staff of the Society (€44,500).

If 50% of Irish Nationwide's loan book concerns transactions outside this country, to what extent is it of systemic importance to Ireland? How valuable is the Irish Nationwide franchise? A strong franchise is derived from a strong competitive creates pricing power and a status that can make it a sought after acquisition target. Why did Irish Nationwide never cede its mutual status and become an acquisition candidate? Does its reluctance offer any insight into the real quality of its business and prospects? Are its problems fundamentally different in character to other covered institutions?

The moral of all of this generally is that taxpayers need to be extremely vigilant as to whether Government intervention repairs the banks and building societies, or merely affords an opportunity to those who control them to enrich themselves through ‘adjustments’ that would never see the light of day if Brian Lenihan was not standing by with buckets of your hard-earned money! The issue concerns what is called ex post accountability - whereby problems are resolved after uncertainty has been resolved, or thought to be resolved. But as we are living in a country where the Finance Minister indicates that serving politicians are to forego political pensions, while serving in elected office and less than two weeks later his boss indiciates that this measure will only apply to the politicians of tomorrow, doesn't inspire confidence that this Government has the savvy to really understand the implications and vulnerabilities of its bail out initiative.

Fingleton's Hubris and Brass Neck

Michael Fingleton has dominated Irish Nationwide Building Society for more decades than I can remember. It operates a 50-branch network including a branch in Belfast and London.

Fingleton's €2.313 million annual remuneration in 2007 was more than 47 times greater than the average annual remuneration of each of his 400 staff. This increased to €2.38 million last year but there is no evidence that a remuneration committee is in place at the Society to sanction this.

Directors' emoluments between 2000 and 2007 amounted to €16.75 million but each annual report strongly and consistently advocates 'the importance of cost control and how it continues to be a major objective of the Society'. This was a period when its emphasis changed to commercial property and it was thought there were ambitions to demutualise.

There have been only 3 non-executive directors on his board (compared to 7 at EBS), each with long tenure - until the recent appointment of 2 non-executive directors, Rory O'Ferrell and Adrian Kearns, by the Irish Government, who are to act in the public interest. The non-executive directors received 8.4% of the directors' emoluments in 2007. Is this a measure of their proportionate influence? It would seem that their influence is as muted as that of the the impact of the Governor of the Central Bank in reigning in the Irish banks as the credit crisis worsened and they were knee-deep in property development.

The expression 'corporate governance' does not feature, even once, in the Society's 2007 annual report. There is not as much as a whispered comment on the website of the Corporate Governance Association of Ireland about the corporate governance standards at Irish Nationwide (or, indeed, Irish Life & Permanent Plc).

Some 60% of the assets and 70% of the revenue of Irish Nationwide is derived from the commercial sector in Britain and Ireland. It is hard to see how it can escape the carnage now visiting all financial institutions, particularly those embedded to the commercial sector, especially given the experience at EBS.

Mark Moran, chairman and Alan Merriman, financial director of the EBS resigned following the publication on 10th March of EBS annual results for 2008. This followed an impairment charge of €110 million on 20% of its loan book (€95 million arising from the provision of development finance and €15 million against funding provided to an Icelandic bank, now nationalised). This resulted in a loss before taxation of €38.2 million. No bonuses are payable to EBS management in respect of 2008; not so at Irish Nationwide! EBS, in assessing its loan portfolio, is concerned with €500 million in development financing. Irish Nationwide had over €9.75 billion in commercial mortgages in 2007.

Revelations about Fingleton's €1 million 'pre-contracted incentive bonus' is the lastest of many displays of hubris and brass neck and it is also another rusty nail in the reputation of Ireland's financial services industry.

Remuneration levels in this industry have risen so astronomically since the turn of this century that they bear no coherent relationship to the income and resources of most borrowers, savers, and personal investors, especially in the midst of such a severe economic downturn.

The decision of the Irish Government to nationalise Anglo Irish Bank in January and to provide very substantial resources to 6 others from the Republic’s National Pension Reserve Fund has intensified public scrutiny and outrage. The Irish Government’s Covered Institutions Remuneration Oversight Committee (CIROC) completed it report on February 27th and Mr. Brian Lenihan TD, Minister for Finance, published the report on March 13th. Pay ceiling ranging from €230,000, in the case of the chief executive of Postbank, to €690,000, in the case of the chief executives of Allied Irish Bank and Bank of Ireland were recommended in the report. The pay ceiling recommended in respect of the Republic’s two building societies is €360,000. But Lenihan has put an absolute cap of €500,000 on maximum bank chiefs’ pay.

Cheslea Building Society, in the south east of England, is comparable in scale, scope and longevity to Irish Nationwide - although its total assets are €2 billion greater. Established in 1874, it operates a network of 35 branches and had assets in 2007 of €17.95 billion, compared to assets of €16.04 billion at Irish Nationwide in 2007. It is the 5th largest building society in Great Britain. The pay of its chief executive, Richard Hornbrook, in 2007, was £424,000 (€576,640), a quarter of that paid to Fingleton, and just 12 times that of the average paid to each of his 1,018 staff.

The former chief executive of Bank of Ireland, Brian Goggin, was criticised harshly in many quarters for the remuneration of €2.972 million that he received in 2007. But Bank of Ireland's total assets in 2007 were €188,813,000,000,11 times greater than those of Irish Nationwide. Would this justify a salary of €33 million for the top job at Bank of Ireland?

It was revealed in a High Court case in November 2007 that Irish Nationwide made loans of over €10 million each to Michael Lynn and Thomas Byrne, two former Irish solicitors who were dismissed from the profession after they gave multiple undertakings to financial institutions in respect of individual properties.

Last September, the ratings agency, Moody's, downgraded INBS because of its exposure to commercial property and development, which accounts for 80% of its loans. Moody's took into account a rapid deterioration in land and property values, which it says was exacerbating the already high loan to value ratios on the commercial property and development loan book of the building society. It was also concerned about what is described as 'concentration risks to its largest 20 borrowers' of the Society.

The former chairman of Anglo Irish Bank, Seán FitzPatrick, by mid September, proposed a merger of Anglo Irish Bank and Irish Nationwide but this was rejected by the Minister for Finance who stated the INBS was ‘well funded’ when the Irish Government inaugurated the State guarantee scheme for bank deposits.

When the Irish Government guarantee scheme was inaugurated on September 29th, Michael Fingleton’s son, who is employed at the London branch of Irish Nationwide, sent an e mail to at least one leading global bank stating that as a result of the protection of the Government's new bank guarantee plan, Irish Nationwide “represented the safest place to deposit money in Europe . . ." This directly contravened the assurance of Brian Lenihan, Minister for Finance that there would be no anti-competitive practices as a consequence of the guarantee and he referred the e mail of Fingleton junior to the Irish Financial Regulator who fined the Society €50,000.

Ireland awakened on December 18th to the shock announcement that Seán FitzPatrick had resigned as Chairman of Anglo Irish Bank and as a director of several other companies. It was disclosed that personal borrowings by him of at least €228 million, over an 8-year period by him from Irish Nationwide Building Society had been used to conceal his personal borrowings from the auditors and shareholders of Anglo Irish Bank. His borrowings from the Society were repaid in lump sum payments shortly after the Anglo Irish fiscal year end. While the staff of the Irish Financial Regulator discovered these transactions as early as last January the former chief executive of the Regulator declared that he was not advised of them and he resigned this position last January.

The Chairman of Irish Nationwide, Dr Michael Walsh tendered his resignation on February 19th. He had been a board member since 1995 and chairman since 2002. He cited ‘unfolding events’ as a context for his resignation. He indicated that the Society cannot survive without significant Government support and further reorganisation. The Financial Regulator has concurred with this.

Lenihan has indicated that he intends to oblige Fingleton to repay his 2008 bonusand his view better prevail. How can a bonus be paid in repect of unknown results? The citizens are now vital stakeholers and must be afforded an opportunity to consider the 2008 results, the governance standards are appropriate at Irish Nationwide before the issue of bailout is decided.

The political system has sleepwalked around Michael Fingleton for far too long. Failure to prevail would be tantamount to the Irish Nationwide grossly disrespecting the sentiment of the Irish public on whose support and goodwill its future viability depends and who in turn face most threatening and uncertain circumstances. They must not to be treated as nincompoops and nitwits.

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?