AIB 2009 Interim Results – another ghost to haunt the ‘Hall of Shame’

It never ceases to amaze me how these devious hypocrites that run banks present results against a context of factors that are inflicted on them and the existence of which have nothing to do with their own delinquency.  It is as though they are the hapless victims of injured innocence.

The 2009 Interim Results at AIB are the latest case in point.  They report an operating loss of €872 million compared to a profit of €1.27 billion in June 2008. Deposits are down to €83 billion from a high of €93 billion in December 2008, having been €81 billion in December 2007.  No less than 37% of the AIB loan portfolio is in construction and property; a further 24% in residential mortgages – amounting to €31 billion in Ireland. Of this €31 billion, only €14.6 billion is declared ‘satisfactory’; the remainder is either impaired, vulnerable, or ‘on watch’. 

The Ireland impaired element relates to 13 contractors while the vulnerable and ‘on watch’ element relates to 74 contractors.  The small number of individuals involved there must have meant fabulous savings on the annual AIB Christmas card circulation.  The property and construction loans criticised are 67% of all Irish loans, while the land and development loans criticised are 74% of all Irish loans in this category.

The amount of impaired residential mortgages in Ireland has more than doubled from €148 million last December to €322 million.  AIB has a home mortgage book in Ireland of €26.5 billion and the outstanding value of all home mortgages at the end of June 2009 was €148.1 billion including securitized mortgages, according to Central Bank data.

A mere 5% in manufacturing and 11% in services.  The AIB search for authentic value-added opportunities knew no bounds.

The diabolical outcome is attributable to a Pandora’s Box of explanations -  “recessionary conditions continuing”, “weak customer loan demand”, “assets quality weakens” etc etc as if the management of this wretched bank was not the central architect of much of this mess along with Bowler’s Irish Life & Permanent and Boucher’s Bank of Ireland, the yahoos at ACC, Fingleton’s Irish Nationwide Building Society and EBS.  At least the chairman of EBS, Mark Moran and the finance director, Alan Merriman promptly resigned in March after their genius resulted in a loss of €32.8 million at EBS in 2008.

Sheehy advises that “overdependence on the construction industry is rapidly diminishing”.  Oh dear, how come?  This junkie must be on a 12-steps recovery programme because the construction industry was bloated to death by all the Irish banks and their hero, Sean Fitzpatrick.   Boucher almost climbed a tower crane to advocate on behalf of Sean Dunne’s planning application for Ballsbridge and Bowler’s so sad outfit provides a subversive deposit in Anglo Irish Bank so that the mascara in its 2008 annual report did not run.  The moral I guess is that you cannot make money from a corporate corpse, unless you’re an undertaker. 

Sheehy, in a display of low peasant-cunning,  remarks about the ‘solid operating performance’, even though operating profit in Ireland is down 33% to €394 million and bad debts amount to over €1.9 billion!  Yikes!!  He reports impaired loans in Ireland of €8.51 billion – 10.9% of advances and a provision against profit of €1.79 billion in respect of these. There is a provision of €17.1 billion in respect of development and land in Ireland.  He concludes by telling his shareholders and the Irish taxpayers who were obliged to provide €3.5 billion that future prospects are enhanced by “a firm resolve to manage our business efficiently”.  What bishops gave him that line – because he and his blundering band of incompetents have certainly sodomised the Irish economy - one more medallion in the AIB Hall of Shame:

March 1985: Insurance Corporation of Ireland €357 million bailout
(CEO: Gerry Scanlan)

May 1988: 2.2 million Dana Petroleum shares, failed share issue; underwriting loss – shares put into staff pension account (CEO Gerry Scanlan)

October 1990: Internal Auditor of AIB reassigned and to report to Brian Wilson, General Manager for Ireland (CEO Gerry Scanlan)

February 1991: DIRT evasion exposed and denied. £90 million settlement in 2000 (CEO Gerry Scanlan)

1989 – 1996 Faldor Investment scam - £48,000 in artificial deals connected to AIB Investment Managers’ own funds

April 1998: media report that AIB had 53,000 bogus non-resident accounts (CEO Tom Mulcahy)

June 2002: $691 million foreign exchange fraud perpetrated at Allfirst, an AIB subsidiary in Baltimore, Maryland (CEO Michael Buckley)

2004: Overcharged on the purchase of 3 million foreign drafts; cost of refunds €50 million Other overcharging episodes related to variable rate mortgages (Surplus Builder), 34,000 student and graduate loans, overdraft limit amendment fess affecting 24,000 customers, charges connected to the early termination of finance and leasing transactions affecting over 900 customers, to mentioned just some.  (CEO Michael Buckley)

March 2006: Scanlan and three other senior AIB executives cited by the Revenue Commissioners for income tax evasion.

Of course, the hinges on the Hall of Shame were crafted from the ‘special relationship’ between AIB, Charles Haughey and Des Traynor.

‘You scratch my back and I’ll scratch yours’

The board of Anglo Irish Bank that created the debacle that led to its nationalisation, – chronic losses, impaired directors’ loans and the elimination of its equity, contains an interesting set of mutually beneficial relationships.  What is particularly noteworthy is the cosy, intimate nature of these relationships is that they are seemingly blind to the most appalling violation of public trust committed by Sean FitzPatrick, the former chairman of Anglo until he resigned, in disgrace, from all board positions on 18 December 2008.  But the unctuous tributes would make a casual observer believe that a saint was being celebrated, not a flamboyant spiv who has destroyed the reputation of a proud nation.

He disclosed that he he concealed tens of millions of € at Irish Nationwide Building Society to conceal the existence of personal borrowing from Anglo Irish Bank from the contents of the Bank’s annual report and he also inveigled Bowler’s Irish Life & Permanent Plc to deposit €7.5 billion at the end of September 2008 in Anglo to appear to boost the deposit base of the Bank.  The Tier 1 capital at Bowler’s bank was a mere €4 billion and, coo, shucks, she didn’t know nothing about this deposit beforehand, notwithstanding that her fellow director, Danuta Grey, was a contemporaneous director of Aer Lingus with, guess who – FitzPatrick. 

 

Greencore Plc

                               FtizPatrick became a director of Greencore Plc on 1 January 2003 and the Chairman of Greencore, Ned Sullivan, was a non-executive director of Anglo since 12 November 2001. 

The following summarises the fees’ aspect of this episode of mutual back-scratching:

 

	Sullivan’s fees at Anglo Irish Bank €	FitzPatrick’s fees at Greencore Plc €
2002	42,000
2003	70,000	30,000
2004	74,000	43,000
2005	75,000	45,000
2006	93,000	48,000
2007	108,000	48,000
2008	147,000	51,000
TOTAL	€609,000	€265,000

 

Sullivan was a member of the 3-person Risk an Compliance Committee at Anglo in 2008.  This Committee would have risk evaluated directors’ loans amounting to €175 million, of which €31 million are impaired since nationalisation and approved loans to property interests that account for losses of over €4 billion in the half-year to 31 March 2009 and the moral hazard associated with this.

Sullivan, in his chairman’s statement in the 2008 annual report of Greencore Plc eulogises FitzPatrick, as follows:

“In December 2008, Sean FitzPatrick resigned from the Board.  Sean has been a key contributor to the Board for six years during a period of significant change for the Group.  The Board would like to thank Sean sincerely for his valued input and wise counsel which has contributed greatly to the growth and development of the Group during that period".”

Greencore Plc YE: September 26	2003 – €(000)’s	2008 €(000)’s
Sales	1,448,996	1,308,097
Profit after tax	57,655	46,152
Share price	€2.70 (31 Dec 2002)	€0.95 (18 Dec 2008)

 

Smurfit Kappa Plc

Gary McGann, chief executive of Smurfit Kappa had been a director of Anglo Irish Bank since January 2004 and FitzPatrick joined the board of Smurfit Kappa on 20 March 2007.  The following summarises the fee trawl:

 

	McGann’s fees at Anglo Irish Bank €	FitzPatrick’s fees at Smurfit Kappa €
2004	43,000
2005	65,000
2006	72,000
2007	92,000	250,000
2008	124,000	300,000
TOTAL	€396,000	€550,000

 

At 30 September 2008 Sullivan owned 440,084 ordinary shares in Anglo Irish Bank and McGann owned 5,900 ordinary shares.  McGann was a member of the Audit and Remuneration Committees.

The Chairman of Smurfit Kappa is Liam O’Mahony former boss of CRH Plc, and in his statement in the 2008 annual report about FitzPatrick was “I would like to thank all of the Directors for their contribution to the development and effectiveness of the Board and its various Committees.”  The Remuneration Report formally noted that FitzPatrick resigned from the Board in December 2008.  Is this not a perfectly dignified and appropriate way to deal with this matter!  No empty platitudes, no peasant cunning! 

 

Aer Lingus Plc

FitzPatrick was appointed to the board of Aer Lingus in 2004 when it was a state enterprise.  He received a fee of €13,000 in 2005 and €18,000 in 2006.  The airline became a public company in September 2006.  Non executive directors’ fees at Aer Lingus were tripled from €18,000 to €45,000 immediately following the IPO.

Colm Barrington, Chairman of Aer Lingus, in his statement in the 2008 annual report would almost fill a spinnaker with the effusiveness of his eulogy of FitzPatrick “In 2008 Sean FitzPatrick resigned from the Board.  Sean served Aer Lingus extremely well and had a significant and positive influence on the company both before and after the IPO.”  Of course, given a share price of €0.59!  Fees paid to professional advisors in connection with and subsequent to the IPO at Aer Lingus were close to €60 million.  The cumulative loss recorded since the IPO is €72 million.  Enchanting!

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

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

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

• An 86% collapse in share price



• Abandoned dividends



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



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


• Customers unable to obtain personal or business credit
  

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

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

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

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

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

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

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

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

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

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