When Cowen played golf with FitzPatrick in 2008

TThe response of Taoiseach Brian Cowen to the recent disclosure that the affairs of Anglo Irish Bank were apparently not discussed during a golf outing to Druid’s Glen GC in July 2008 he had with Seán FitzPatrick, at the invitation of Cowen’s friend, Fintan Drury defies credibility and beggars belief. It is tone like the response one might anticipate from a shifty, tribal African chief with vulnerable democratic credentials and more to hide than reveal.

But Cowen’s reaction also provides an interesting insight into where his own centre of gravity is; what his default position is with respect to the entire banking debacle.

Cowen issued a statement on 10 January in which he “refutes any suggestions of impropriety” and that the outing was arranged by “a friend Fintan Drury which Mr FitzPatrick also attended”.

No one had made any suggestions of impropriety! But when precious time is spent by the Taoiseach with the Chairman of a Bank that is about the nobble the Irish nation and the invitation is extended by a friend who is a six-year veteran of the Anglo’s Risk & Compliance Committee and Chairman of that Committee for the prior four years -  until day’s prior to this golf outing – would this not be a wasted opportunity to ask some searching and penetrating questions? Who could possibly better informed about the intricacies of Anglo Irish Bank than this combination of experience, genius and insight?

Cowen’s friend, Drury, was co-opted to the board of Anglo Irish Bank on 30 May 2002 and remained on the board until 27 June 2008. He became a member of the Risk and Compliance Committee immediately and succeeded by former Anglo director Michael Jacob, who is a former President of the Royal Dublin Society, as Chairman of the Risk & Compliance Committee from 2004 until he departed from the board. This was a small committee whose membership included Lar Bradshaw who was entrusted to lead Dublin Dockland Development Authority.

The function of the Committee was to review key risks and compliance issues inherent in the Anglo business and the system of internal control necessary to manage them and present its findings to the board of Anglo Irish Bank. Did these findings, for example, include the history of FitzPatrick’s loans from Anglo and his annual year-end transactions with Irish Nationwide Building Society which came into public awareness in December of that year?

Drury, a former journalist at RTE was appointed Chairman of the State-owned television service during his tenure at Anglo, an appointment likely to have been strongly advocated by Cowen. His non-executive role at Anglo was handsomely paid. His cumulative fees his six years service amounted to €462,000. He also accumulated shares in Anglo – starting in mid 2002 with 15,000 shares and finishing with 53,796. This portfolio was worth €90,000 on 30 September 2002 and €713,335 on 20 September 2007.

Drury became a member of the board of Paddy Power Plc on 29 August 2002 and held the post of Chairman of that company from 26 May 2003 to 31 December 2008 for which he received cumulative emoluments of €818,000.  His shareholding in Paddy Power Plc increased in value from €58,420 to €448,362 when he concluded his term was Chairman.  Group revenue increased from €673.7 million in 2002 to €2,751 million in 2008.

Cowen’s statement also refers to a phone call he received from FitzPatrick on St Patrick’s Day about issues connected to the shares of Anglo Irish Bank when he was Minister for Finance. Cowen says that he informed the then Governor of the Central Bank, John Hurley, ‘that a situation was developing in regard to the contracts for difference issue in Anglo Irish Bank – the exact scale and detail of the difficulty was not apparently known as that point.’ A meeting between FitzPatrick and the Central Bank Governor and Financial Regulator (Patrick Neary) took place on 21 March 2008.

It is also noteworthy that Drury Communications have been retained by the current regime to promote the Anglo Irish Bank annual report in the post nationalisation phase. Fintan Drury founded this company in 1988 and retired from the business in 1999 when he sold his controlling interest in the company. One of the directors of Drury Communications, until September 2009, was 72-year old David M Kennedy, former boss of Aer Lingus and, incidentally, father of Patrick Kennedy the chief executive of Paddy Power Plc.

DDDA spend €600,000 on junkets

Today’s edition of the Irish Independent blew the gasket on executive expenses at the chronically loss making Dublin Docklands Development Authority (DDDA) with vivid accounts of self-indulgent expenditure of over €600,000, some of which is apparently not receipted.  The purpose of these excursions, some involving up to 13 participants, was to look at port developments in various locations.  But the ‘looking’ didn’t enable these delusionary eunuchs avoid losses accruing at DDDA of €213 million.

It was interesting that this culture of excess and extravagance by the Dublin Docklands Development Authority described in the Irish Independent on 8 March was materially mitigated by the perk of free flights available to Seán FitzPatrick when he was the senior independent director of Aer Lingus from March 2004, when he was appointed by the Government,  until his abrupt departure from that board in December 2008. 

This culture of excess and extravagance was also abundantly evident when DDDA became a party to the acquisition of the site of the former Dublin city dump at Ringsend for €412 million in August 2006.  Professional valuations of this property, prior to this transaction, were apparently in the €250 - €375 million range .  Sixty per cent of the 25-acre site was to have been developed for residential units, a substantial proportion of which were to have been 1-bedroom apartments seemingly intended to sell for €500,000 each.  An income of €150,000 per annum would have been necessary to afford an apartment at this price, but less than 15,000 of the 483,636 taxpayers who claimed mortgage interest tax relief in 2006 earned €150,000, or more.

The median income of Irish mortgage holders in 2006 was less than €50,000 per annum .  The recognised indicator of housing affordability is that median property prices should not exceed 3-4 times the median income level of the owner - occupier, or that mortgage repayments should not be greater than 30% of family income.  This would imply that the maximum price that typical buyers' could afford, and sustain, in 2006 would have been be closer to €200,000, notwithstanding that the vacant housing stock in Dublin city that year was over 26,000 units, according to the 2006 Census.  Who benefited from the extortionate price paid for this site and what advice did the Minister obtain from the board to warrant the DDDA being a party to such an outrageously over-priced transaction?

The sooner the Minister for the Environment, Heritage and Local Government publishes the two reports into the governance of the DDDA the better.  The public have a right to understand why the State became a party to a transaction to provide homes for the super-rich; why this culture of self-indulgent excess and wanton, imperious extravagance was tolerated and if the ethical standards of their political appointees' to this board were met to the satisfaction of the Government.

The consequences of these feckless decisions is the waging of economic terrorism for many years to come on every citizen who must bear the huge additional costs relating to NAMA, higher mortgage interest rates to compensate for the cost of banks' borrowing huge sums on international money markets greatly in excess of their customer deposits', as well additional banking costs, fees and other onerous burdens.

AIB Board need to get off their vain, egotistical, stubborn arses and recruit an outsider as CEO

AIB have been flying kites about the prospect of its recently appointed Chairman, Dan O’Connor, becoming an executive chairman. O’Connor, who is also a director of CRH Plc since June 2006, became an AIB director in 2007 when the property bubble had burst. He succeeded Dermot Gleeson as Chairman some months ago.

But what would such an appointment mean for corporate governance at AIB and public confidence?  There are three and a half billion reasons why AIB need a new broom in the corner office and these have to do with sweeping away the viral influence and toxic legacies of Mr Scanlon, Mr Mulcahy, Mr Buckley and Mr Sheehy, each of which severely degraded the stature of AIB.  Being systemically important does not imply that those trusted with this ‘importance’ ought to consider themselves immune to the architecture and principles of acceptable standards of corporate governance.

Cadbury Report on Corporate Governance

The Cadbury Report on Corporate Governance was published in December 1992.  There was extreme concern at that time about standards of financial reporting and accountability and this was heightened by the closure of Bank of Credit and Commerce International (BCCI) and the Robert Maxwell saga.

BCCI was closed after major episodes of fraud and manipulation prompting thousands of creditors to sue the Bank of England for failure to properly oversee BCCI. Robert Maxwell drowned in November 1991 when he fell overboard from his yacht, the Lady Ghislaine. which has been cruising in the vicinity of the Canary Islands.  His publishing and media business collapsed as a consequence of fraudulent transaction that he perpetrated, including the illegal use of pension funds.

The Cadbury Report established a code of best practice intended to achieve adequate standard of good governance for all listed companies and those listed on the London Stock Exchange were to be obliged to state if they are, or are not in compliance.

 

Role of Chairman

The chairman’s role in securing good corporate governance
is crucial. Chairmen are primarily responsible for the
working of the board, for its balance of membership subject
to board and shareholders’ approval, for ensuring that all
relevant issues are on the agenda, and for ensuring that all
directors, executive and non-executive alike, are enabled
and encouraged to play their full part in its activities.
Chairmen should be able to stand sufficiently back from the
day-to-day running of the business to ensure that their
boards are in full control of the company’s affairs and alert
to their obligations to their shareholders.

 

Separation of Powers

Given the importance and special nature of the chairman’s role, it should in principle be separate from that of the chief executive. If the two roles are combined in one person, it represents a considerable concentration of power.
We recommend, therefore, that there should be a clearly
accepted division of responsibilities at the head of a
company , which will ensure a balance of power and
authority, such that no one individual has unfettered
powers of decision. Where the chairman is also the chief executive, it is essential that there should be a strong and independent element on the board.  No such independence has been apparent on the board of AIB, Irish Life & Permanent, Irish Nationwide or Bank of Ireland who have behaved like myopic overfed sheep.  The board of EBS at least jettisoned their deadbeats promptly.

 

Recent Irish Financial Sector History

It doesn’t take a genius to understand the appalling consequences of concentrated power in two of the six financial institutions that are now standing with their begging bowls at the door of NAMA.

The overwhelming influence of Sean FitzPatrick provided him with an uncluttered platform to do what he wanted with impunity.  The behaviour of Michael Fingleton, at Irish Nationwide Building Society meant that 80% of the business of a mutual society was focused on property speculation and obscene financial self-aggrandisement on a woeful scale.

AIB has an appalling record of corporate governance which ranged from aping FitzPatrick, DIRT evasion, Insurance Corporation of Ireland collapse in 1985, flagrantly overcharging customers’, allegations of share price support for Dana Exploration through a transfer into the widows’ and orphans’ account in the AIB staff pension fund in 1988, personal tax evasion by former chief executive Gerald Scanlan, facilitation of endemic tax evasion by its own customers through illicit overseas accounts, chaotic supervision of its US subsidiary, Allfirst resulting in the Rusnak $691 million FX rip-off during the tenure of former CEO Michael Buckley, .  Everyone remembers the standards of corporate governance by these sycophants when they deferred like 18th century slaves to the whims of their KBI (key business influencer) Charles Haughey and Des Traynor 

I would be astonished if O’Connor is not an individual of the highest probity and virtue but the audacity of the AIB board attempting to subvert the wishes of the Government having stung the taxpayers’ for billions of €, is absolutely unconscionable. The destiny of this business rests with taxpayers’ not shareholders’.  The toxic corporate culture must be exterminated.  The ultimate failure of this brazen culture is in it flaccid impotence to maintain adequate core capital without State intervention and its final act of devastation was to the role it played to inflate the property bubble that collapsed the Irish economy, perhaps for a decade. 

Time for The Public Accounts Committee to make its mark

THE Chairman of FÁS has resigned and the rest of the board is set to resign. When the Public Accounts Committee considered the examination of the Comptroller & Auditor General into FÁS affairs last week, Bernard Allen, the Chairman of the Committee rebuked Niall Saul, the Chairman of the Audit Committee and non-executive Director of FÁS, who was contemporaneously giving a radio interview while the Committee proceedings were under way, - for doing so. He would have preferred to hear Saul’s views directly at the Committee.

I listened to a recording of this interview this evening. Saul was at pains to point out that the Audit Committee conducted its role vigorously but were impeded and frustrated by the leadership of the agency, as was the Public Accounts Committee. The Audit Committee were presented with 22 complaints against the Internal Audit team, none of which were upheld. The Audit Committee may have conducted its affairs with textbook perfection but the hidden hand of vested interests lurked persistently in the twilight until the C&AG shone a penetrating light into the murkiness the debacle in April 2008 and, again, in June 2009.

The FÁS controversy was exposed by the Sunday Independent and that publicity was the catalyst for the urgency of resolution. The preliminary comments made by Rody Molloy, on this day twelve months ago, are interesting to revisit in the light of what is now known. Molloy stated then that “FÁS is not a perfect organisation” and “unfortunately, the internal audit reports released by us under the Freedom of Information Act have been sensationalised by the media and used by some with a destructive agenda towards FÁS”. While Molloy stated that he recognised the efficacy of the audit function he also expressed concern “that anything written will be used by persons outside the organization with a negative agenda” and that “if these reports were released into the public domain they could be damaging to the organization”.

Did he not consider that the media would have no credibility if damaging insinuations had no real substance? These were surely the comments of a person whose own organisation was imploding under him and who had isolated himself to the point of downfall. The C&AG Report has borne this out, not the use of the word ‘entitled’ in place of ‘eligible’.

But these comments also offered a rich insight into the culture of FÁS – an agency whose scope and budget had grown so much that a great many more snouts were feeding at its trough than was ever envisaged. The Prime Time investigation into meals-on-wheels in Castlebar did not inspire optimism that all the effort and expenditure was wise, prudent and appropriate. The importance of an organisations culture should never be underestimated. It is culture that facilitates change; guidelines incur inertia.

The persistent use of the legal fig leaf by other FÁS contributors to The Public Accounts Committee was another symptom of a death rattle and reminded me of the defenders of the ‘B’ Specials police reserve in Northern Ireland decades ago.

Mirror, mirror on the wall,
Who is the fairest of them all?

It was the same newspaper that blew the gasket of the DIRT controversy, submerged since 1991, with a headline on 5 April 1998 ‘AIB Had £600 million in “Bogus” Accounts’. The role played by the Public Accounts Committee in the 1999 – 2000 Parliamentary Inquiry into DIRT was pivotal in charting a new direction with respect to this particular issue.

Impact of DIRT Inquiry

The economic, social and political impact of the DIRT Inquiry was comparable in scale and importance to a grand slam rugby victory.

One constituency embraced radical change because they felt they had no other choice – their survival was at stake. The game changers were The Revenue Commissioners. Not alone did they eventually collect hundreds of millions of euro due in taxes, interest and penalties, but a new generation of competent leadership successfully reformed their own organisation. Reform did not come easily, nor did it come quickly. It came with painstaking effort - but it came and it endured.

The other constituency – the banks did not fundamentally change because those in charge believed that change and reform was beneath them. They knew they were systemically important. They also knew their influence could prevail against all comers in most circumstances. Why else would they have overcharged customers with impunity?
They, of course, paid whatever they were obliged to pay and complied, in certain respects, with other mandatory matters.

But the fundamental self-serving, obscenely remunerated culture prevailed because nothing impacted on them personally to make change happen or threaten their personal status or income until they scuttled the economy last year. Four of them were so nonchalant that they were cited for personal income tax evasion by The Revenue Commissioners on 28 March 2006. Reform, it seems, was only for the ‘little people’. Their legacy is now overwhelming.

Taxes and penalties amounting to hundreds of millions of euro were recovered by the Revenue Commissioners, whose own organisation was radically overhauled and invigorated to make it fit for purpose and recognised as such across the world. The DIRT Inquiry did not, unfortunately, lead to a a similar cultural renaissance in the banking system, where rampant overcharging of customers and shoddy standards became endemic and some of whose senior executives were cited for personal tax evasion by the Revenue Commissioners in March 2006.

Department of Finance Guidelines

Much has been made of the Department of Finance Guidelines with respect to the retirement terms of Rody Molloy. These Guidelines were created in 1998 by John Hurley, the retiring Governor of the Central Bank. They were intended primarily to deal with circumstances in State bodies where chief executives were recruited on fixed-term contracts. Their purpose was to establish clear and consistent maximum limits on the pension and lump sum payments that could be provided to a CEO who was either retiring at the natural conclusion of a contract or was retiring prior to that at the request of his board for relatively benign reason – such as a desire for a change of leadership, or direction at the agency concerned.

The Guidelines provide for the payment of a pension and a lump sum to a retiring chief executive aged 55, having acted in that role for at least 6 years, with 15 years pensionable service in the public sector based on actual reckonable pensionable service. A retiree could possibly be granted one added year of pensionable service for each year in excess of 15 years overall actual service in the public sector, subject to a maximum of 5 years.

A person who voluntarily retires does not qualify for these arrangements. Alternative arrangements are in place for younger retirees.

The Guidelines particularly stress that the board of a State body is free to apply lesser benefits or not to apply early retirement benefits at all. Bearing in mind the Guidelines were created to deal with benign circumstances the example of a board desiring to reappoint a chief executive to another fixed term as an instance where such additional benefits would not be offered, is cited. There is no reference in the Guidelines to retirements in controversial circumstances, which is not surprising.

Public Accounts Committee
a potential game-changer

Where does this leave the Public Accounts Committee in its deliberations with respect to FÁS? The side issue of the company Audi has surfaced but this matter, which is now to make its fifth appearance before The Public Accounts Committee since 2 October 2008, has ramifications that transcend FÁS. Their deliberations will have a profound impact on the entire State sector.

The implications of the recent retirement of Paul Moloney as Chief Executive of Dublin Docklands Development Authority have similar, but unascertainable and potentially serious implications, when the details of the transactions involving Anglo Irish Banks and the Irish Glass Bottle Co site are disclosed. Moloney held this position since 2005 having worked previously with Dublin City Council. His appointment to the Authority was blessed with superlative tributes by then Chairman, Lar Bradshaw, who was to resign from the board of Anglo Irish Bank last December, along with his close friend Sean FitzPatrick.

The entire State sector is observing unfolding developments closely to glean what the consequences of the C&AG examination are. They are also closely watching how Sean FitzPatrick deals with his debts due to Anglo Irish Bank and whether the Minister for Finance is kept appropriately abreast of developments by those acting in the public interest.

If there are no apparent consequences, apart from the thrashed reputations of the institutions connected FÁS and the burden that is borne by those who represented these institutions together with the personal distress that Molloy must inevitably endure, then a damaging vacuum is established. How is it possible to clearly identify the boundaries of what is acceptable and what is not acceptable when standards fall well short of acceptability and serious damage ensues? If the boundaries are unclear, or there are no boundaries, the State sector will convulse itself to avoid ignominy - but will probably do so in a manner that is ineffective and at a cost to its own productivity, agility, sense of integrity and effectiveness.

If there are no consequences, how can the characteristics of stable governance with integrity and commitment flourish in any State agency? Mr Saul confirmed that the procedures and protocols in FÁS. That is the case in most public bodies. Paper doesn’t refuse ink ~ but it is the culture , dynamism, passion and energy of an entity that makes things happen –for better, or worse.

The deliberations of The Public Accounts Committee could therefore result in another ‘grand slam victory’ and have a profoundly positive impact as a consequence of this crisis if the outcome successfully redefines and refocuses FÁS and individuals emerge of the calibre and ambition of those that emerged in The Revenue Commissioners a decade ago. FÁS has been a major by-product of social partnership. Social partnership could also get new life and sense of purpose but the fuel to ignite that will not be found in damp deadwood hidden behind legal fig leafs.

It would, on the other hand, be most disappointing if the enduring outcome of The Public Accounts Committee was merely to record the frustrations, impediments and difficulties in conducting its examination of this matter the only practical outcome is one of Plus sa change, plus c'est la meme chose.

Mueller arrives to transform Aer Lingus into what it has been

CHRISTOPH MUELLER took on the role of chief executive of Aer Lingus at the beginning of the month with a mandate to “transform Aer Lingus from a legacy Irish business to a modern international airline”.  The Irish Times reported on 10th September that Mueller is to be paid a basic salary of €475,000 – in line with the pay of his predecessor, Dermot Mannion and that he will not be paid a bonus.  His remuneration package is said to be in line with that offered by similarly-sized Irish listed companies”

Success for Mueller is the recovery of the 2006 IPO share price within five years.

‘Trust but Verify’

I always find it instructive to adopt the Ronald Reagan adage ‘trust but verify’ when considering statements by Aer Lingus.  Reagan used the adage as US-Soviet relations were thawing in the 1980’s.

All has to be considered in the context of the real beneficiaries of the 2006 IPO.  They are the former chief executive, Dermot Mannion; the non-executive directors whose fees trebled and the professional advisors who obtained €30 million in fee income in respect of the IPO and €24 million in respect of the Aer Lingus response to the two Ryanair bids.  There have been no dividends.  The share price has collapsed.  The pilots’ pension fund has been severely depleted through its Aer Lingus investment.

‘Basic Salary – No Bonus’

Mannion joined Aer Lingus in August 2006.  He departed in April 2009.  Cumulative losses at the airline  during his tenure were €72.4 million.  Cumulative losses since 2006 increased to €165.4 by the end of June 2009.

Mannion’s pay record has been:

2006	€982,000
2007	€1,115,000
2008	€652,000
TOTAL	€2,749,000

 

 

 

 

 

 

 

 

 

 

 

Mueller’s salary is not  therefore in line with that of his predecessor. Greencore Plc, with a market capitalisation of €323 million,  is the nearest public company, in terms of market capitalisation, to Aer Lingus, which has a market capitalisation of €393 million – even though its cash resources apparently exceed this sum significantly.  The 2008 annual report reports the remuneration of its former chief executive, David J Dilger as being €1,095,000 in 2008 and €1,447,000 in 2007. 

 

Gesture of Confidence

 

Aer Lingus shares were priced at €0.52 on his Mueller’s first day at the helm of Aer Lingus.  They were worth €1.43 the day the person who hired him, Colm Barrington, became Chairman on 1 October 2008 so the stock market has not been enthusiastic about Barrington.

 

To demonstrate their confidence in the future of Aer Lingus, Barrington made his first-ever equity purchase when splurged €0.51 per share on 60,000 shares on 28 August. 

 

Mueller spent €29,275.70 on 50,000 Aer Lingus ordinary shares on 8 September.  That is equivalent to 6% of his annual salary, the same amount as his income tax levy.

 

His predecessor, Mannion, owned 18,988 shares, including an allocation of 9,803 shares under the Employee Share Ownership Plan.

 

Crystal Ball Gazing

 

Barrington issued a letter to Aer Lingus shareholders on 22 December 2008 advocating rejection of the 2nd Ryanair bid and he stated categorically then that “Aer Lingus is and will be profitable” and that it had cash resources in excess of €800 million.  When the results for 2008 were published Aer Lingus reported a loss of €107.8 million and €653 million.

 

Barrington was interviewed on the RTE Radio 1 This Week programme on Sunday 17 May and he rubbished claims by Michael O’Leary that Aer Lingus would run out of cash in 18 months (at the end of 2010).  He also said that Ryanair would be reporting losses but omitted to mention that if that was the case, the collapse in the Aer Lingus share price would account for a €220 million impairment charge as a consequence of the 71% fall in the value of Ryanair’s shareholding in Aer Lingus since Barrington became Chairman last October.  Five weeks after this interview the ‘legacy Irish business that is to be transformed into a modern international airline’ returned an operating loss of €93 million on revenues of €555 million – 12% lower than the previous June.

 

It would appear that the crystal ball can become a bit foggy from time to time.  But the one gesture that really undermined my respect for Barrington was the grovelling eulogy to the former senior independent director of Aer Lingus, Sean FitzPatrick, the disgraced former Chairman of Anglo Irish Bank - “in December 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”.  Given that he was speaking of a eunuch that has utterly violated public trust and virtually bankrupted Ireland and that the Irish taxpayers own 25% of Aer Lingus, it might have been more appropriate to have said that “he has served on the Board but has departed”.  But he didn’t have the backbone to do that.

 

Incidentally, Ned Sullivan, Chairman of Greencore Plc was a director of Anglo Irish Bank from November 2001. He was also a member of the Risk and Compliance Committee at Anglo. Coincidentally, FitzPatrick was a director of Greencore from January 2003 until he had to also abruptly resign from that board in December 2008.  Sullivan, in his Chairman's Statement in the 2008 Greencore Annual Report opines “Sean had 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”.  These sentiments provide a vivid insight into the umbilical relationship between the cute whore and the bucolic peasant.  There is no base threshold to which these self-aggrandising sycophants will not grovel.

 

FitzPatrick’s successor as senior independent director is a 72 year old ‘who has been everything’, including a pre-2008 director of the Bank of Ireland, the bank that was prepared to fund ‘Dubai-on-the-Dodder’, if that were to act as a bonus steroid for its leadership – is that the correct noun?

 

Non-Executive Directors Fees

 

The Secretary-General of the Department of Transport wrote to Barrington on the instructions of the Minister on 4 June concerning directors’ fees in advance of the AGM on 5 June and requested a review of these.

 

It is not clear if Barrington has sent an SMS text to these directors about this ‘legacy issue’ as promptly as he sent an SMS text to 63 contact  cabin crew last week to advice them they no longer have a job. 

 

I hope that the newly appointed Chief Executive of Aer Lingus succeeds.  Apart from the prevailing economic adversity, perhaps a bigger impediment to progress it contending with the embedded culture of a country club, the cute whore, the sycophant and the bucolic peasant.  Not even the gaudiest and most expensively produced  annual report can conceal the odious viral effect of that.

 

 

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!

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.