Thursday 8 December 2016

Aer Lingus sale: Government says no conflict of interest over advice

Published 14/05/2015 | 02:30

IAG chief executive Willie Walsh. Photo: Steve Humphreys
IAG chief executive Willie Walsh. Photo: Steve Humphreys

State agency NewERA has insisted that there are “detailed provisions” in place to guard against possible conflicts of interest regarding the provision of advice in relation to a sale of Aer Lingus to IAG.

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The agency confirmed that checks are in place after it emerged that an investment index connected to one of the Government’s key advisers on whether to sell Aer Lingus has placed a ‘bet’ on the planned €1.36bn takeover of the airline by IAG.

The investment banking arm of global financial giant Credit Suisse is one of three firms appointed by Government agency NewERA to advise on whether or not it is in the interests of the State to sell its 25.1pc stake in Aer Lingus.

The Irish Independent has learned that an investment index operated by Credit Suisse’s separate asset management arm has a position in Aer Lingus shares, hoping to turn a profit on a possible sale of the airline going ahead.

That fund – the Credit Suisse Merger Arbitrage Liquid Index – is focusing on the difference between the current price of Aer Lingus shares and the price IAG has indicated it would be willing to pay for them.

The shares were changing hands yesterday for about €2.40 each.

That is less than the €2.55 in total per share that IAG has already indicated it would pay if its takeover bid succeeds. In financial jargon, that difference is called the spread.

Credit Suisse notes in regulatory filings that the spread typically exists due to the uncertainty that an announced merger or acquisition will be completed, and that if it is completed, that it will be done so on the initially proposed terms. There’s no suggestion of any impropriety whatsoever on the part of Credit Suisse, whose investment banking arm is advising the Government.

In a statement, Credit Suisse told the Irish Independent: “Credit Suisse has strong policies and procedures in place across the bank to ensure compliance.

“While we cannot comment on this individual client for reasons of confidentiality, we nevertheless remain satisfied that we have operated entirely within regulatory requirements here.”

The two other firms advising the Government’s steering group on Aer Lingus are Bank of Ireland-owned IBI Corporate Finance, and Dublin-based law firm McCann FitzGerald.

A spokesman for NewERA said that Credit Suisse is a global financial services group, and as such, is involved in wide range of activities.

He added: “The terms of Credit Suisse’s engagement contain detailed provisions to guard against conflicts of interest.”

NewERA declined to say if it was aware of the interest in Aer Lingus shares taken by the Credit Suisse arbitrage index prior to Credit Suisse being appointed as an adviser to the Government’s steering group.

The Government still hasn't made a decision about whether or not to sell to IAG.

It's understood that the Credit Suisse investment fund that took the Aer Lingus position is computerised, and that it selects stocks based on pre-programmed criteria.

It currently has interests in over 70 companies. It's unclear when it took its first position in Aer Lingus shares.

On December 14, IAG made its first preliminary approach to buy Aer Lingus.

On January 9, IAG publicly revealed that it had initially tabled a €2.30 per share indicative offer and that this had been raised to €2.40 on December 29.

On January 26, IAG publicly revealed it had submitted a revised indicative bid, offering to pay a total of €2.55 per Aer Lingus share.

In December, NewEra established the Government's steering group to advise on a possible Aer Lingus sale after the first IAG approach was made. On January 28, Transport Minister Paschal Donohoe told the Seanad that NewERA had secured external financial and legal advisors, including Credit Suisse, and that contracts were expected to be signed that day.

Like all global banking firms, Credit Suisse has so-called 'Chinese Walls' in place to ensure their asset management and investment banking divisions do not breach any financial regulations by exchanging any information that could compromise the integrity and legal requirements of either arm.

The units are divided by a so-called control room, which implements all procedures designed to ensure a barrier is in place between them.

It's thought that the Credit Suisse control room gave the bank's investment banking arm the all-clear to act as an advisor to the Government.

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