Saturday 10 December 2016

Uneasy relationship as State leads restructuring process

Published 03/09/2011 | 05:00

RUNNING a bank in Ireland just ain't what it used to be. These days, officials from the Department of Finance are doing an unprecedented amount of the actual "running" and bank bosses are doing an unprecedented amount of permission seeking.

  • Go To

As one well-placed source says when asked about the impact of AIB's lengthy period without a chief executive: "The banks aren't leading the [restructuring] process, the process is being led by the Irish authorities.

"Think of the banks as patients on the operating table -- it would be rather bizarre for the patient to be holding the scalpel."

If the relationship sounds uncomfortable, it's because it often is. Officials from the Department of Finance and consultants working with them have been known to offer their views on everything from banks' human resource issues to lenders' plans for asset sales and methods for recovering debts.

Then, there is a general need to consider the "political" implications of any commercial decision -- something most banks are keenly aware of.

Banks also have to bow to the Government's will on an apparently ad-hoc range of areas -- bosses claim to sometimes not know what constitutes a "government issue" and what constitutes a "board issue" until the Department of Finance comes knocking. Loudly.

The water should become less muddy over the coming months, as the Department of Finance draws up new "relationship frameworks" for how the State interacts with the banks it is supporting.

Acquisitions

The institutions are all likely to be required to supply extensive information to the Government on a regular basis, including board packs after directors' meetings -- as AIB, Bank of Ireland and Anglo Irish Bank already do

AIB and Permanent TSB, which count the State as a 99pc shareholder, will have to seek permission for "strategic" decisions, including job cuts, acquisitions and material asset sales.

Bank of Ireland will have a "slightly different" framework agreement to reflect its status as privately owned since it is just 15pc state owned.

The newly merged Anglo and Irish Nationwide are also likely to be working to a different mandate.

Asset sales account for almost the entire job for Anglo/Nationwide, so the bank would have almost no autonomy if the Government took charge of the process, though permission is likely to be needed for sales that impact on the bank's capital.

The Government is also likely to sign off on all major debt cases across its majority-owned banks, in the same way as the Quinn Group takeover and Arnotts deal had to be approved by the State before Anglo pushed on.

While the clarity provided by the new relationship frameworks will be universally welcomed, what is exercising bank bosses is whether that clarity will give them more or less freedom to go about their business.

"No one worries about oversight or reporting," says one senior banker. "What we worry about is interference."

Interference that "doesn't add value" is a particular bone of contention, as is interference that delays the banks from getting on with things.

The European authorities will be eyeing up the new frameworks carefully, too -- when the Government bailed out the banks it promised to run them at "arms length"; if it doesn't, the Government will have the state aid types in Brussels on its back.

Personalities, history and trust are at the heart of the relationships between the banks and the institutions -- which goes some way to explaining why the relationships vary so much.

Bank of Ireland's relationship with the State, despite a much publicised spat over bonuses, is at the more convivial and productive end of the scale.

After enjoying a largely healthy relationship with the old administration, the bank's management team met Finance Minister Michael Noonan almost as soon as he came to office.

Chief executive Richie Boucher told the new team he had a good chance of raising significant private cash for BoI and asked for the opportunity to pursue that investment. Mr Noonan and his officials deliberated for a few days, seeking more information on how the bank would execute their plan. Permission was swiftly given -- a common objective had been found, a new productive relationship had begun.

The bank got its cash in late July and avoided nationalisation, but it is still mindful of keeping good relations with the Government (which still supports BoI through the guarantee scheme).

Immediately after the new investment deal went through, Mr Boucher sent all his staff an email.

"We must never forget the crucial role which the Irish State and taxpayers have played in supporting our recovery," he said. "Without that support it is unlikely we would have survived."

Over at almost-nationalised AIB, the relationship has been somewhat frostier. The bank fought tooth and nail over virtually every element of its bailout since the crisis begun, to the frustration of the Department of Finance.

Executive chairman David Hodgkinson was brought in by the State but has an unfortunate habit of going off-message -- most notably by espousing the merits of "generous" redundancy packages and raising hopes of debt forgiveness.

Nationalised

Permanent TSB relations seem to be progressing quite well, with the bank accepting the significant role the Government will play in its future.

Anglo Irish Bank has the dubious accolade of having the oldest ownership relationship with the State; it was the first institution to be nationalised in early 2009.

Relations have not been without their difficulties. The most public clash was with the old administration over Anglo management's plan to split the bank into a 'good' and 'bad' business, and the government's subsequent denouncement of that plan. The change in government has aided a thawing in relations, but tensions remain as the "hands-on" approach of the Department of Finance clashes with some of the more independently minded chaps at Anglo.

As if the big picture stuff wasn't taxing enough, the banks also have a more daily relationship with the political classes in the form of good old-fashioned lobbying.

Bailed-out banks all encounter entreaties from politicians asking for an easing of terms for their constituencies. "We've always had lobbying," says one boss. "It doesn't happen any more than it did before."

While it mightn't have increased in frequency, the stakes are higher now. A politician lobbying a state-supported bank now has the added kicker of "we own you, you better do what I say", though most aren't blunt enough to invoke it.

Despite being aware of the particular issue around political lobbying in this day and age, the Department of Finance has made no efforts to track the amount of lobbying that's going on.

"Do you really think they want to know," asks one senior banker.

Irish Independent

Read More

Promoted articles

Editors Choice

Also in Business