Thursday 27 October 2016

Shane Ross: Great White Hope fails test

Shane Ross

Published 10/06/2012 | 05:00

IT CAME FROM PLANET FINANCE! New secretary-general at Finance John Moran and his predecessor Kevin Cardiff
IT CAME FROM PLANET FINANCE! New secretary-general at Finance John Moran and his predecessor Kevin Cardiff

THE Great White Hope from Planet Finance arrived before the Public Accounts Committee on Thursday morning.

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Flanked by half a dozen mandarins, John Moran, successor to the unlamented Kevin Cardiff at the top of Planet Finance tells a good story about the new-look department.

John is the focus of great interest. Partly because he spent three years running a juice bar in the French Languedoc. Partly because he is an ex-banker. And partly because he has a sense of humour -- a quality that seemed totally alien to his predecessor. The dour Kevin Cardiff is now safely embedded in Europe, far away from the carnage he helped to create in Dublin.

John has been sold as a man hauled out of the private sector to save the Department of Finance, to rescue Ireland from bankruptcy and to put manners on the banks.

He has plenty of experience outside the civil service. He worked for Zurich Capital Markets in Dublin, Sydney, and New York. Then he did his thing in the juice bar before Central Bank governor Patrick Honohan hauled him back to Dame Street as head of Bank Supervision.

Michael Noonan did not wait long before poaching him. In May 2011, Moran joined the mandarins as head of Noonan's in-house Banking Policy division.

John was gifted a good start. Kevin Cardiff is not a hard act to follow. Ireland was hardly in mourning at his departure to the European Court of Auditors.

On Thursday, Moran was fluent when addressing the big picture. He could talk about the Spanish bailout, the troika and bond rates with a confidence reminiscent of the late Brian Lenihan. This was his comfort zone. You could happily send him to negotiate the Anglo promissory notes with his opposite numbers in Germany or the ECB. His global experience will stand him in good stead. He displayed the fresh thinking of a man who had not been locked up in Planet Finance for his entire working career. Unlike Cardiff, he was not defensive. He has little to defend as he is not a Department of Finance lifer. The sins of the mandarins were not committed on his watch.

Nine out of 10 for global vision; eight out of 10 for fiscal fluency; but only a 'pass' for imparting information.

Unfortunately, he failed the banking test. Moran may not carry any baggage from the department but -- on Thursday's performance -- he carries the baggage of a banker.

He is a natural at dodging the banking bullets.

It was when he was asked about bank recapitalisation that he began to waffle. He waffled about the "five-step plan". He waffled about the stress tests, having been postponed until next year. He even waffled about why our banks should not be discriminated against compared to European banks. In truth, no banks deserve discrimination more than ours.

After a bit of ducking and diving, he eventually committed himself to a belief that our banks are adequately capitalised. That could be a hostage to fortune.

In reply to a question about whether the banks were making adequate provision for their mushrooming mortgage arrears, he fell back on the bankers' favourite excuse -- that accounting rules will not allow them to make provision for all losses.

Moran must know that the size of the writedowns depends on how the mortgage loans are classified. He also must know that the size of the writedowns depends on how the arrears profile of the restructured loans are classified and that the Irish banks have a woeful history in recognising losses on their balance sheets.

Moran appears not to have known of the views of Fiona Muldoon, the new Central Bank director of supervising the banks. She said that dealing with the writedown of unaffordable mortgage debt in a "careful and measured" way could lead to a contagion that may mean the banks require further capital. He also must know that classification of loans is often left to the discretion of bankers and their comrades in arms -- the auditors. An ominous prospect.

Which brought the committee to the auditors, the guys who have given banks a clean bill of health in all the controversies since the implosion of 2008.

Moran was asked about bank auditors. Were they charging too much? Why were the Big Four accountants (PwC, KPMG, Ernst & Young and Deloitte) always selected for these juicy gigs? Did the contracts go out to tender? If not, why not?

Moran fell back on the traditional relationship between the boards of the bank and the Department of Finance. He virtually washed his hands off the whole audit process. It was up to the boards. He insisted that: "The board should exercise judgment in respect of matters such as that."

The Department of Finance is the major shareholder in AIB, Irish Life and Anglo. It holds 15 per cent in Bank of Ireland. It is doing a Pontius Pilate on audit fees.

Moran did not seem at all fazed when informed that PWC had extracted over €100m from the Bank of Ireland in nine years, that KPMG had trousered €14m from AIB in a three-year period and that the top three had charged fees totalling €164m in a recent 10-year period.

His response was the old formula: leave auditors to the discretion of the bank directors. He defended the decision to use the Big Four, claiming that very few accounting firms have the scale to perform bank audits. He insisted that the problem stretched across many public companies.

Yes, yes, yes, -- but what about a solution?

He promised to ask the chief executives to consider it. Big deal.

And then he let the cat out of the bag. It was Department of Finance policy that "primary responsibility for the management of the banks needs to reside with the boards".

We have learned nothing.

Bankers are still in charge of the banks. The Department of Finance, the largest shareholder, is still an observer.

The mandarins will not interfere with the day-to-day operation of our serial sinners.

Moran is wrong. The Department of Finance should be crawling all over the bankers. They should be sending their "public interest" directors to every bank board meeting with instructions from the Government to report back to Moran.

The bankers deserve absolutely no autonomy. They should be sat upon. Squads of unwanted mandarins should be squatting in the banks 24/7.

Moran unwittingly slipped into defensive mould when he was asked by TD Kieran O'Donnell about the €3.6bn mistake in the nation's accounts. He responded by quoting the Deloitte consultants' report on the fiasco. The same report was described by the chairman John McGuinness as a "whitewash".

Surely not the same Deloitte, one of the Big Four, who has been given the gig as auditor to Anglo Irish Bank?

Surely not the same Deloitte who has serious questions to answer about the discrepancies in the accounts of Bloxham Stockbrokers following its recent liquidation?

The very same.

John Moran's instincts are obviously to allow the bankers autonomy, to retain the old auditors, and to leave the boards undisturbed.

When asked why the politically appointed public interest directors' terms of office had no termination date, both he and his sidekick Michael Torpey -- a career banker now running the Department's banking sector -- both pleaded that they did not know.

Public interest directors are appointed for life -- like senators in ancient Rome.

Moran insisted that he had asked the chairs of the banks to come up with a "plan".

Bankers and auditors watching the PAC session will have developed a warm feeling towards the new secretary-general. He still has time to send them packing.

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