Monday 16 July 2018

AIB's board 'refused to back' Investec takeover move

AIB and Investec's tie-up was viewed by many in the sector as a logical step for the bank as it offered an opportunity to diversify revenue and boost its non-interest income. Stock image
AIB and Investec's tie-up was viewed by many in the sector as a logical step for the bank as it offered an opportunity to diversify revenue and boost its non-interest income. Stock image

Gretchen Friemann

AIB abandoned its pursuit of the Irish arm of specialist bank Investec after its own board refused to back the move, according to sources.

Part-nationalised AIB and Investec both declined to comment on the reasons behind the collapse of exclusive takeover talks at the end of March, but it is understood the failed approach has soured relations between the two organisations.

The renewed focus on how the merger discussions unravelled comes amid a flurry of activity in the sector, with Merrion Stockbrokers and Cantor Fitzgerald this week consummating a long-mooted union, while Goodbody Stockbrokers remains locked in buyout negotiations with its Chinese suitor, the state-backed Zhong Ze Culture Investment Holdings.

AIB and Investec's tie-up was viewed by many in the sector as a logical step for the bank - which remains 71pc controlled by the taxpayer - as it offered an opportunity to diversify revenue and boost its non-interest income.

With Brexit looming, a merger also appeared to make sense for Investec, which operates in Ireland as a branch of its UK-based parent.

But the mutual enthusiasm evaporated, according to sources, after it became clear AIB's senior management team lacked the proper authorisation or support to advance the deal.

This raises questions about the direction and control of the bank's expansion strategy as it attempts to embrace a more competitive and commercial footing following last year's €3.4bn initial public offering.

It is understood a relatively large number of AIB staff were informed of the merger discussions, indicating management's relative confidence in closing out a deal.

But sources claimed the approach lacked board support, leading some to speculate the bank retreated out of concern the move would not play well with the Department of Finance.

The breakdown of the talks has again prompted speculation about Investec's future and the potential for a breakup and sale of the company, which became the third-largest stockbroker in the State following its purchase of NCB Stockbrokers in 2012.

For AIB, which continues to generate profits and grow its loan book, the episode has once again pointed up the inherent constraints of State ownership.

While AIB CEO Bernard Byrne is widely regarded as politically savvy, in recent months the bank's objectives have appeared at variance with the priorities of its major shareholder.

In the run-up to the AGM last week, Finance Minister Paschal Donohoe rebuffed the lender's attempts to garner investor support for a deferred share bonus scheme that would have enabled up to 100 senior staff to receive bonuses worth up to 100pc of their salary.

The Government's decade-long restriction on performance-related pay at the bailed-out banks, imposed via an 89pc super-tax, along with the €500,000 banker salary cap, is increasingly viewed by the banks as a threat to competitiveness.

At the AGM, Mr Byrne pointed out more than 20 senior executives had exited in the past five years, and said the group had experienced a "high turnover rate" in its upper ranks.

Sources argue the campaign for the reintroduction of bonuses ultimately produced a positive result as Mr Donohoe unveiled a review of pay in the sector but announced his opposition to any immediate easing of the restrictions.

Others claim the decision to publicly challenge the Government's pay policy risked a political backlash and could force Mr Donohoe to maintain the cap.

Irish Independent

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