Tuesday 21 November 2017

Dragging a once proud bank back from brink

The troubled bank's chief remains optimistic about plans to reinvent and re-energise the organisation after engaging in positive action with the Government . By Laura Noonan

AIB executive chairman David Hodgkinson "doesn't do" feature interviews. He didn't even mean to do this one, but when a dictaphone-happy journalist is perched a few feet away in the inner sanctum of his sleek office, getting out of it is easier said than done.

So after some brief protests -- "personalities, as far as possible, should be kept out of things ... the Banker of the Year award is the kiss of death" -- the hitherto anonymous AIB boss accepted his fate.

Almost from the get-go, he is disarmingly frank.

AIB's relationship with the Government is an area were he could understandably plead the fifth -- instead he offers a rare insight into the struggle to establish the boundaries between AIB Bankcentre and Merrion Street.

The Briton is in charge of the bank, but he presides over a board jammed with government-appointed directors and he sees the Department of Finance banking chief John Moran "very regularly".

All decisions of strategic importance -- the redundancy packages for 2,000 AIB staff, plans to award pay rises to about 500 staff who are doing jobs above their grades -- appear to need a government sign-off in some shape or form.

Surely that's a bit uncomfortable? "We welcome the Government appointing their representatives to the board to help us shape the governance of the bank," Hodgkinson says.

"What is more difficult is if the role of the board overlaps or becomes confused with the role of the Government.

"That's where we're trying to get definitions of who's calling the shots in what area."

To that end, Hodgkinson and his team have recently submitted "proposals" for developing a new "relationship framework" between the Government and AIB "in line with international practice".

But the 60-year-old career banker is quick to point out that, contrary to some reports, he's "not at war with the Government".


"I accept fully that if their agenda could be impacted by what happens with the banks [they should be consulted]," he says.

"We're having positive interactions with the Government which have narrowed the gap on this issue."

One of the areas where those "interactions" have been taking place is hammering out the terms of a redundancy package for some 2,000 AIB staff set to leave over the coming three years.

Hodgkinson took to the airwaves in April and espoused the benefits of a "generous" package for workers. Soon afterwards, he reportedly sent proposals to the department suggesting staff get six weeks' pay per year of service, plus two weeks statutory.

The proposals went down like a lead balloon with Finance, as officials totted up the cost of offering similar packages to the thousands of staff that will be let go from state-owned banks over the coming years.

Four months later, and the negotiations are still ongoing. Does Hodgkinson regret using the word "generous" -- a term that seems to have rankled with the Government who felt it wasn't bailed-out AIB's cash to be "generous" with.

"I would say, certainly, that AIB needs to be in line with whatever is determined to be the industry standard," Hodgkinson replies, deftly side-stepping the issue and refusing to be drawn on what that "industry standard" should be.

He later admits that, "in the main, I've been more on the side of the union than anybody else", a situation that strikes him as "most unusual given the fact that I have a bit of a track record with unions going a lot way back".

"You have to go back almost 20 years," he says, before adding cryptically, "see if you can find out."

A perusal of the internet reveals an epic 1993 clash between Hodgkinson, then head of HSBC's Philippines offshoot, and local unions who took to the picket line after the banker claimed that setting salary levels was solely a "management right".

Hodgkinson's apparently pro-union stance at AIB seems to stem more from pragmatism than a philosophical conversion. He believes that AIB will only be able to elicit candidates for voluntary redundancy if the package is "reasonably attractive".

An unattractive scheme that was applied on a compulsory basis would be "manageable but would certainly delay the restructuring plan", Hodgkinson says, warning of appeals to labour courts and other industrial relations disruptions.

It's the very thing he's been trying to avoid since he joined AIB last October and began walking the perilous line between staff and Government.

"The possibility of major internal disruption, things going very wrong, was very significant [when I arrived]," he says. "It is still significant, but the reality is we're managing it."

Daunting as that prospect of "major internal disruption" was, more serious threats also weighed on his mind when he first pitched up to Dublin.

"I came to an organisation that had every prospect of collapse," he says, a strange-sounding claim since even basket cases like Anglo Irish Bank and Irish Nationwide haven't been allowed to go down.

How much worse could it have been?

"How much worse could it have been?" he repeats, almost incredulously. "AIB could have been taken over by someone else, we could have had a lot more people walking out the door ... the operational risks were really quite severe."

The risk of collapse was obliterated by the recent €15bn recapitalisation of AIB and its recently acquired subsidiary EBS, and Hodgkinson's bank has now been deemed a "pillar" of the Irish market.

With its survival secured, Hodgkinson's focus is now firmly on reinventing the bank.

AIB is trying to reach out to customers by extending its opening hours and setting up new 24/7 kiosks that will enable lodgments around the clock. The biggest challenge, though, is convincing people AIB is willing to lend.

AIB is piloting new schemes to make it easier for businesses to access loans and is offering internal and external appeals processes for those who are turned down. Staff training has been ramped up.

"We'd like to engage with the different business communities and bottom out exactly what the issues are," Hodgkinson says, though he admits he hasn't actually met any SME customers yet since he's been busy "doing two jobs".

Mortgages are another key focal point, and Hodgkinson has been the most vocal proponent of a "debt forgiveness" scheme that would write off some of the homeloans owed by people with negative equity mortgages they can't afford.

"I have to be careful of what I say on this," Hodgkinson says. "When we're in a position to talk about this, I'd like to give people a complete picture of how it works. It's not just that at the stroke of a pen, somebody wipes out something and you walk away scot free.

"A customer has to be completely open and contribute to the resolution of their situation as far as they can ... that means an element of austerity for a period. If their conduct is okay, the slate may be wiped clean."

Hodgkinson is quick to point out that debt forgiveness will only be pursued if he gets the sign-off from the Central Bank. Is that likely to be forthcoming? "I think it is," he says.

The nitty gritty includes whether the bank should take an ownership stake in the property if it wipes out a portion of the mortgage, and how the bank should deal with houses that are ultimately repossessed.

As well as getting AIB's house in order, Hodgkinson is also tasked with the integration of EBS. To bed things down, some "fairly senior" people will be moving between the two banks, and EBS chief Fergus Murphy is being co-opted on to AIB's main executive committee "so he's seeing the whole picture".


Hodgkinson says there are "no plans" to physically move EBS's executive team into some of the vacant buildings in AIB's sprawling Bankcentre complex, but he says the bank is "looking at improving our use of property from a cost point of view".

Does that mean giving up some of the buildings? "We're talking to landlords," he says. "I don't want to jeopardise that, or destabilise staff."

On the financial front, Hodgkinson is hoping the bank will attract non-Government investment by 2012. Will they follow Bank of Ireland's recent return to the debt markets?

"We will do," he says. "But we want the timing to be right, [we want] the overall market to be receptive to those transactions."

A question about when that opportune time might come draws out Hodgkinson's wry humour -- "You really do want the kimono completely open," he responds dryly.

Whether Hodgkinson will be there to see that return to markets is anybody's guess, including his own.

He's committed to staying in place until a new chief executive is found and for a "transitional period thereafter".

"The board are considering what they are comfortable with," he says. "I think the chances are I'll be around for a bit."

A stint as non-executive chairman seems unlikely, since Hodgkinson believes the bank "probably needs a domestic non-executive chairman rather than somebody like me".

Arguing himself out of a job? "I retired three years ago," he says, though he's somehow ended up doing "at least" 60 hours a week now when most men would be off golfing.

There are upsides though, beyond the €500,000 a year salary that drew such sharp criticism at AIB's recent shareholder meetings.

Hodgkinson says he has "developed a great deal of feeling for AIB" -- and he's not talking about the same kind of feeling the Irish public have developed for our very expensively bailed-out banks.

"The people of Ireland have been incredibly friendly and warm and welcoming to me and my wife," he adds. "Though I don't go out advertising that I'm a banker when I go out for a drink."

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