Saturday 15 December 2018

Richard Curran: AIB has only itself to blame for ill-timed executive bonus plan flop

Finance Minister Paschal Donohoe’s vote against the share bonus plan at AIB’s annual general meeting raises questions about how it got so far. Photo: Gareth Chaney Collins
Finance Minister Paschal Donohoe’s vote against the share bonus plan at AIB’s annual general meeting raises questions about how it got so far. Photo: Gareth Chaney Collins
Richard Curran

Richard Curran

The €1bn tracker mortgage scandal has put paid to AIB's plans for a new executive remuneration scheme, which would include share bonuses for around 80 management figures.

The bank only has itself to blame for having its bonus plan scheme shot down in flames. There can be few surprises in Finance Minister Paschal Donohoe's decision to scupper the plan, at least for now.

As recently as last October he said that bank customers in general had been treated "disgracefully" and that the past and current culture of the banks was "unacceptable" to him.

AIB did manage to come with a late surge in its handling of the crisis by pledging to pay everybody affected by the deadline, but the damage was done.

How could the minister sanction a bonus scheme, just months after that statement and when his own review into banking culture in Ireland has not been completed?

Donohoe's decision to vote against the share bonus plan at the AIB AGM does raise a few interesting questions all the same. How did this plan even see the light of day, only to be shot down in a very public way by the minister?

One would assume the proposed bonus scheme got as far as it did, only after consultation with all shareholders, including the Minister - who holds 71pc of the equity.

If that was the Minister's view, then how come the plan even got as far as it did? Admittedly, it was a relatively cautious plan as bank bonus schemes go. Those participating would only be able to have shares awarded to them after 2019 and a portion would be held back in the event that the bank's performance was negatively affected afterwards.

Similarly, the shares could only pay out to executives once all of the €20bn put into AIB by the State had been paid back. The scheme as proposed would not have seen executives receive real shares in their hands, for about five years from now.

It was a softly, softly approach to resuming bank bonuses at AIB which were canned back in 2008. Other shareholders don't seem to have a big issue with the scheme and even the proxy firms, which advise shareholders on how to vote on these things gave it a green light - albeit despite raising some issues.

Institutional shareholders are not politicians. They don't have to worry about the optics of banker bonuses possibly just months away from a general election. Donohoe has finely-tuned political antennae and knows the time is not yet right for this. Perhaps he believes it was the wrong scheme as well as the wrong time.

AIB chief executive Bernard Byrne has been left in a bit of a quandary. How does he retain key staff when he knows he cannot offer them this bonus scheme?

Donohoe has held out a fig leaf. He has proposed a review of banker remuneration to be conducted by outside consultants on whether the current pay caps and bonus ban are still fit for purpose.

This buys him some time but also says to executives with itchy feet, the situation might change fairly soon once there is enough blue daylight between the tracker scandal and the bonus scheme.

It isn't clear where it leaves Byrne himself. He appeared to jump the gun in January by suggesting to an Oireachtas committee that he would urge the Government to sell more AIB shares because they had risen so much in value. His more recent comments have been more restrained, emphasising how this is decision is a matter solely for government.

He has now gone ahead with putting together a bonus scheme that has been publicly shot down by the minister. Donohoe could have chosen to abstain and let the private shareholders decide, but instead he is voting against it.

Time is a great healer they say, but it will take a while - perhaps the far side of a general election - before Irish bankers can be hooked up with share bonuses in a state-controlled bank.

Online shopping frenzy delivers brighter outlook at An Post

An Post chief executive David McRedmond has made at least one speedy delivery this year. He announced a fairly rapid turnaround in the fortunes of the state company. Always one to see the glass half full rather than half empty, McRedmond heralded last week that the "future is bright" for An Post. With profits of €8.4m in 2017, compared to a previous year loss of €12.4m, why wouldn't he. The former Eircom and TV3 executive has acted quickly since taking up the job.

Firstly he convinced the minister to grant a 38pc increase in the price of a stamp. He then also restructured An Post into two distinct business, culled senior management numbers and shed more staff.

An Post has capitalised well on the growth in parcel deliveries and grown this business by 30pc. The bottom line was also boosted by the sale of its Cardiff Lane property in Dublin 2, which left a profit for the year of €37m.

This figure will make for interesting reading for all of those rural postmasters around the country. McRedmond has hired more consultants to take a look at the post office network, which buys him some more time. But it might be hard to actually close down post offices in a company where the future is so bright.

An Post's revenues last year returned to 2008 levels. Back then it had 10,970 full-time staff equivalents. Last year it was 9,905. The wage bill a decade ago was €599m and last year it was €562m.

Back in 2008, staff and postmasters' costs amounted to 70.5pc of wages, but last year they were just 58.9pc.

Online shopping is set to increase dramatically in the years ahead and An Post is now better placed to make the most of that opportunity. The thorny issue of rural post offices however, will not go away any time soon.

China can cushion the imminent Brexit blow to Irish beef industry

China may well prove to be a saviour for the Irish beef sector after Brexit. News that several Irish beef-processing plants have been cleared for €100m worth of beef exports to China could be just the beginning.

The Chinese are importing 600,000 tonnes of beef a year and consumption is rising. Some estimate that imports could double by 2020.

Unfortunately, while Ireland may be the first European exporter to access to marke we are late to the party.

Brazil started exporting beef to China in 2009. Last year it was the biggest supplier with 180,000 tonnes. In second place came Uruguay with 150,000 tonnes. Australia and New Zealand got into this market several years ago, and in 2016 the Kiwis exported 75,000 tonnes.

Chinese beef imports amounted to around €2.1bn in 2016. If that doubles by 2020 it would be worth around €4.2bn. How much of that can Ireland corner especially given that two Latin American countries, plus New Zealand and Australia, are in there ahead of us?

The patterns so far have shown that one country can overtake another in the Chinese market. Irish beef exports are worth about €2.5bn, with half of that going to the UK. A portion of it will be under threat after Brexit.

China could more than replace UK export losses if things go well. Right now the question is do we have enough cattle to sell there, and if so, do we have enough fodder?

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