Wednesday 20 November 2019

Success! Noonan cosies up to the vampire squid

Michael Noonan
Michael Noonan

Shane Ross

The pending sale of the Government's AIB shares is being spun as a triumph. Last Monday, Finance Minister Michael Noonan took space in an Irish Times article to announce yet another government "success".

We were about to get our money back. AIB was beginning the long road back into private ownership. Another symbol of national economic recovery. Furthermore, buried deep in the article, the minister revealed that the advisers had been appointed. No less a global giant than Goldman Sachs had been picked to start the process.

Happy days are here again. AIB will soon be back in the private sector, out of government hands. Courtesy of Goldman Sachs.

Yes, there had been a tender process. Indeed, in what the mandarins smugly call a 'mini-tender', Goldman has been plucked from the Government's permanent shortlist of favoured investment bankers. A kind of shortcut shortlist.

The announcement of Goldman's good luck implied that Goldman are doing the task for nothing. They are. For the moment. The next stage is where the big booty beckons. Indeed, most of the rival tenderers also offered to perform the initial flotation stage free of charge as well. Or, in the cosy Latin phrase in the press release, implying that Goldman are some sort of philanthropists - pro bono - meaning that they are doing the job for the public good.

Laugh as loudly as you like. Goldman Sachs is no saint. The current practice for such lucrative contracts is for bidders to offer to work pro bono for the first six months. This is the sweetener. Then they are in pole position, almost unassailable for the goodies at the heart of the sale process. You would receive long odds in the market against anyone bar Goldman landing the second stage of the sale of AIB. The fee is expected to be at least €10m.

Goldman Sachs is a great favourite of the Irish Government. Last year it was revealed that it had been paid around €9m by the present Coalition for work done since 2011.

It is difficult to understand how the firm has been chosen for the sale of the Government's stake in AIB.

Indeed, Goldman Sachs is a member of all three insider panels selected by the Government for flotations and related transactions. It is the biggest player in an exclusive club of the great and the good in international banking.

Goldman is supposedly some sort of an expert in sales of state assets. Assuming that it gets the gig for the second leg, it will be asked to advise the Government on the best time to sell and how to extract the maximum possible price for the taxpayer. For this "expertise" it will be paid handsomely.

Goldman must have put up a great show at the interview. Hopefully it is not so well embedded in the Department of Finance mandarins' affections that they managed to overcome the odd blemish on their record.

No doubt the mandarins put aside the more colourful criticisms of Goldman made over the years. Hopefully they did not know that their chosen one had only a few years ago been described in Rolling Stone magazine as "a great vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells of money".

No doubt the interviewing mandarins did not ask the winner of the tender for a comment on such an unkind judgement. Nevertheless we can only presume that they did not duck a rather awkward issue.

Less than 18 months ago, Goldman advised the UK government on the sale of its shares in another state asset - the Royal Mail. Ireland's favourite experts put a price of £3.30 on the UK company's shares. The UK government took its advice and the flotation flew. So well did it fly on the first day of dealings that the stock traded at a 38pc premium to its flotation price.

Someone had been sold a pup. Goldman advisers had egg on their face - but they had a fat fee in their pocket. Between October 2013, when Royal Mail shares floated at £3.30 (on Goldman's advice ), and the end of November the price traded as high as £5.95. Not good for Goldman. It was even forced to face an angry House of Commons committee, where MPs suggested that the UK taxpayer had been short changed. But Goldman had its fee in the bank. All it had done was to price the flotation hopelessly wrong.

More questionable must have been a subsequent revelation in the Guardian that just one month after the Royal Mail shares floated at £3.30 each, Goldman Sachs had issued an astonishing note suggesting that they could be worth £6.10 within a year.

Of course, the Goldman Sachs analysts who wrote the note targeting a £6.10 price work in a completely separate section of the business from the Goldman Sachs guys who recommended a sale price of £3.30. Nevertheless it must be a bit embarrassing. Happily these corporate vampires have fangs like razors, but necks of brass.

Could they now apply the same "expertise" to AIB? You bet they could. Imagine if Goldman advises and secures a sale price for the state's holding in AIB, before they jump nearly 40pc on the next day's trading. The Irish taxpayer will have a right to feel short changed - even though it will hardly be a new experience.

They will feel even sorer when they realise that Goldman Sachs employees are the best-paid corporate advisers in the world. Last year the top 120 London-based bankers in Goldman shared payouts worth more than £350m. Each of them earned around £3m for a year's work, double the amount earned by their rivals. Much of it was paid to them in performance bonuses. Were any of these bonuses for completing the disastrous Royal Mail flotation?

No doubt the interviewers considered this dismal Royal Mail flotation performance when giving Goldman the Irish privatisation gig. There must have been other reasons why Goldman won the raffle. Happily the selection panel were not put off by Goldman's current difficulties, including allegations in the US that it has manipulated the benchmark price of platinum and palladium.

They were probably reassured by John Theron, a spokesman from the platinum industry, insisting that he saw "no evidence there had been price manipulation".

Nor does a controversy surrounding Goldman's court battle with the Libyan government seem to have disturbed the mandarins. In this case, it is alleged that all manner of incentives were offered to naive employees of the Libyan sovereign wealth fund, including an expenses-paid trip to Morocco where the entertainment included "heavy drinking and girls". The Libyans lost over a billion dollars buying Goldman Sachs' high-risk derivatives recommended by Goldman itself. Goldman hotly contests the claims, insisting that the Libyan team included highly experienced bankers and that they were suing with the benefit of hindsight.

But Ireland's selection of Goldman highlights the amnesia that surrounds the utterly unacceptable activities of world bankers.

Have we forgotten everything already? These guys are among the worst offenders in the unsavoury global banking sector we are supposedly trying to re-enter.

AIB is about to be relaunched into this ugly world. The Government is apparently happy to float it off into the clutches of the culture of greed, symbolised by those who are guiding the flotation. Restoring AIB into private control means a few bob for Michael's war chest - but a heap of misery for the Irish people. Part of the flotation fee paid by the taxpayer will go towards bonuses to the Goldman Sachs "experts".

And bonuses will be back in Ireland. No doubt Goldman Sachs will recommend huge incentive bonuses for AIB chief executive David Duffy and all the top brass. No doubt the new shareholders and board will resume crucifixion of customers with higher charges and a less transparent culture. No doubt the old cartel will flourish. Restoration to the private sector is not all it is cracked up to be. There are vampires everywhere.

Many, many years ago as young political activists many of us laughed at Mary Robinson's utterly lunatic left-wing suggestion that the banks should be nationalised. Today it appears that taking AIB out of state ownership is abandoning Irish banks and their small customers to the mercies of international vampires.

The sale of AIB will be no triumph.

Sunday Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss