AIB admits placing Dana shares in pension funds

A subsidiary of AIB bought shares in the exploration company Dana in 1988 and placed them in two AIB employees' pension funds, the bank admitted yesterday.

Another bank subsidiary, Allied Irish Stockbrokers, was acting for Dana in a placing of some 2.2 million shares to raise about £1 million when the company was floated on the stock market.

The allegation is that in order to cover up a failed placing of shares in Dana, by a subsidiary of the bank, Dana shares were transferred into AIB pension funds and to the bank's funds management subsidiary.

AIB has insisted the transactions constituted "no notifiable offence" and has reiterated a reply given by its chairman, Mr Lochlann Quinn, at its 1998 annual general meeting.

Asked at that time whether the bank had ever conducted a share support operation for the oil exploration company, he replied that the bank had hired two independent law firms which were expert in the securities industry to investigate this issue and they had reported to the board that no offence had ever occurred. The law firms were Linklater and Paines in London and William Fry in Dublin, the bank said.

Asked yesterday whether Dana shares were put into any AIB pension fund by AIB or any of its subsidiaries in 1988, a bank spokeswoman said some 28 per cent of Dana shares were floated on the Third Market in May 1988. The value of the shares was about £1 million. An AIB subsidiary, Allied Irish Investment Managers, subscribed for 25 per cent of the issue at the time, paying some £250,000 for the shares. These shares were then placed in the pension funds - £173,000 in the AIB Pension Fund and £74,000 in the Widows and Orphans Fund.

Even if no legal or notifiable offence was committed at the time, the issue is whether the bank and its subsidiaries acted in the best interests of its employees, pensioners and clients.

At the Public Accounts Committee DIRT hearing on Wednesday former AIB internal auditor, Mr Tony Spollen, referred to the Dana share issue. "It went badly wrong and rather than face the music and admit it . . . what happened was the shares were put into the widows and orphans accounts. The Stock Exchange was never informed," he said.

At the time the share support operations were alleged to have taken place, there appears to have been no regulations which would have prevented the placing of the shares in the pension funds. A company law expert told The Irish Times that "there was no insider dealing legislation, no market manipulation and stockbrokers were regulated from London by the Securities and Futures Authority of the London Stock Exchange. In effect there was no Irish regulation".

In 1988 AIS, the then stockbroking subsidiary of AIB, was hired by Dana to place 2.2 million of its shares (or 28 per cent of company) at 45p per share to raise just under £1 million. The placing was to be fully underwritten by another AIB subsidiary, AIIB, which was also the financial adviser to the issue and was to get commission of 3 per cent (£30,000) to underwrite the placing.

However, when Dana came to the market at the end of May 1988, the shares were not well received. Offered at 45p they initially rose to 47p, then fell to 20p before closing at 33p. Rather than admit that its stockbroking firm had failed to find investors willing to buy the Dana shares, it is alleged that the underwriters then acted to make the placing look successful.

Within days, a number of parties connected to AIB held significant tranches of Dana shares. Some shares were placed in the AIB Pension Fund and the AIB Widows and Orphans Fund which ended up with about 7 per cent of Dana.

In August 1989, Mr Spollen, then AIB's internal auditor, was appointed to look into the conduct of the subsidiaries AIS, AIIB and AIIM at the time of the placing.

Stock exchange chief executive Mr Tom Healy declined yesterday to comment on any specific company, but he pointed out that exchange rules covered share issuers and the shares involved rather than the investors. No investigation was carried out by the stock exchange in this case, he said.

The Pensions Board has no role in the supervision of investments by pension fund trustees. Trustees are required to invest pension funds according to the "prudent man rule", said Pension Board chairwoman, Ms Anne Maher.

"We do not supervise the investment of funds by trustees as such. The onus is on the trustees to invest prudently. We do not have the power to require investment statements from trustees. We are looking to see if we should have a stronger role. At the moment the actuaries who value pension fund investments every three years must send us a certificate stating that the schedule has sufficient assets to meet its liabilities," she said.