Cantillon

INSIDE THE WORLD OF BUSINESS

Credit where credit is due as small firms look for lifeline

THE ROASTING the Central Bank’s regulator, Fiona Muldoon, gave the banks over their slow response to the mortgage crisis at the Irish Banking Federation overshadowed other interesting points about the other crisis in banking – the availability of credit to small- and medium-sized enterprises.

IBF president John Reynolds, chief executive of KBC Bank Ireland, noted that many owners of solid SMEs dabbled in speculative property investment during the boom and that this was now affecting their creditworthiness.

The overhang of this debt “must be factored in by banks when making credit decisions”, he said, adding that in no case should the extension of credit be seen as “a panacea” to fundamental and underlying problems in a business.

Where Reynolds noted a big problem here, another speaker, John Moran, secretary general of the Department of Finance, pointed to one possible solution.

He raised a point around an important difference that is sometimes lost in the debate about the availability of credit to businesses – what many companies need is not more debt but fresh investment.

Additional equity and working capital in the restructuring of businesses could release viable SMEs from non-viable property plays, Moran told the conference, and that new sources of equity or mezzanine financing must be found.

He said the department was working to find ways to use the National Pension Reserve Fund to create new funding sources, citing the joint venture with Silicon Valley Bank as an example.

Disentangling the heavy drag of property debt from individuals and viable businesses is the single biggest challenge facing banks and borrower alike. In a country where €3 out of every €5 borrowed during the boom years was on property, be it land, offices or homes, this will take a long time.

No wonder Reynolds said that the results of the banks working with customers in difficulty was “frustratingly slow”.

Corporate responsibility is no fad

YESTERDAY, FOUR companies – Veolia Transdev Ireland, EirGrid, Accenture and Pfizer Healthcare – were awarded the Business Working Responsibly Mark, an annual award presented by Business in the Community, an organisation which promotes responsible and sustainable business practices.

The awards were presented at the annual CEO forum at the Guinness Storehouse.

Among the speakers addressing the 150-plus audience was CRH chief executive Myles Lee, who outlined some of the corporate social responsibility (CSR) measures undertaken by the company: everything from sustainable methods of cement production, to a commitment to reducing the high incidence of health and safety issues among contract staff.

Lee was right on the mark as he discussed the issue of sustainable and responsible business practices in a clear and logical way. CRH’s homesy roots are all well and good, but there is also an “increasing focus from the group’s investor base as to how we’re measuring up” in terms of responsible and sustainable work practices.

As the CEO forum highlighted yesterday, corporate social responsibility isn’t just about generating that warm fuzzy feeling, it’s also about the bottom line. According to research presented yesterday, 71 per cent of chief executives believe that corporate responsibility activities have a positive impact on the bottom line, while 56 per cent believe that it gives them a competitive advantage.

As long as ethical and sustainable practices align with commercial objectives, they will continue to be a key strand of corporate activity.

DAA’s €55m offer puts public sector pensions under spotlight

THE DUBLIN Airport Authority’s offer of €55 million to its trade unions to help plug the gap in its pension scheme highlights the gulf between public sector pensions and those offered in the private sector.

For a large cohort of workers at the State-owned company, this would result in a pension, including the State pension, on retirement of 78 per cent of their final salary.

Some might get more while others will get less, depending on where they stand on the pay scale and their service.

Incredibly, the unions sought a solution that would provide a pension of up to 85 per cent.

Unions are out to cut the best deal they can for members, so who can blame them for pushing hard on this?

It’s a different story for the DAA. These pensions are clearly out of kilter with the reality facing most workers at present, even those in the Civil Service, who broadly speaking get a 50 per cent pension and a lump sum.

Remarkably, it seems that the DAA has sought little by way of cost offsets in return for its €55 million.

This tab will be picked up by each person using the DAA’s airports.

The DAA pension scheme is jointly operated with Aer Lingus and SR Technics. Each is trying to find its own solution for their workers.

The DAA’s deal has a knock-on effect for Aer Lingus, which has more members in the scheme and believes it could be hit with a bill of more than €200 million.

Its pilots, who are in a separate scheme, are awaiting the outcome before beginning their own talks with the company on their deficit.

We can be sure about one thing – such a figure won’t fly with Aer Lingus’s shareholders, particularly Ryanair.

TODAY:

Results this week from Intel and IBM are followed up today with first quarter results from Microsoft. The next two weeks see earnings reports from many of the big US tech firms.

Quote of the day

"Due to the seemingly insurmountable evidence that Lance Armstrong participated in doping and misled Nike for more than a decade, it is with great sadness that we have terminated our contract with him"

– Nike calls time on its relationship with Armstrong