Whistleblower allegations at AIB difficult to assess

On Wednesday, the Central Bank of Ireland received correspondence from a whistleblower in AIB bank on the confidential email account that it operates for protected disclosures.

The allegations have not been made public by the regulator and AIB said it had not been “made aware” of them, but they are believed to relate to its Financial Solutions Group (FSG), which manages distressed loans across the group – both mortgages and corporate loans.

There are currently about 1,000 staff in this unit, managing problem loans of €13.1 billion. At peak, these loans would have topped €20 billion in value. Such is the separation of FSG from the ordinary day-to-day activities of AIB that electronic passes held by some of the leadership team within the bank don’t give access to the unit in Bankcentre.

Claim

The nub of the claim, revealed by

RTÉ

, is that AIB’s FSG unit had dressed up progress made on distressed loans to flatter its performance.

According to RTÉ, the whistleblower has alleged that money set aside for loans was reduced, in many cases from 100 per cent to 66 per cent.

When some loans were moved from the bad bank within AIB to the good bank, they were impaired once again, indicating that no progress had been made in relation to them.

The whistleblower said the restructures were clustered at the end of each month and the end of each quarter, indicating that the bank was under pressure to hit targets in advance of real progress.

While the allegations cannot be brushed aside, bank insiders would argue that the FSG unit has probably been subjected to more scrutiny in recent years than any other division of the group, be it internal or external audits, or asset quality reviews by the Central Bank and the ECB.

Chances

The chances of there having been a material misstatement of its financial performance are regarded as slim.

In the strange world of AIB, its share price rose by 1.2 per cent yesterday in spite of the allegations. But there is no significance to this. The bank is 99.9 per cent owned by the State and the share trading that takes place on the junior ESM market in Dublin holds little relevance.

Are there implications for AIB's proposed initial public offering (IPO) this year? Chief executive Bernard Byrne spent a number of days this week in North America on what they call a non-deal roadshow. The word is that he got a positive reception from institutional investors, who like the Irish recovery story and view AIB as a good proxy for that.

IPO documentation also comes with a list of risk factors facing a company and investors wouldn’t necessarily be frightened off by such a disclosure. Certainly, officials in the Department of Finance appear to be relaxed about the allegations in the context of an IPO.

The investigation of the allegations will be led by the Single Supervisory Mechanism in Frankfurt, with assistance from the Central Bank of Ireland. Neither institution was giving much away about the process yesterday. For the time being at least, it’s a case of so many questions and so few answers.