Banks misled investors on merger talks

Nationwide building society chief executive Mr Micheal Fingleton told members of his society recently not to believe everything they read in newspapers. He may well have a point.

For months, rival media organisations have been reporting speculation about a possible merger between Anglo Irish Bank and First Active. At each point, the reports carried firm denials from the banks, on the basis of briefings with journalists to the effect that the rumours were without foundation.

Just 10 days before the two banks issued a holding statement to the Stock Exchange confirming merger talks, the Anglo Irish Bank chief executive, Mr Sean Fitzpatrick, told The Irish Times it would be doing "a great disservice" to its readers to report that a deal was being discussed.

Announcing the bank's annual results, Mr Fitzpatrick said it had not had any discussions with First Active and had only held "serious" talks with two mainland European fund management groups. Anglo had no interest in acquiring an extensive branch network.

These comments followed months of questions to Mr Fitzpatrick about merger talks with First Active. He strongly denied that anything was going on and, as the queries persisted, suggested he was growing weary of the constant speculation.

At the same time, the First Active chairman and chief executive, Mr John Callaghan, was adopting an identical approach. The bank wasn't in discussions with Anglo or anyone else, he said. He didn't know how the rumours were being fuelled and he again implied it would be misleading of The Irish Times to put such a story into the public domain.

Challenged about his approach last week, Mr Callaghan contended that the banks had entered confidentiality agreements and could not risk creating "a false market" in the shares by allowing news of the talks to appear before they were close to completion.

In such sensitive situations, it is common practice for companies to issue a "no comment" to media queries. Such a response neither confirms nor denies speculation. It then falls to the questioner - be it a journalist or an investor - to evaluate that response.

So is it justifiable for chief executives of publicly quoted companies to cite a confidentiality agreement as an excuse for providing misleading information? After all, these companies employ expensive public relations advisers to manage such market-sensitive situations. Indeed, in the case of Anglo and First Active, their task was made all the more straightforward as both companies were advised by Drury Communications.

The general secretary of the Takeover Panel, Mr Michael Ryan, says the obligation for public companies to notify it about merger talks rests largely on the degree of speculation and rumour that appears in the media, which may or may not affect share price movements.

It is in this context that First Active and Anglo Irish Bank could be charged with doing some disservice to investors.

It is worth noting also that shortly before the merger talks were confirmed, First Active's shares jumped by 20 per cent. It is clear that for all the confidentiality agreements, at least some investors felt sufficiently confident to buy into First Active.

Mr Callaghan, for his part, used his institution's annual general meeting last week to take a sideswipe at negative and inaccurate media coverage of the company. "It really is difficult to listen to this when so much is inaccurate. The image being created is far from the reality," he told shareholders.

And in his inaugural address as president of the Irish Bankers' Federation last month, Mr Fitzpatrick referred to the tarnished image of the sector as a result of the DIRT-related findings of the Dail Public Accounts Committee. "It will take time and the commitment of everybody involved in banking in Ireland to re-establish the reputation to which we aspire," he said.

Surely one step for the banking sector in this task would be to acknowledge the role of the media in seeking and reporting information on behalf of investors. In the case of this year shows the word of the chief executive of both companies was accepted on good faith.

Public companies and the public relations advisers employed by them would do well to consider their responsibilities to investors when issuing statements for publication. Those investors will justifiably treat such statements with more caution in future.