INSIDE THE WORLD OF BUSINESS

BoI should explain motion to reduce shareholder power

SHAREHOLDERS IN Bank of Ireland meet today to approve the bank’s participation in the National Asset Management Agency (Nama). If the recent extraordinary general meeting of AIB – convened for the same purpose before Christmas – is anything to go by the motion will be passed.

Much of the sting has been drawn out of this rather bleak moment by the events of the last few months, including a partial clear out of the bank’s top brass.

Shareholders should, however, take time to question the board about the other item on the agenda: a motion to reduce the threshold needed to pass many shareholder resolutions from 75 per cent to 50 per cent.

At present, only routine or ordinary resolutions associated with annual general meetings – such as paying dividends and approving financial statements – can get through with 50 per cent support. Other or special resolutions – such as the decision to participate in Nama – require 75 per cent approval.

Bank of Ireland claims that broadening the scope of actions suitable for ordinary resolutions – that will be subjected to the 50 per cent threshold – will bring the bank in line with most other listed companies.

AIB, for example, was able to put its Nama vote as an ordinary resolution requiring only 50 per cent support.

Conspiracy theorists may see hidden agendas where none exist, but the board of the bank should be made give a full explanation for why they wish to water down shareholder power at such a critical juncture and when faith in the bank’s corporate governance has probably never been lower. Whatever else brought Bank of Ireland to the edge of bankruptcy, it was not the inability to treat more items as ordinary resolutions. Thus it is hard to see how taking away this check on management is now necessary.

As things stand, shareholders are being asked to take on trust the management’s assertion that a diminution of their power is in their wider interest. But trust is in pretty short supply in Irish banking.

Cowen’s refreshing honesty

While there was little new in the Taoiseach’s comments on the economy made at Citi’s “Research Day” in Dublin yesterday, he did at least offer some insight into what has been going on in Government for the last 18 months.

Mr Cowen was frank about the extent to which he and his colleagues were ill-prepared for what befell them in late 2008, saying that he had never before experienced such rapidly moving events and the need for quick decisions. He added that, in framing a response, there was no room for experiment of the detailed exploration of alternatives.

“We had to take risks and make bold moves,” he said.

The Taoiseach was presumably talking about the blanket guarantee given to the banks in September 2008, which set Ireland down the path towards the nationalisation of Anglo Irish Bank and, ultimately, the Nama-based rescue of the banks.

This apparent characterisation by the Taoiseach of the Government’s policy responses to the crisis as not necessarily optimal, but justified by expediency, is refreshingly honest.

It is a pity that this new openness does not extend to accepting the need for an inquiry into the causes of the banking collapse along the lines suggested by Central Bank governor Patrick Honohan.

Appropriate returns ahead

Wolseley’s decision last week to sell its Irish operation is part of a group strategy of focusing on areas where “we have built sufficient scale, established leading market positions and can deliver an appropriate financial return”, according to its statement.

The key words here are “appropriate financial return”, Wolseley Ireland Holdings, made up of DIY outlets and builders’ merchants Tubs Tiles, Heat Merchants and Brooks, lost €34 million in the 12 months to July 31st last on sales of €237 million. This is not what the multinational means by an appropriate financial return. This poses a tough challenge for its new owners. The deal’s structure means that they will have to repay €22 million to Wolseley at the end of their first year.

But the numbers give some cause for hope. Sales for the five months to December 31st were €75 million, indicating that they are running 25 per cent below the previous financial year.

However, losses were €5 million. On that basis, the operation is losing €1 million a month, compared to almost three times that last year. It’s not ideal, but it does mean that the business is in sight of breaking even.

Wolseley Ireland did not spare the axe over the last two years, and staff numbers are less than half the 1,200 they were at the boom’s height.

There were further cuts last year and Irish chief executive Pat Roche, whose management team the new investors are backing, indicated on Friday that he and his colleagues may have plans to make further savings. Given that its new owners are depending on them, and the relentlessly tough trading environment, it will not be long before these plans become clear.

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