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Inside the world of business

And who might now control INM?

THE APPOINTMENT of four new, non-executive directors to the board of Independent News Media will certainly muddy the waters as to who controls the country’s largest media group and might reflect the concerns of its banks and bondholders.

Despite his protestations to the contrary it is very hard for 29.9 per cent shareholder Denis O’Brien to argue that he does not control the group, not least after his successful ousting of Gavin O’Reilly and chairman James Osbourne in a messy boardroom coup.

At present the group has six directors, two of whom – Paul Connolly and Lucy Gaffney – are representatives of O’Brien. A third, Terry Buckley is very much seen as part of the O’Brien camp. The two other non-execs – Frank Murray and Allan Marshall – are harder to pigeon-hole and the chief executive Vincent Crowley has a difficult balancing act. But, on balance, you would have to say the O’Brien camp calls the shots, or at a minimum nothing happens that it does not approve.

The loyalties and otherwise of the four new non-executives are less clear-cut, with the exception of Leslie Buckley, another of O’Brien’s loyal lieutenants. Len O’Hagan has a long association with Tony O’Reilly, having worked for him at Fitzwilton and might be deemed sympathetic to the interest of the second-largest shareholder.

After 24 years at the top of corporate Ireland, Jerome Kennedy has so many connections that it’s possible to link him to both camps or none and, if anything, he might be best seen as the bank’s man.

The wild card is Triona Mullane, a relative unknown in Irish boardrooms but with what would appear to be a very strong background in technology. She is presumably there to address the lack of progress in new media which was one of O’Brien’s main criticisms of Gavin O’Reilly. It will take a while for the power balance to assert itself but it’s unlikely O’Brien has let himself be out-manoeuvred having fought so hard to get into the driving seat.

All eyes on interest rate swap compensation

ULSTER BANK still sticks out like a sore thumb within Royal Bank of Scotland. Loan impairments were highest at the Irish bank (despite falling on last year), while Ulster Bank was the only division to post an operating loss.

The cost of mis-selling payment protection insurance added a further £135 million charge to RBS, bringing that bill to £1.3 billion.

But perhaps more interesting to Irish customers was a £50 million charge to compensate small businesses that were mis-sold complex interest rate swaps.

The bank’s settlement of a legal action with property developer David Agar and the reported write-off of swaps and loans worth €30 million and his legal fees of €1 million has piqued the interest of many struggling Irish developers.

Interest rate swaps were all the rage in the good old boom days when developers sought to hedge against higher borrowing costs.

Jim Brown, chief executive of Ulster Bank, said he couldn’t comment on the Agar case and didn’t want to be drawn on the number of Irish customers that could make similar claims against the bank.

The £50 million hit taken by RBS on the mis-sold interest rate swaps was a general provision to cover compensation and not for specific Irish customers, he said.

Given how high the cost of the payment protection insurance scam has run, you have to wonder what charges the banks will have to take arising from the UK regulator’s review of mis-selling in this area.

AIB’s UK division, Bank of Ireland and five other banks volunteered to review their sales of interest rate hedging products to small and medium-sized businesses, the FSA said last month. This followed agreement by four banks, Barclays, HSBC, Lloyds and RBS, to compensate customers mis-sold the products.

Any payback from the banks may not get some debt-laden Irish developers out of holes, particularly those whose interest rate swaps were taken over by Nama along with their loans, but it may give them small wins against the non-Nama financial institutions.

Eircom man will have his work cut out for him

EIRCOM’S NEW chief executive, Herb Hribar, may hail from the US but he has first-hand experience of the troubled Irish telecom, having served as managing director of wholesale/networks at Eircom from 2002-2004.

He will be well-acquainted with the situation where a succession of owners have squeezed the company since privatisation, by burdening it with ever-greater amounts of debt, to the benefit of their bank accounts but to the detriment of the company and the economy generally.

Of immediate concern to the one-time US naval officer is building confidence in Eircom since it came out of examinership in June. Last month, ratings agency Fitch attached a B- with a negative outlook rating on Eircom’s debts. The ratings was assigned to Moceir Holdings (Ireland) Ltd, which trades as Eircom.

Fitch noted that its negative outlook reflected the “considerable operating challenges” in turning around the fixed-line business. “Its weak competitive position relative to the cable operator UPC may lead to further line losses beyond management’s expectations,” it added.

Fitch noted that statistics from ComReg show Eircom has a 56 per cent share of fixed-lines revenues from the 1.6 million homes here. This share has fallen by about 10 percentage points in the past two years. Eircom was “most challenged” in the urban residential market, where UPC has focused its investment, Fitch said.

UPC is not the only challenge. BSkyB recently announced it will begin offering broadband and voice services here in time for Christmas.

Hribar must also try to downsize Eircom’s workforce and invest €1 billion-plus in a fibre-optic network, as per the agreement worked out with bondholders during its recent examinership.

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