Cantillon

Inside the world of business

Tough sell to get ESM to take bank stake on future values

THE WHOLE concept of current market value versus future value will be thrown around quite a bit over the coming months as the Government attempts to share some of the banking debt burden with the euro zone bailout fund.

It has been reported that the Government will lobby the permanent bailout fund, European Stability Mechanism, to take direct stakes in the Irish banks based on future rather than current values.

This will be a tough sell given that the fund is hardly going to want to see its funds used for speculative investment and is unlikely to want to take on further risk.

Take Bank of Ireland as an example. The State’s injection stands at €4.2 billion in the bank. The bank had a market value of €2.8 billion giving the Government’s 15 per cent shareholding in the bank a worth of €420 million.

So why would the ESM want to pay €4.2 billion to take 15 per cent of something that is worth a 10th of that? And this is for Bank of Ireland, which offers the best investment prospect of any of the banks given that it didn’t do the crazy property lending to the same degree as other “pillar bank”, AIB.

It is hard to see how the ESM would be willing to give the State €20.7 billion for its 99 per cent stake in AIB or even €4 billion for a 99 per cent stake in Permanent TSB, given that these lenders are worth nothing near these sums.

It is also worth noting that Bank of Ireland has also paid a fair proportion of its bailout back to the State. It has paid the State fees of €1 billion for the bank guarantee, €400 million in coupons on the Government’s preference shares in the bank and €300 million in fees through various recapitalisations from 2009 to 2011.

If Bank of Ireland can return to full viability and profitability, the State might be better off holding this investment rather selling it to the ESM and concentrating its efforts on getting the bailout fund to acquire some interest in both AIB and Permanent TSB. However there is little hope of the fund taking the near €29 billion bill it has spent on all three banks.

Tasc backs worker-directors and calls for 25% on public boards

ARE WORKER-directors good for business? Yes, was the unequivocal answer given by a focus group of chief executives, other company directors and corporate governance types to a study conducted by think-tank Tasc and commissioned by the National Worker Director Group.

Some argue that worker-directors are more independent and resistant to group-think than other directors; others feel the advantage worker-directors bring to boards lies in long-term commitment to the organisation and in their insider knowledge.

So why aren’t there more of them and why are employee-directors almost always excluded from boards’ powerful remuneration and audit sub-committees?

“I’m a qualified auditor, but I wouldn’t be allowed on my own audit committee,” says John Moore, employee-director of the Dublin Port Company since 2007. “I’m not saying you have to be an auditor to be on an audit committee, but it helps to have financial knowledge.”

Indeed. There are times, it seems, when a little bit of knowledge among worker- directors is seen, by their co-directors, as a dangerous thing.

Tasc’s report, based on interviews with nine worker-directors and 13 non worker-directors, found that “almost all” worker-directors felt excluded from audit and remuneration committees, “and in particular felt that CEOs would not welcome a worker-director on a remuneration committee”.

No prizes for guessing why.

Not everyone was happy when worker- directors were first introduced in Ireland more than 30 years ago.

“In some quarters it was seen as a communist takeover,” recalled An Post employee-director Jerry Condon.

Tasc has now recommended that the worker-director model should be extended across the public sector, with a minimum 25 per cent employee representation on public boards to ensure worker-directors are not isolated.

There are concerns, however, that in the State assets privatisation journey that lies ahead, the days of worker-directors at certain semi-States might be numbered.

Launching the report yesterday, Ceann Comhairle Seán Barratt insisted that privatised and part-privatised State companies should retain their worker-directors.

“The old fears of 30 years ago didn’t come to fruition,” he noted.

Perhaps ominously for supporters of worker-directors expecting the Government to take the lead rather than just welcome new reports, he added that worker participation on boards should happen “automatically”, rather than needing to be backed up by legislation.

Quinns vs Anglo: the battle goes on

THE BATTLE between the former Anglo Irish Bank and the family of businessman Seán Quinn is being fought on so many fronts, in front of so many judges that it sometimes hard to keep up with it all.

The various proceedings between the parties have now come before no fewer than five High Court judges and that’s just the Irish courts. It doesn’t take into account the legal actions in Northern Ireland, Sweden, Russia, Ukraine, Cyprus and Belize.

On Friday Mr Justice Michael Moriarty ruled that Irish Bank Resolution Corporation, as Anglo now goes by, should not be given security for the cost of discovery in the Quinns’ legal action against liability for €2.34 billion in loans. This Friday, Ms Justice Elizabeth Dunne will decide whether Quinn, his son Seán and nephew Peter Darragh have complied with court orders to reverse a “conspiracy” to move assets in their international property group beyond the reach of the bank. The judge said she would consider punitive measures if they failed to comply, so this is a big court date.

Mr Justice Peter Charleton ruled in February that Quinn’s family could make claims of illegal conduct by the bank in the action to avoid liability for the €2.34 billion in loans, which were given to cover Quinn’s losses on an investment around the bank’s shares.

The bank’s separate legal proceedings involving an injunction against members of the Quinn family preventing them from dealing with worldwide assets below €50 million will come before Mr Justice Peter Kelly again for hearing on July 24th.

Then there is the hearing before Mr Justice Frank Clarke later this month when he will consider the bank’s application to discharge his order referring to the European Court of Justice an issue raised by the Quinns in proceedings brought by them in Cyprus.

That’s a lot of judges but then these are complicated proceedings involving a lot of debt relating to a lot of properties in a lot of countries. This battle will run and run.

Quote of the day

Anything that seems to soften the line in relation to previous policy edicts would clearly be seized upon by the Irish negotiating team. – Donal O'Mahony of Davy on reports of an ECB policy change on burning bondholders

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