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Inside the world of business

Credit information system badly needed

THE WAR of words between Isme and the Irish Banking Federation reared its head once again yesterday, with the publication of Isme’s quarterly lending survey which found that more than half of small businesses had their applications for credit rejected by banks in the past three months.

The now predictable cycle of tit-for-tat between the small business community and the banking representative body highlights the urgent need for a more effective credit information system.

The introduction of such a system now seems inevitable, with all stakeholders, including Isme and Ibec’s Small Firms Association, the IBF, and credit reviewer John Trethowan, in agreement about the need.

Senior Department of Finance official John Moran also called for the establishment of a credit registry at a speech last Friday.

While a reliable source of information about the credit situation is welcome, the more pressing question is how the Government will force banks – which are keen and bound to reduce the size of their loan books – to lend money to viable businesses.

The main response to this so far is the introduction of a loan guarantee scheme. The Taoiseach yesterday confirmed his commitment to the scheme, though it is now expected not to be in place until the autumn, in part due to the legislative changes that it will require.

Despite widespread support for the scheme by the business community, the commitment by the State, already on the hook for billions in private debt, to underwrite potentially hundreds of millions of euro in loans brings its own risks. In addition, any guarantee scheme is expected to be strictly controlled and targeted, with the result that not all businesses will be eligible.

Meanwhile, the new Minister of State for small business, John Perry, will launch the Government’s small business advisory group, a consultative body for small business representatives, on Thursday. While the establishment of a new forum will be an opportunity for the new minister to put his mark on the office, the challenge for the Government is to ensure this new forum will become not just another talking shop, but an active vehicle for change.

BofI court should prepare defence

THE BANK of Ireland board, sorry “court”, better have their tin hats and flak jackets for the annual shareholder meeting in UCD tomorrow. The bank is under attack from various quarters.

The attacks centre around the bank’s efforts to raise €5.2 billion to stave off majority State ownership, the failure to clear out all of the pre-crisis directors, and a half-disclosed loan to persons connected to the bank’s chairman, sorry governor, Pat Molloy.

Reports surfaced yesterday that 2,000 British investors are poised to sue the bank over the €2.6 billion debt deal that it hopes to reach with subordinated bondholders to generate some of that much-needed €5.2 billion.

The investors received interest-bearing shares from Bristol West before its 1997 takeover by Bank of Ireland which fall under the bank’s deal to inflict losses on subordinated bondholders.

Then there’s White Case, the New York-based law firm which represents about €700 million of subordinated debt. It is angling for these debt investors to be given the opportunity to participate in the rights issue that will raise a further €2 billion or so.

Bondholders are being offered a better return for their debt (up to 40 per cent) if they accept shares but they are being excluded from the subsequent rights issue and any possible upside.

Debt investors are up in arms over the subversion of the capital rules where bondholders are being burned ahead of shareholders.

Then there’s the curious loan of €35 million to persons connected to Molloy, which was unearthed by one of the Sunday newspapers.

Two pre-crisis directors, Rose Hynes and Jerome Kennedy, will stand for re-election tomorrow and among the five directors stepping down is Dennis Holt, who will still hang on to his €84,000-a-year job as chairman of BoI’s UK bank.

Shareholders who paid up for last year’s rights issue only to see their investment wiped out (again) should also make their feelings known. This should be an angry meeting, perhaps angrier than previous meetings (if that is possible).

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The Revenue Commissioners will publish their quarterly list of tax defaulters for the first three months of the year.