Cantillon

Inside the world of business

Honohan's deputy left in an awkward position

PATRICK HONOHAN’S decision to take a pay cut last year and another one this year leaves his Central Bank deputy Matthew Elderfield in a somewhat awkward position. Elderfield was paid €115,000 more than his boss last year after Honohan “gifted” €41,740 to the Minister for Finance. This amounts to a 15 per cent pay cut, in line with similar reductions taken by senior public servants.

Honohan is going even further this year, gifting €63,324, a 23 per cent reduction on his base salary. If Elderfield is paid the same salary this year it will mean that his boss will be paid a whopping €127,000 less than he takes home.

You know the world has turned on its head when the man in charge of the financial stability of the State is paid almost a third less than the director of corporate affairs and content development at Independent News Media, a salary that emerged in a recent High Court case. That, however, could be more of a sign of private sector largesse.Honohan was quick to point out – in response to a query about his pay cut – that the Central Bank’s higher profits for 2011 were due to how much it earns on interest on loans to the Irish banks and the emergency loans advanced to the former Anglo Irish Bank. The Central Bank said that it had €42 billion of “exceptional liquidity assistance” (ELA) loans outstanding at the end of last year. All of this was owing by Irish Bank Resolution Corporation, Anglo’s new name. ELA loans were down from €49.5 billion a year earlier. The interest paid to the Central Bank on ELA loans amounted to €1.6 billion during 2011 or 44 per cent of the bank’s annual income. A further €1.3 billion of income from from “monetary policy operations”. The bank made €517 million from ELA loans in 2010. This is income incurred by one State entity charging interest to another – lending that allows the State to fund legacy bank debt “at a very low cost”, said Honohan.

Waterstones embracing rival Amazon Kindle e-readers

IN A “keep your enemies closer” move, Waterstones’ boss James Daunt has decided to make like Tesco and start selling Amazon’s Kindle e-readers. Such is the decline in Waterstones’ fortunes in recent years, that his awkward embrace of the device – described as the VHS of e-readers compared to various Betamax-like also-rans – is less accurately interpreted as “good for Amazon” as it is “bad for Waterstones”.

Daunt’s reasoning for getting into bed with Amazon is predicated on an already established consumer behaviour. Readers are browsing bookshops for titles, but buying them online - because they want the e-book version, because they prefer the online price, or both. Under the deal, if browsers download the titles to their Kindles using in-store wi-fi connections, then Waterstones will get an undisclosed cut of the sale. Another idea that has been floated is that customers who buy hardbacks would be eligible to purchase the e-book of the title at a discounted price.

There is a risk with all of this, and that’s that Waterstones will simply wind up converting Kindle refuseniks into e-book devotees, cannabilise its print sales and spiral further into irrelevance in Amazon’s shadow.

“Are we forsaking the physical book for the digital? Not at all,” said Daunt in a video uploaded onto YouTube yesterday morning.

“I think that digital is very much an adjunct to reading a physical book,” he explained. Daunt is making some fairly big assumptions here about consumption patterns, the main one being that it seems to ignore the constituency who purchase e-readers out of little more than curiosity, then find themselves never darkening a bookstore’s door again. But what if soft copies are not an adjunct to hard ones, but their replacement?

Daunt - a former banker who set up London’s Daunt Books mini-chain before joining Waterstones last year under its new owner, the Russian oligarch Alexander Mamut - is promising store refurbishments and “a really vibrant environment”. Can the volume of in-store downloads ever really be high enough to sustain Waterstones’ 300-store chain?

This surprising chapter in the Waterstones story may be a daring plot development by Daunt, but the ominous subtext is one of capitulation to Amazon - a company that he only last December called “a ruthless, money-making devil”.

AIB workers to learn of offices plan

AIB staff may know that 2,500 of them will leave under redundancy or early retirement and that they can apply for either from tomorrow, but they won’t know until today how individual business units are affected.

This is far from satisfactory given the wait they had to endure since first being given the bad news about the major redundancy plan.

The job cuts are, of course, necessary for a bank in receipt of €20 billion in public funds that is far smaller than the bank that grew rapidly through years of heavy lending.

David Duffy, who has been chief executive of AIB for six months, told staff yesterday that his plans and strategy for the bank would be communicated to them soon.

He is eager to transform AIB’s tarnished culture and is keen to introduce more technology into how the bank deals with customers, taking a few leaves from Asia’s banking manuals that he knows well.

Duffy is also hand-picking his own senior team. Many of the old management team were appointed by David Hodgkinson when he was executive chairman. (He is now non-executive chairman following Duffy’s appointment.)

It is worth recalling the work that went into the efforts under Hodgkinson to install a new team. The 2011 annual report for the bank showed that non-executive director Catherine Woods was paid €276,000 by the bank.

Half of this was paid to Woods for interviewing and evaluating more than 140 candidates “for senior mangement positions in the new organisation structure” for a number of months during 2011. Given the money involved, let’s hope some of this assessment work is being used to good effect by Duffy.

TODAY

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