First Active meets to deliberate on fate of senior executive

A crisis meeting of the First Active board took place last night at which it is understood the future of group chief executive Mr John Smyth was being discussed.

Lawyers for Mr Smyth and the bank are believed to have been present at the meeting, the second in eight days held by the board of the beleaguered bank.

The departure of the incumbent chief executive of a mainstream Irish bank in these circumstances would be highly unusual.

The meeting began around midday and took place at an undisclosed location.

It is thought to be focused on implementing a new strategy for the bank under a revised management structure.

There has been speculation in recent days that Mr Smyth was under intense pressure to consider his position as the institution battles to restore investor confidence.

A spokesman for the bank, however, refused to comment on any aspect of the day-long discussions other than to confirm that a meeting was taking place.

Last December, the troubled bank announced significant changes in its senior management team in an attempt to improve investor confidence.

But on Friday, First Active shares closed at €2 or £1.58, still down almost 30 per cent on the price at which they were floated in October 1998.

If the board is pushing for Mr Smyth's departure then it is likely a considerable financial package will have to be provided. Mr Smyth earns a basic salary of almost £250,000 a year.

The significant options deal he was given at the time of the bank's flotation, whereby he could buy shares within three years at the flotation price, is currently of no value however.

In December, two of the bank's top executives - Mr Tony Shanahan, deputy chief executive, and Mr Paul Reville, human resources manager - were assigned new roles and replaced by Mr Cormac McCarthy and Mr Richard Hoare.

Mr Smyth remained in his position of group chief executive.

The top-level changes failed to provide the necessary turnaround in confidence. Investors continue to doubt the validity of its plans for development.

The negative view comes at a time when all financial stocks are out of favour.

But analysts believe the bank has failed to show much vision or commitment to broadening its business base and is still largely reliant on the domestic mortgage market.

Sources say First Active is very vulnerable to increasing competition in the market and, with its lack of scale and relatively high costs, it is not a particularly attractive target.

A strategic alliance or announcement that a new partner was taking a stake in the company would help the share price, as would a continuation of the cost-cutting regime.

Cost-cutting measures announced in December were expected to cost the bank €26 million (£33 million) including a large redundancy package. The cuts were expected to save the bank about €13 million a year and involved the closing of 25 of the bank's 76 branches and the loss of 175 jobs.

This cost-cutting exercise could lead to serious industrial relations difficulties, however. First Active has stated that it will implement a mandatory redundancy programme if it fails to achieve the voluntary job losses it desires, but SIPTU has said this would be "unprecedented".

Take-up of the voluntary redundancy scheme should be finalised today and the next phase of the operation then considered.