Hodgkinson keen to turn a corner on AIB's rocky road

INTERVIEW:THE LAST nine months have been a baptism of fire for David Hodgkinson since the former chief operating officer of global banking giant HSBC took the reins at embattled Allied Irish Banks.

As executive chairman, he has overseen the disposal of AIB’s Polish and US businesses, the acquisition of Anglo Irish Bank’s €8.6 billion deposit book and EBS building society, and AIB’s descent into nationalisation as the State’s 99.8 per cent stake is crystallised with the pending recapitalisation.

There have been debt buybacks with junior bondholders raising €3.6 billion this year and preparations to receive another €12.7 billion in State capital this week.

“The nine months have been quite a journey,” said Hodgkinson in his typical understated manner.

He has no regrets in agreeing to take the role but admits it has been “bloody hard work”.

The bank is “turning a corner” but says it is like turning an oil tanker – it will take some time.

The tricky task of identifying 2,000 job cuts and agreeing staff severance pay is still outstanding.

Much of his effort has been on “remedial” action and fixing the mistakes of the past that landed the bank in public ownership and led to a €20 billion State handout.

“The risk and control measures which I saw as pretty standard in my old shop didn’t appear to have been applied here,” he says.

Most of the senior managers in place during reckless boom-years property lending are gone, he says.

All executive committee members are new to their roles since last year and after today’s annual meeting the three remaining pre-2009 directors will be gone.

Hodgkinson says it was disappointing that he encountered managers who didn’t think there was a problem. “They were convinced that there wasn’t much wrong that needed to be changed,” he says.

But in his former role at HSBC Hodgkinson had experience of facing up to awkward problems.

HSBC was a lone voice on the financial landscape in 2007 when it acknowledged having problems with US subprime mortgages.

Hodgkinson assigned thousands of HSBC staff to call centres in Florida to deal with customers queries and learnt that delaying a problem was not a viable solution.

“Kicking the can down the road wasn’t helpful,” he says.

This is why Hodgkinson and AIB have submitted proposals to the Central Bank on solutions to deal with mortgage borrowers in difficulty. The bank is concentrating on trying to keep struggling families in their homes.

“Dealing with customers in difficulty is always a very nuanced business. You have to strike a balance between the moral hazard of giving someone a let out when they have some ability to deal with their own problems,” he says.

“But equally there is no point in putting the ‘can’t pay’ rather than ‘won’t pay’ people into a position where they just remain in the hole for years to come. You have got to find appropriate ways out.”

Hodgkinson says the onerous bankruptcy laws do not work in practice and that the bank’s suite of relief measures – increasing loan terms and reducing monthly repayments – will not help everyone.

“For some people, particularly those who bought at the peak of the market and lost their jobs, the current arrangements may not go quite far enough,” he says.

As for paying a new chief executive to be chosen from a shortlist, Hodgkinson says that the bank hasn’t been rebuffed by the Government on the possibility of tying their performance to share options and ensuring a recovery for the State on its shareholding. “It is early days but it wouldn’t be a concept that I would bet my mortgage on happening,” he says.

The 60-year-old career banker hopes to become non-executive chairman with the appointment of a chief executive in the autumn.

“I don’t aspire to start a second career at this stage of my life.”