Cantillon

Inside the world of business

AIB faces struggle to win over Government on salaries

IT’S NO wonder it took AIB executive chairman David Hodgkinson seven months to fill most of the positions in his new management team at the bank. He is likely to have had some persuading to do to convince the Central Bank to sign off on the appointment of six insiders to nine executive roles on his new team.

Two of the roles – chief financial officer and chief risk officer – are still only temporary appointments and these jobs are not exactly lowly positions. AIB, which is 93 per cent State owned and has to raise €13.3 billion, still has to find a new captain for this heavily listing ship. Possible candidates have been identified but no shortlist has been drawn up.

Hodgkinson is recasting the structure of the bank into three banking divisions – personal and business, corporate and institutional, and commercial – and has installed two insiders to run them. Granted, one of those is former ESB finance director Bernard Byrne who joined AIB as recently as May 2010, so he would still be regarded as part of the new guard.

It is interesting that Hodgkinson has also turned to two executives who worked closely with former managing director Colm Doherty – Jerry McCrohan, managing director of capital markets (Doherty’s one-time role) and chief credit officer Joe O’Connor.

McCrohan will be in charge of the corporate and commercial divisions. This is perhaps confirmation that even the new masters at AIB recognise the strengths of one-time capital markets staff. It is the only remaining part of the bank that has been consistently profitable through the crisis.

Now Hodgkinson must convince the Department of Finance that the almost fully nationalised bank must pay over and above the €500,000 cap for senior bankers to attract the right chief executive.

That role and the post of chief risk officer are more crucial than any of the jobs filled this week.

EU tussle ahead

THE ECB did not hang about when it came to making clear its opposition to any restructuring of Greek debt. Executive Board member Lorenzo Bini Smaghi was out of the blocks early yesterday morning warning that any class of a soft restructuring or reprofiling would be nothing short of a catastrophe.

A catastrophe for whom is not exactly clear. Mr Smaghi would appear to be primarily concerned for the Greeks warning that they “would pay a price” and the unpalatable measures they faced were far better than the disaster that would befall them should they restructure.

The euro-group president Jean-Claude Juncker and commissioner Olli Rehn are somewhat less neuralgic about the concept, but then they are probably less worried about the ECB’s balance sheet than Mr Smagi.

As Citi pointed out in a note to clients yesterday the ECB owns a large chunk of Greek debt securities. The ECB would also have to bear the brunt of dealing with any contagion effects that might arise in the European banking system as banks write down holdings of Greek and probably other peripheral debt. Just how real a problem this would be is hard to gauge as most holders of such debt have presumably written down much of their exposure. Banks that wrote credit default swaps might face a bigger problem as those particular chickens come home to roost.

One way or another the restructuring cat is out of the bag and off down the road. Negotiations will intensify in the run-up towards the next Eurogroup in June. Another interesting point made by Citi yesterday was that as a bond holder, the consent of the ECB will be needed for any sort of voluntary or soft restructuring.

This raises the prospect of a very embarrassing stand-off between the bank and the bodies charged with implementing the European project that justifies its very existence.

Disney in Dublin

NOTHING LIKE a sprinkle of fairy dust to wipe the recessionary cobwebs away. Yesterday Disney brought a little colour to Grafton Street when it opened its first store in the Republic.

At a time when consumer sentiment is at a low, a major retailer choosing to set up shop in Dublin is a shot of confidence for the economy.

While Disney’s timing may seem curious, a decision to open a store in Ireland has been in the pipeline for five years, according to Jim Fielding, chief executive of Disney Stores Worldwide who was in town for yesterday’s opening. Allegedly Disney approached Dunnes Stores about its premises on Grafton Street, but was rebuffed. In the end it bought Laura Ashley’s lease for an estimated €500,000.

The result is a 4,750 square foot shopping “experience”, complete with interactive screens, theatre spaces and “cast members”, ahem, staff.

While Disney may have missed the boat in terms of tapping into the Celtic Tiger’s unquenchable consumer demand, don’t be fooled. Disney does its market research. The Grafton Street location will have paid a key role in the decision of the company to open here. It has similar main-street stores in London, Paris and Rome, all of which are targeted at attracting a combination of tourist and local consumers. If the queues outside the shop yesterday are any indication, Disney’s mixture of nostalgia, entertainment and high-end product offering may just defy the recession. Parents, you have been warned.

TODAY:The Finance Bill which will give legislative force to the Government's jobs package announced last week is due to be published. Irish Nationwide will publish its final set of annual results.

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