Inside The World Of Business
Some members speak well of Nationwide's Banquo
MICHAEL FINGLETON’S presence at Irish Nationwide lingers like Banquo’s ghost, not least because he has not yet repaid the €1 million – described by the building society as “a pre-contracted bonus” in its 2009 annual report – that the former chief said he would repay.
Despite Fingleton’s disastrous management of the building society leading to a loss of €2.5 billion and a Government bailout of €2.7 billion – which may rise further if losses keep spiralling – some members bizarrely still speak well of the former chief executive.
One said Fingleton gave him €500 towards a local history he compiled. Another said that, despite his failings, Fingleton would never have held the annual meeting at 11am, causing difficulties for members travelling from the outer reaches of the country.
Fingleton’s failure to repay his bonus elicited laughs at yesterday’s annual meeting in the RDS in Dublin. It would be funny if the black hole at Irish Nationwide were not so deep and the clean-up not so costly for the taxpayer.
The State will have to mark as spending the €2.7 billion in capital injected into Irish Nationwide, yet members still spoke of missing out on a windfall from a possible sale of the society during the boom.
Chairman Danny Kitchen said his exchange of correspondence with Fingleton over the return of his €1 million bonus had become “a dialogue of the deaf”.
Kitchen periodically writes to Fingleton asking him if he is likely to see the money back; Fingleton replies, saying that nothing has changed and that he is unlikely to see the €1 million returned.
Fingleton’s issue is with the Government, said Kitchen, and that there is nothing he can do legally to recover the money, based on the opinion of two senior counsel.
Whatever the nature of Fingleton’s spat with the Government, the mess he left at Irish Nationwide should be enough moral compunction to force the return of the €1 million, even if it is a drop in the ocean of losses facing the society.
Ryan’s small print
The energy market looks set for another EU-driven shake up, thanks to a directive designed to take a wrench to the industry’s current structure.
The Minster for Energy, Eamon Ryan, is pondering the latest study on a third directive from Brussels dealing with this area. What happens next could have interesting implications for Bord Gáis to say the least. The company’s evolution from natural gas monopoly to dual fuel supplier is almost complete. It is now trading blows with another State entity, the ESB, and private operators such as Viridian in the electricity market.
Bord Gáis’s own 435 mega watt (MW) electricity plant is due to come on stream this year. It already has over 200 MW of wind power and will add a further 500 MW-plus, along with another 400 MW in gas-fired generators.
The entire portfolio will give it around 20 per cent of total generation capacity in the Republic.
At the same time, it’s the country’s biggest natural gas supplier and it controls the distribution network for this fuel.
For competition reasons, the EU wants to split the energy supply and distribution businesses. As a result, it is expected that the Government will transfer the Bord Gáis network to an independent subsidiary with its own board. It looks like the State will drive an artificial wedge between the part of Bord Gáis that sells gas and electricity and the bit that operates a gas distribution network, just to keep Brussels happy, but it could end up being a step towards something more radical.
The ESB is considering competing with Bord Gáis to supply natural gas to households. It is already doing so in the industrial market. This means that the State will end up owning two competing energy suppliers. The logical choice would be to sell one. Of the two, it would be easier to sell the Bord Gáis electricity and gas supply business and keep the strategically important network. The industry will be paying close attention to the small print when Mr Ryan announces the anticipated restructuring of Bord Gáis over the coming months.
Honohan’s relief
Central Bank Governor Patrick Honohan has reiterated his view that AIB and Bank of Ireland will be able to absorb losses on the loans not being transferred to the National Asset Management Agency (Nama).
In an unreported address to the Small Firms Association on Tuesday, he told them that the Central Bank had looked into the issue and “to my relief, and slight surprise” had concluded that the banks pre-crisis shareholder funds are sufficient to absorb these losses and shareholders funds will remain positive through the cycle.
It follows that the additional capital being raised from the Government and hopefully the private sector through rights issues and asset disposal is to restore capital levels to the new regulatory threshold and underpin new lending.
Just what the Small Firms Association wants to hear. The governor’s optimism is a little bit at odds with the views of Citi’s European Economics team which has zoned in on Ireland and other peripheral euro-zone countries’ private debt mountains. They argue that losses could still overwhelm the banks.
They even go so far as to call for for some sort of “ex-ante nationalisation” of private debt, aka the “Nama for the people” which many commentators favour.
“The alternative scenario would be one of a prolonged – and potentially disorderly – deleveraging of the private sectors via rising bankruptcies in household and non-financial corporations which would eventually spread into banks’ balance sheets,” argue Citi.
TODAY:
The head of financial regulation at the Central Bank, Matthew Elderfield, will appear before the Dáil Committee of Public Accounts this morning.
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