Business Opinion John McManus

The resumption of postal deliveries will bring invitations for the select few to the annual general meeting of the ICS Building Society in the Westbury Hotel later this month. These meetings are part of the long-standing and elaborate fiction that this "building society" is something more than a wholly owned division of Bank of Ireland.

At the meeting, the shareholders in the "building society" will be asked to do the sort of things that shareholders do. They will approve the accounts for 2003 and vote on six ordinary resolutions, which include the appointment of PricewaterhouseCoopers as auditors and the re-election of three directors - the chairman Mr Pat McDowell and two non-executives, Mr Charles Lysaght and Ms Joyce O'Connor. The final resolution is the approval of an increase in the total remuneration of the five non-executives from €90,000 to €95,000.

The accounts that the shareholders will be asked to adopt will be fully consolidated into the Bank of Ireland figures for 2003, due out later this year, reflecting the reality that ICS is just another Bank of Ireland subsidiary.

The ICS is somewhat coy about how many shareholders it actually has, or even how many shares are in existence. Both savings shareholders and investment shareholders are entitled to vote.

To qualify as a saving shareholder you must have more than €125 in the appropriate account the previous December. The investment shares are 100 per cent owned by Bank of Ireland, which acquired them in 1985, effectively taking over the society. The ICS does not disclose how many investment shares there are, but one must presume that there are sufficient to allow Bank of Ireland to control the ICS and comfortably win any vote at the annual general meeting.

So why go through with elaborate annual meeting, which serves little purpose other than give the impression that the ICS is a separate entity to the bank. The charade has its origins in the takeover of the ICS by Bank of Ireland.

In 1984 the 120-year-old ICS created a market for its investment shares by listing them on the stock market, where they were promptly bought by Bank of Ireland.

Unlike other building societies, only the holders of investment shares were entitled to dividends and, more importantly, to "participate in the assets" of ICS.

Thus, by buying the investment shares, Bank of Ireland could get around the obstacle of ICS's mutual status and take control. But because ICS was still technically a mutual society, it had to retain all the trappings of an independent entity, such as non-executive directors, and in the process perpetuate the nonsense that it was something other than a straightforward Bank of Ireland subsidiary.

The new building society legislation that is due to come before the Dáil summer recesses will offer Bank of Ireland the chance to finally tidy up this complex situation. It will end the current restriction blocking the takeover of mutual societies for five years post-demutualisation, which up to now has made regularising the situation at the ICS extremely complex.

Although it is designed to facilitate the ambitions of the Irish Nationwide Building Society, there does not appear to be any reason why Bank of Ireland could not avail of the new law when it comes into effect to end the expensive pretence at the ICS. Equally, there appears to be no regulatory or prudential reason why this couldn't or shouldn't happen. The change would require the approval of shareholders and mortgage holders, but would not trigger any payment to them as Bank of Ireland already owns the ICS.

It seems like a sensible thing to do, but it isn't on the agenda, according to the ICS. The main reason being, one suspects, that the ICS would have to drop the two words "building society" from its name.

These words trigger a feel-good factor for customers of mutual organisations, such as a building society or a credit union. It's the feeling that the business is not just run for profit and that, in some complicated sort of way, you own a bit of it.

The fact that this has not really been the case at ICS for something like 20 years has not in anyway held it back from branding itself as a building society. And very successful it has been.

Last year it recorded a surplus of income over expenditure of €70 million, of which some €60 million was paid out as investment shares dividends to Bank of Ireland.

The ICS advanced €1.2 billion in new lending last year and currently has mortgages totalling €3.4 billion on its books.

Bank of Ireland would be mad to get rid of the ICS building society brand, no matter how anachronistic or confusing it may be. Its mutual image is a valuable asset in a country that harbours a public hostility to banks that can verge on the pathological.

And, if anything, it is going to become an even greater asset with the departure of the Irish Nationwide from the scene.

That will leave only one truly mutual building society in the market, the EBS building society. And given the EBS's decision to remain resolutely mutual and return profits to its members via lowest rates, the feel-good factor linked to the two little words "building society" can only increase.

The fact that, by keeping up the charade at the ICS, Bank of Ireland is potentially misleading its customers and making a mockery of the whole tradition of mutuality will not cause anyone in Baggot Street to lose any sleep.

jmcmanus@irish-times.ie