Provision for a major staff-cutting scheme and the cost of investigations into alleged malpractice have cut millions of pounds from National Irish bank's profits.
The Australian-owned NIB reported exceptional costs of £14 million in results for the 12 months to the end of September which were released yesterday.
The bank has set aside £8.8 million to meet the cost of a major restructuring of its Irish banking network, with much of this money going towards voluntary severance packages and early retirement deals for sections of its 830 staff.
The various investigations into interest and fee-loading by the bank as well as its participation in an unauthorised offshore investment scheme, have so far cost NIB a further £5.2 million. This includes legal and other professional costs and compensation payments to customers.
NIB's chief operating officer, Mr Philip Halpin, refused to state how many voluntary redundancies were being sought at the bank. But he indicated that more than £4.5 million was expected to be paid out in severance deals. Before the exceptional costs, NIB recorded a 9 per cent rise in pre-tax profits from £25.5 million to £27.8 million. After tax and exceptional costs though, the bank's profits slumped by 44 per cent - down from £16.2 million in 1997 to £9.1 million this year. The bank is to adopt the new business model of its parent company streamlining its back-office processing functions. It will also work more closely with its sister company in Ireland, Northern Bank. "Some people will be uncomfortable working within the changed structure and we will be providing them with an opportunity to take advantage of voluntary severance or early retirement options available," Mr Halpin said yesterday.
"We will have to wait to see what kind of take-up there will be," he added. The remainder of the funds will be used for retraining, staff relocation costs and additional NIB business centres around the Republic.
NIB has now paid £96,000 to customers in compensation for monies wrongfully charged to their NIB accounts between 1987 and 1993 and a further £34,000 will be paid to other customers by the end of this month, Mr Halpin said. In total, 370 of NIB's business and personal customers were found to have been subjected to improper interest and fee-loading by the bank over that period.
Inspectors, appointed by the Tanaiste, are also inquiring into the sale of £48 million worth of offshore bonds by NIB to investors in 1990. Their investigation is being hampered by an action taken by more than 100 of the bank's employees who are challenging a High Court ruling which directs them to answer the inspectors' questions. The Supreme Court reserved judgment on their appeal this week.
Mr Halpin maintained the bank had put in a good performance. "Despite all our difficulties, the bank has had a very good year. The underlying profitability of the bank has increased and represents a very significant effort of NIB staff during that period," he said.
After some decline in deposits in the immediate aftermath of the disclosure of interest and fee-loading at the bank earlier this year, NIB has reported an overall 7 per cent increase in customer deposits this year. Its lending activities also improved, with customer advances up by 25 per cent over the 12-month period.
The bank has made substantial provisions for bad debts, which increased from £735,000 to £3.5 million following a review of its asset quality. Mr Halpin rejected suggestions that this reflected some concerns about the quality of some of its loan book. The bank believed it was being "prudent" in its provisioning at the current stage of the economic cycle.
