ANALYSIS:The resignations at EBS are unusual because they relate to its performance, writes SIMON CARSWELL
THE DECISION of the Educational Building Society’s (EBS) chairman and finance director to resign over the lender’s poor financial performance brings to 16 the number of bank board members and executives to step down over the recent upheaval in the financial sector.
Allied Irish Banks, the State’s largest bank, is the only lender of the six guaranteed Irish-owned institutions not to have been affected by resignations or earlier retirements from its board or executive management.
EBS chairman Mark Moran and finance director Alan Merriman are standing down over the building society’s €38.2 million pretax loss for 2008, which arose primarily over losses on its development loan book of €512 million.
The EBS was set up in 1934 to give teachers loans to buy homes. The building society has admitted that it had no business getting into development lending in 2004, but did so because of hefty profits made by rivals from this sector. It came to the party late, providing many of its development loans at the peak of the market through 2006 and in early 2007.
The society has loans to 70 developers – the largest is less than €50 million and was provided as late as March-April of last year. EBS now expects to write off more than a fifth of these loans.
Mr Merriman, who led the move into development lending, said that he was “disappointed” and “saddened” to resign. “I would prefer to be staying to deal with the challenges but it’s the right decision for the organisation.”
He said the resignation of a non-executive director alone would “not be good enough”; there had to be “executive responsibility”.
He defended the decision of chief executive Fergus Murphy to stay on in his job, saying that he only joined the society last year.
“Fergus is the new chief executive. The previous chief executive is long gone and I am the most senior executive here that has been around during this period,” said Mr Merriman.
The decision to resign over a lender’s poor performance was unusual, given that most resignations in the sector have emerged over the controversies emanating from Anglo Irish Bank.
Fine Gael deputy finance spokesman Kieran O’Donnell TD said that the resignations at EBS sent out a signal to international markets that “some sectors of the Irish financial sector are willing to take responsibility for their performance and actions”.
The EBS resignations also raise questions for AIB, which has been unaffected by the tumultuous personnel changes in Irish banking.
If two EBS board members resign after writing off €69 million on development loans, should AIB react accordingly when total bad debts could, in the worst instance, spike at €8.4 billion over three years, primarily on development loans?
AIB can at least claim to have remained profitable in 2008 at a group level, though it is forecast to be loss-making in 2009 and 2010.
At Bank of Ireland, Richie Boucher, who oversaw the growth of the bank’s Irish development book, was promoted last month to the position of chief executive.
