Inside The World Of Business
Thankfully for O’Leary, hypocrisy is not a crime
IT WILL presumably not be lost on the Government that the number one “news update” on Ryanair’s Irish website is entitled “Taoiseach must correct Dáil lies”. The item is a link to a Ryanair press release from last month in which the chief executive of the airline, Michael O’Leary, accuses Brian Cowen of misleading the Dáil on various aspects of the Hangar 6 controversy.
It includes a quote from Mr O’Leary to the effect that “if the Taoiseach of this country is willing to lie to the Dáil . . . then it doesn’t say much for this Government’s job-creation strategy or its honesty either”.
The statement puts Mr O’Leary’s scolding from Judge Peter Kelly last Friday (for telling a lie in his correspondence to Minister for Transport Noel Dempsey) in an interesting light. Thankfully for Mr O’Leary, hypocrisy is not a crime or Ryanair would be a repeat offender at this stage. But at the same time it would be a mistake to treat the chief executive’s behaviour as some trivial misdemeanour that can be brushed aside on the basis that he is extraordinarily good at his job and has a well-known penchant for mischief-making.
As the High Court made it clear, it is not acceptable for a public company and its chief executive to seriously misrepresent the views of a High Court judge in his dealings with the Government. Ryanair demands to be treated seriously by the Government and the public. The Hangar 6 controversy is just the most recent example of an occasion on which Mr O’Leary has made serious public allegations with far-reaching consequences for individuals and organisations. It is one thing for him to do so as a combative chief executive who adheres to accepted norms of truthfulness. It is another for him to do it as someone branded by the High Court as having told a serious lie about the views of the High Court.
The case raises serious issues, both for Mr O’Leary and the board of Ryanair from a corporate governance stand point. It is hard to imagine the chief executive of a large UK or US plc keeping his job in similar circumstances.
Limiting pension fund risk
For different reasons, both the Government and the construction industry have been eyeing private pension funds as a possible source of cash to pay for the Republic’s infrastructure.
The Government because it has to find the money somewhere; the construction industry because one of the few things standing between it and complete meltdown is State spending on public projects. The one group who weren’t necessarily on board were the pension fund managers, who had practical reservations about tying money up in such projects.
Those reservations were based around liquidity (key to pension funds as beneficiaries cash in regularly) and a lack of diversity and risk. Following a conference in Croke Park yesterday, jointly organised by the Construction Industry Federation (CIF) and the Irish Congress of Trade Unions (Ictu), it appears more likely those concerns can be addressed.
Frank O’Dwyer of the Irish Association of Investment Managers suggested that the National Pension Reserve Fund establish an infrastructure fund, founded initially on existing toll roads or other facilities that are generating income, and then add new projects.
Fund managers will then be able to invest in this fund in the normal way. If it is structured properly, it will have the necessary liquidity and a spread of projects to limit risk.
The Department of Finance, the pensions industry, the unions and trustees have pledged to press ahead with developing a system, once this week’s instalment of the banking saga is out of the way. A solution can’t come quick enough – the CIF said that the organisation first broached this a year ago. It warned that, if the parties are still talking about it in another year, it will be curtains for large parts of the industry.
AIB sidesteps PR landmine
The timing of AIB’s announcement that it is to increase the interest rate on its standard variable mortgage surprised no one yesterday, but for various reasons.
One interpretation was that, with the first toxic loans on the verge of their transfer to Nama, AIB finally found it had the freedom to act on rates. A more compelling explanation lies in the political fortuitousness of getting such an announcement out of the way before the State moves in and takes a major – if not majority – stake in the bank.
If this goes ahead as expected, it will be a very difficult PR exercise for all parties when the time comes for the next round of interest rate hikes. The Government will be decried for not stepping in to prevent further horribleness, while the bank will be obliged to counter difficult-to-defend accusations that it is imposing a “double whammy” on taxpayers.
Of course, if the State does end up in a position where AIB is effectively nationalised, such an increase in mortgage rates would actually benefit taxpayers as it would stem the losses that the taxpayer-owned bank was making on its loans.
In any case, the upward pressure on standard-variable and fixed-rate loans is intensified by the fact that the margins on tracker mortgages – the ultra-cheap loans offered during the most frenzied period of mortgage competition – are untouchable.
AIB’s half-point hike follows two such hikes by Permanent TSB. Mortgage borrowers not happily in possession of a tracker will be wondering what next lies in store.
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After a year of waiting, today we see the true cost to the banks and taxpayers of the collapse of the domestic property bubble and the global financial crisis. Nama will announce the “haircuts” to bank loans it is taking over and Minister for Finance Brian Lenihan will state how much money each of the five covered lenders will need and what shareholding the State will take for that money.
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