Inside the world of business
Government bond move shows bank who is boss
THE GOVERNMENT’S decision to look afresh at burning Bank of Ireland’s junior bondholders was as surprising to the bank as it was unwelcome. But it has served what may be its ultimate purpose, which is to remind the bank that while the Government is a minority shareholder, it is still the boss. This fact seems to have been lost on the bank in recent weeks when it thumbed its nose at the Government’s request to pass on the recent European Central Bank interest rate cut.
A serious attempt to burn junior bondholders would cause no small amount of trouble for Bank of Ireland, putting it firmly back into the category of banjaxed Irish banks which it has struggled to extract itself from with some success. It could also leave it open to all sorts of legal challenges, with the junior bondholders asking why they should suffer ahead of the bank’s shareholders, including the North American investors invited on board by the Government. The ECB and the troika may also disapprove
The characterisation of the proposed manoeuvre as a shot across Ritchie Boucher’s bows is also supported by the numbers. According to Goodbody Stockbroker’s analyst Eamonn Hughes the burning of junior bonds would boost Bank of Ireland’s core capital base by €350 million to something like 15.3 per cent.
While this obviously helps in terms of liquidity it represents something close to a shot in the foot when it comes to the return the bank earns on its shareholders’ money, a key metric driving the share price and thus the value of the State shareholding. The Government is clearly wielding a double-edged sword, but is correct to remind the bank of its extraordinary debt to the Irish taxpayer.
The Central Bank’s fitness and probity powers to start taking out bank directors or executives it doesn’t think suitable for their jobs become applicable this day next week. But don’t expect any sudden purges or ousting of directors before the budget, as much as the Government would savour the image of a long-standing banker being marched out before next month’s austerity bonanza.
The Central Bank plans to appoint a senior lawyer to act as an arbitrator in the process overseeing the statutory investigations that the regulator plans to launch into what directors did before and after the crisis.
The bankers have been on notice since the middle of this year when the Central Bank wrote to all bank board members who had been in place prior to the September 2008 bank guarantee.
They were asked to let the regulator know whether they intended staying on after January 1st, 2012.
The arbitrator will act as a type of consultant to decide whether the Central Bank is following fair procedures – first, in deciding whether a director should be subjected to a statutory investigation and, second, whether that person should be removed based on the findings of that investigation. The Central Bank issued a very technical note yesterday clarifying certain positions including that of company secretaries who will not fall under the regulator’s fitness and probity regime unless they exercise significant influence.
There is still a way to go before any conclusions will be reached on the future of senior bankers. We hear it could be well in the first half of next year and possibly the middle of 2012 before there are outcomes. Bankers can make submissions in their defence.
Given how certain individuals are intent on hanging on to their jobs, any adverse findings could well be challenged.
Offshore energy
THERE IS growing momentum behind the drive to develop an Irish offshore energy industry.
The latest report, Irish-Scottish Links on Energy, backed by the EU, argues that the development of a shared electricity grid between the two countries would benefit both.
This comes a week after Minister for Energy Pat Rabbitte, and his opposite number from Britain, Charles Hendry, restated their governments’ commitment to greater co-operation between both countries’ energy systems.
Hendry once again made it clear that Britain would welcome electricity imports from Ireland. All this is very much on the drawing board as yet.
One of the more immediate issues is the question of the guaranteed price that will be paid to Irish offshore wind farms for their electricity – once they are built and generating power.
That will depend on a Government decision. Last week, Rabbitte said he would be raising this with the Cabinet before the end of this year and a decision is likely in 2012.
The tariffs are paid to encourage investment in renewable energy projects.
Without them, banks and other backers will not put up the cash needed to build wind farms.
While while the Government sets the tariff, the cost is passed back to electricity users.
So it could potentially result in an increase in energy prices.
Over the next 12 months, electricity customers will pay €35 million to support the current crop of onshore wind farms.
A generous tariff for offshore wind – the industry is hoping for €14 per mega watt hour – runs the risk of adding further to electricity bills.
The upside is that the industry has the ability to create lots of jobs, the downside is that extra energy costs could lose jobs elsewhere.
Ireland’s European Commissioner Maire Geoghegan Quinn to speak at the Tyndall National Institute in Cork on “supporting excellence in science”.
Online
You can get the latest news each business day at irishtimes.com/business or by following us on Twitter at twitter.com/IrishTimesBiz. We also have a Facebook page at facebook.com/IrishTimesBiz where you can read the latest business headlines, blog posts and reader polls.
Today
Ireland's European Commissioner Maire Geoghegan to speak at the Tyndall National Institute in Cork on 'supporting excellence in science.'
The Minister for Finance Michael Noonan is the guest speaker at the American Chamber of Commerce Ireland’s Thanksgiving Lunch in the Four Seasons Hotel, in Dublin
