The announcement this week that ICC Bank is to be put up for sale sounded almost commonplace. Just over a year ago, the word "privatisation" could not, and would not, be mentioned by Ministers and politicians seeking office. Now, a series of privatisations is underway and no one, almost no one, is saying "boo!"
Almost no one. The ICC sale raised a quick puff of smoke from Mr Derek McDowell, Labour's finance spokesman. Strangely, he was at odds with MSF, the union representing staff at the bank, which negotiated some of the employee protection features of the sale with the Department of Finance. This was done in the members' interests, since the Government was not going to keep the bank in State hands and inject £40 million, the preferred option of the union.
Mr McDowell opposes the sale of ICC on the grounds that the private sector has failed to serve the needs for loans and venture capital investment of small business. These reasons are important, if they are true. They were true, once, and those conditions allowed ICC to carve out a niche for itself as a small business lender and provider of venture capital. But that situation has changed domestically. Greater attention has been paid to small- and medium-sized business arising from the 1994 Task Force on Small Business. The commercial banks have increased their facilities and support for small business. It cannot be perfect yet because nothing ever is but the required change has happened and continues.
Making loans is still the main way support for small business comes from ICC and the other banks.
According to an AIB executive, a total of £60 million has become available for venture capital investment in Ireland in the last three years; half of this was from the EU and much of it is channelled through Forbairt. On the lending side, the Central Bank reported that loans made by Irish credit institutions amounted to £15 billion, as of February 1998, excluding personal and financial sector loans. ICC had loans out to customers of £1.25 billion at the end of April, while its venture capital investments through ICC Ventures in the six months ending in April totalled £4.5 million. AIB, for example, says that it lends about £6 billion to the small- and medium-sized business, while it invested £5 million last year in venture capital funds.
ICC has an estimated 10 per cent market share of lending to small business, but it has been a significant venture capital player.
The fact is that, domestically, there is no shortage of loans or of venture capital investment funds for small and medium-sized business. Internationally, market participants talk about a "wall of money" crashing in on venture capital opportunities in Europe.
One European venture fund raised over $2.5 billion (£1.76 billion) last year. International capital is chasing ever-more elusive high yields and high capital gains. European venture capital, and investment in small companies generally, is thought to be one way to find value.
In addition, there has been a significant change in attitudes in Ireland. Owners of businesses are more likely now to dilute their shareholding in their business with outside venture or development capital. There are now enough examples of Irish companies which have delivered rewards for venture investors or have floated successfully for venture capital investors to be confident in Irish investments.
Some of that wall of international money should be channelled into Irish companies. But by international standards, many of our small businesses are really micro-businesses, and could not use anything like a £1 million to £5 million investment, the minimum size that many professional funds apply. Developing an effective venture capital market and bundling of smaller Irish investments will be needed to attract international capital.
Our economy needs the likes of ICC and Forbairt. What we need about them is the repository of skills they hold to channel money into good investment opportunities. But that doesn't mean we need those skill pools to be under State control. Just because the economy needs something does not mean that the State must provide it. The argument about the future of ICC is really one about how to keep those skills sharp and to develop them further.
The sale of ICC is now due. The next question is, what to do with the £200 million proceeds? Return tax, reduce the debt or invest in social or capital projects? We're back to Jim O'Leary's questions. Personally, I'd prefer to see £200 million converted into drug rehab centres or children's playgrounds and sports facilities. It now belongs in those places much more than in a State bank. Bon voyage, ICC.
Oliver O'Connor is an investment funds specialist.
