A Corkman once said to me that if an international services business was setting up in Cork, it would be advisable to make sure the top manager was a Corkman. Only a Corkman could really succeed in managing teams of local Cork managers, supervisers and staff. Was this sound, streetwise advice, a bit of harmless banter or some sort of local management protectionism? Not being a Corkman, I couldn't tell.
That was Cork, but what about Ireland? As I mentioned last week, the question of whether local Irish management of Irish banks should be maintained has been raised a number of times, most recently by Sean Fitzpatrick, chief executive of Anglo Irish Bank and president of the Irish Bankers' Federation.
An answer comes from the news that Bank of Scotland is to acquire ICC Bank, and Irish Life & Permanent will buy TSB. It looks like one is going into foreign ownership and management, while the other is not. One bad, one good? That would be an old view. Earlier this year, a team from the Department of Finance and the Central Bank carried out a review of the banking sector for the Minister for Finance, Mr McCreevy.
Future ownership and management of banks in the Republic was considered in the context of mergers and acquisitions in Europe. Would the Republic have an "indigenous" banking sector and, if there was a danger it might not, should government policy do anything about it?
The Irish Bankers' Federation drew attention to what it called the "New Zealand syndrome", where no banks operating in the country have their headquarters' management there.
More than 50 per cent of AIB is owned by "non-residents of Ireland". Its management remains predominantly Irish, of course. ICC will become nearly wholly-owned by non-residents of Ireland, as I assume the shareholders of Bank of Scotland are.
The issue is whether the high-level management of ICC's strategy and engagement in the Irish market will be in the hands of residents of Ireland, and if this matters. If it does matter, there is an implicit expectation that the actions of the bank will differ in some ways because of the residency of its management personnel. Only if resident management was prepared to act differently from non-resident management could the Government have any leverage over it.
Government leverage is usually assumed to be exercised for a social good, such as non-commercial rural branch banking, although the possibility clearly exists for any leverage, once established, to be applied for bad political purposes.
The pursuit of social goals in the area of banking services would be better if made explicit in law or regulation, with equal application to any bank offering retail services managed from within these shores or otherwise.
The underlying reality of foreign control and indigenous management is that the European Union is the real home domain, rather than national jurisdiction. Once the full implications of this is grasped, the issue of indigenously managed banks and government leverage fades fast.
That strategic review for the Minister for Finance accepted that a purchase by a foreign bank of an Irish bank creates "a risk of negative consequences for the Irish economy overall". But, it said, there were two problems with public policy discouraging such takeovers.
"Firstly, what price is Ireland willing to pay in order to avoid such an unquantifiable risk that foreign takeovers might lead to real negative results for the domestic economy overall? Secondly, can such an approach be reconciled with the wider policy framework for the development of the Irish economy?"
The answer to the first question was that the "concomitant" price was accepting the need for a single dominant domestic bank, and this was not worth the unquantifiable and possibly unrealised risk of foreign takeovers.
On the second, the officials answered that any disadvantages that might arise from foreign ownership would be more than offset by the benefits arising from integration of the European economy. Their view is that there is no public policy interest in maintaining any protection for, or leverage over, Irish domestic banks. Thus, there was likely to have been little hand-wringing over the sale of ICC to a Scottish bank on the residency grounds. A Scot operating in Ireland, like a Dubliner in Cork, can deliver the goods to consumers.
Oliver O'Connor is contributing editor at Finance and Finance Dublin.
E-mail: ooconnor@indigo.ie
