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Archive for November 14th, 2012

Remember the €1.1bn that AIB shoveled into its pension scheme to plug a deficit that prompted all those headlines two weeks ago? A simple question – when the banks were stress-tested in 2011, was this €1.1bn deficit identified in an exercise that cost us about €30m in consultancy fees? The short answer is no, this €1.1bn deficit wasn’t specifically identified in the final report for the stress testing but it remains unclear if a deficit of this magnitude was considered or included in either the base or adverse scenario.

But when asked* in the Dail yesterday, this is Minister Noonan’s response (I’ve read this carefully several times, and it’s still hilarious how it manages to avoid answering the question*):

Minister for Finance, Michael Noonan :  The Central Bank has informed me that the Capital Requirements Directive and the Central Bank set the rules around the calculation of the applicable capital base for credit institutions. These rules include reference to defined benefit pension deficits as these can affect the capital base of regulated entities.

In a letter from the Financial Regulator to industry in 2005, banks were informed that those applying IAS 19/FRS 17 are allowed to add back to Tier 1 Capital the amount of the defined benefit pension liability that has accrued in relation to Irish pension schemes in their financial statements and to deduct an amount equal to the sum of (i) the Deficit under the Minimum Funding Requirement plus (ii) three years Supplementary Contributions.  A subsequent letter issued by the Financial Regulator in 2009 amended the treatment of the Deficit under the Minimum Funding Requirement element such that credit institutions were required to include at least the Minimum Funding Requirement in its calculation of pension risk under Pillar 2 capital calculations.

The draft Capital Requirements Regulation (CRR) requires the removal of most prudential filters, including the Irish DB scheme pension filter detailed above. Article 461 of the draft CRR, relating to transitional provisions, provides for regulated entities to apply a phased approach to filters and deductions “required under national transposition measures for Articles 57, 61, 63, 63a and 66 of Directive 2006/48/EC” with a five year implementation period. The transitional provisions are the subject of on-going negotiation between the European Parliament (EP) and Council.

The capital base and capital requirements of the PCAR banks were assessed under PCAR and included in this assessment was forecast deductions for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. The FMP report did not disclose details of the assumed levels of deduction for pension deficits. The focus on the PCAR was the forecast income, capital requirements and losses (particularly loan losses) in the three-year period.

The Central Bank included in the PCAR the forecast deduction for defined benefit pension deficits and subsequent capital filters under base and stress scenarios. In addition the Central Bank considered the implications of Basel III (namely CRD IV/ CRR). The PCAR tolerance levels and capital basis were set in accordance with the Central Bank’s definition of Core Tier 1 under the prevailing Capital Requirements Directive rules as at end-March 2011.

It is important to note, that the quality of capital in the Irish banking system has increased significantly as a result of lower tier capital buy backs and Government equity contributions. Whilst it is clear that the Basel III rules impose more conservative deductions than is currently the case, following a recapitalisation to levels determined by the 2011 PCAR, the FMP report stated that all four banks should comfortably meet Basel III Common Equity Tier 1 ratio on a phase-in basis under both the base case and stress case scenarios. The combined surplus to the minimum phase-in Common Equity Tier 1 under the PCAR base case under PCAR was estimated at the time as circa 13.3bn and 3.7bn under the stress case. Three of the banks would also meet the full 2019 minimum standard in the 2013 base case scenario.

*Deputy Pearse Doherty:  To ask the Minister for Finance in respect of the €1.1billion top-up made by Allied Irish Banks to the group pension scheme in August 2012, if he will identify in the stress testing undertaken by the Central Bank of Ireland with Barclays Capital, BlackRock and the Boston Consulting Group in early 2011 which resulted in the publication of the Financial Measures Programme on 31st March 2011, where, in this work was the €1.1billion shortfall in the AIB pension fund examined or identified.

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This is the sort of blogpost which demonstrates the superiority of online reporting over the traditional print or broadcast medium. Here is the spreadsheet showing every single lease payment by the State in 2011 showing the location, the building, the landlord, the amount paid and the Government department or agency making the payment. The total comes to €103m. The Sunday Business Post did its best last month to report the information but because of the size of the data –covering 523 individual buildings – a flat newspaper report just can’t do the data total justice.

You can see all the data here.

First up, the payments by location, alphabetically sorted.

Next, the rent payments sorted by recipient landlord, sorted alphabetically.

Next, the  Top 31 landlords whose rent receipts were in excess of €1m, ranked according to rent received, they make up 65% of the total rent bill.

And finally, the Top 36 individual payments over €1m which account for 57% of the total.

Sorting by Government department is more difficult because certain sites are used by more than one department. But at least you can dig through the data if you wish.

To give the data a little context, nearly 75% of the spend is in Dublin 1/2/7/8 and junior minister Brian Hayes has recently signaled a policy to move out from central Dublin to cheaper suburban areas.

There are four individuals or couples or groups of individuals who are getting more than €1m per annum – Liam Carroll and his wife Roisin (€2.4m), Lochlann Quinn (€1.7m) and Helen and James Cormican (€1m) and Frank, Myles and Jason O’Malley (€1m).

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It’s a financial institution into which we have poured €4.1bn so far, it employs 21 staff on basic salaries over €200,000 per annum and Minister for Finance Michael Noonan has admitted that he hasn’t even bothered to ask the organization, which has now been split into two – Permanent TSB and Irish Life – for paycuts on €200,000-plus salaries. At least Minister Noonan requested paycuts at NAMA and NAMA 100% complied, Minister Noonan did ask IBRC in April 2012 for paycuts to 30 staff whose basic salaries were €200,000-plus and IBRC told the Minister who is the sole shareholder in 100% of IBRC’s shares to get lost. But the Minister hasn’t even bothered to seek paycuts at Irish Life and Permanent.

Here’s what we found out yesterday in parliamentary questions from the Sinn Fein finance spokesperson Pearse Doherty to the Minister for Finance Michael Noonan.

Firstly, it should be said that Irish Life and Permanent no longer exists. It has been split into the bank, Permanent TSB and the life assurance company Irish Life. This split becomes significant because a rationale for the Minister doing nothing is that the life assurance company is profitable! You may recall similar protests at Bank of Ireland and AIB where departments complained about withheld bonuses because their departments were profitable!

We learned yesterday about the salary levels at Permanent TSB and Irish Life. At Permanent TSB there are nine staff being paid between €200-400,000 and one, the new CEO Jeremy Masding earns €400,000. At Irish Life, there are nine earning €200-400,000 and two earning €400,000-plus. In other words there are 21 staff at bailed out Irish Life and Permanent who earn more than €200,000.

The CEO of Permanent TSB, Jeremy Masding, who joined that bank in February 2012 earns €400,000 per annum. PTSB contributes €60,000 per annum in pension contributions and in 2012 there has been a one-off payment of €52,034 in respect of relocation expenses, the payment being made against vouched and receipted expenditure.  Jeremy is employed on a permanent contract and can be terminated with the payment of 11.5 months notice (equating to about €385,000).

The CEO of Irish Life, Kevin Murphy earns €500,000 a year and “other remuneration” of €86,000. He is retiring shortly and his contract doesn’t provide for termination payments.

In December 2011, the Minister wrote to the NTMA and NAMA asking that staff earning more than €200,000 per annum waive 15% of their salaries in 2012 or whatever amount their salaries exceeded €200,000 whichever was lesser. All staff at the NTMA and NAMA complied with the request.

In April 2012 the Minister asked IBRC if the 30 staff earning more than €200,000 would take a pay cut and he was told “no”. The Minister is the sole shareholder in 100% of the shares of IBRC.

Yesterday his response to the question whether he had asked Permanent TSB staff for paycuts was “I have not asked staff in Permanent TSB whose annual salaries are in excess of €200,000 to waive a portion of their salaries. However the Deputy will be aware that a review of remuneration practices at the Covered Institutions ( including Permanent TSB) is currently underway by my Department.”  The Minister is the shareholder of 99.5% of the shares in Permanent TSB.

In response to the question whether he had asked Irish Life staff for paycuts, the Minister said “I have not asked staff whose annual salaries are in excess of €200,000, of which there are currently 11, to waive a portion of their salaries. Irish Life is in a different position to the other financial institutions under our control in that it is profitable and operates in a very different competitive marketplace to the banks in which we have an interest.  As the Deputy will be aware, we intend to sell Irish Life as soon as is practicable and in the meantime need to ensure that the board and management of the institution operate in a manner which will maximise the value for the taxpayer at sale.” The Minister owns 100% of Irish Life.

So this basketcase organization, Irish Life and Permanent which admittedly had some profitable businesses – as did Anglo, INBS, AIB, EBS and Bank of Ireland – has received a bailout of €4.1bn to date and its 21 staff earning €200,000 and more, have not even been asked to take paycuts.

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The financial crisis that erupted in 2008 with the provision of the guarantee on €440bn of liabilities at our banks in September 2008 gave rise to a new beast in the Irish board room – the public interest director. In recent weeks, with revelations over salaries and pensions in state-guaranteed and bailed-out banks, public interest directors have come into focus as we wonder what exactly they do. They came in for criticism in 2010 when it emerged that millions were being paid in bonuses at some of the covered banks. This blogpost should tell you everything you need know about them, including who they are, what they’re paid and what they’re supposed to be doing – the information is sourced from parliamentary questions tabled by the Sinn Fein finance spokesperson Pearse Doherty yesterday which were responded to by Minister for Finance Michael Noonan – the full PQs may be available online later. Here’s the summary together with salaries. In total, between 2009-2011 they have cost us €2m.  You will not be happy with what you read.

Who are they? In alphabetic surname order.

Declan Collier is a public interest at AIB. He is the current CEO of the Dublin Airport Authority where his €106,000 bonus in 2010 raised eyebrows as it came on top of a €506,000 package comprising salary of €309,000 and pension contribution of €182,000. He resigned from  AIB’s board on 28th June 2012.

Tom Considine is a public interest director at Bank of Ireland. He is the former Secretary General at the Department of Finance from 2002 to 2006, having joined the Civil Service in 1974. He is regarded as responsible for

Frank Daly is of course the NAMA chairman and former chairman of the Revenue Commissioners. He had a 12-month stint as a public interest director of Anglo Irish Bank between 18th December 2008 and 22nd December 2009 when he became the NAMA chairman.

Alan Dukes was a public interest director at Anglo between 18th December 2008 and 14th June 2010 when he was appointed chairman but is seemingly still regarded as a public interest representative on the Anglo, now IBRC, board.

Margaret Hayes is a career public servant and former Secretary General at two government Departments.

Adrian Kearns was a public interest director at Irish Nationwide Building Society between March 2009 – his appointment announcement from then Minister for Finance Brian Lenihan is here – and June 2011 when INBS was merged with Anglo to form Irish Bank Resolution Corporation.  He is a former chief executive of the National Development Finance Committee and an assistant Secretary General at the Department of Finance.

Ray MacSharry is the 74-year old former Fianna Fail Tanaiste and Minister for Finance. He is a now a public interest director of Permanent TSB.

Rory O’Ferrall was a public interest director at Irish Nationwide Building Society between March 2009 – his appointment announcement from then Minister for Finance Brian Lenihan is here – and June 2011 when INBS was merged with Anglo to form Irish Bank Resolution Corporation. He is a former accountant with Deloitte and Touche.

 Ann Riordan was a public interest director at EBS between January 2009 and June 2011 when EBS was acquired by AIB. Ann founded Microsoft in Ireland was in more recent times has served on the boards of Tourism Ireland and National Standards Authority.

 Michael Somers is NOT a public interest director. Instead, Minister Noonan says he is “a Government Nominee (not a Public Interest Director) appointed to the AIB board on 14th January 2010 under the terms of NPRFC’s investment of €3.5bn in AIB of May 2009”. Got that, Deputy Shane Ross? NOT a public interest director but a Government-Nominee! Michael is the former CEO of the NTMA and used to earn €1m per annum in the good old days – his successor, John Corrigan will be lucky to gross €408,000 this year. He famously told RTE how he was worth it, and he had “plenty of other job offers and could have gone off” These days, he’s on the boards of insurance company Willis and Hewlett Packard Bank International based in the IFSC. Like Dick Spring (see below), Michael is also a non-executive director of Fexco.

Anthony Spollen was a public interest director at EBS between January 2009 and June 2011 when EBS was acquired by AIB.  He is a former director of Dublin Airport Authority and had a career at AIB, including a spell as financial controller of Allied Irish Investment Bank and Head of Group Internal Audit at AIB for five years.

Dick Spring is a public interest director at AIB and is of course, the former leader of the Labour Party leader and former Tanaiste and Minister for Foreign Affairs. He is a non-executive director of Fexco and has been associated with various financial funds in recent years, including Alder Capital.

Joe Walsh is a public interest director at Bank of Ireland and is a former Fianna Fail agriculture minister.

How much do they get paid?

It varies but in 2010, it ranged from €29-127,000. In the following year, 2011, there was some upheaval as EBS merged with AIB and INBS merged with Anglo to form IBRC.

When do they retire?

There is no set expiry date for the AIB or Bank of Ireland public interest directors says Minister for Finance Michael Noonan. The EBS public interest directors retired on 30th June 2011 when EBS was merged with AIB. The INS public interest directors resigned on 30th June 2011 when INBS was merged with Anglo to form IBRC. Anglo itself now only has its chairman Alan Dukes whose term expires in December 2014. With the split of Irish Life and Permanent into Permanent TSB and Irish Life, the two public interest directors are now only on the board of Permanent TSB and Irish Life has – shock, horror! – no public interest director. AIB has only one public interest director since Declan Collier’s resignation over the summer.

What are their duties?

Minister Noonan says that they don’t have any specific duties, but that ALL directors of the covered banks have duties under section 48 of the Credit Institutions (Stabilisation) Act 2010 which in turn sets out the duties under Section 4(f) which says

(f) to address the compelling need—

(i) to facilitate the availability of credit in the economy of the State,

(ii) to protect the State’s interest in respect of the guarantees given by the State under the Act of 2008 and to support the steps taken by the Government in that regard,

(iii) to protect the interests of taxpayers,

(iv) to restore confidence in the banking sector and to underpin Government support measures in relation to that sector, and

(v) to align the activities of the relevant institutions and the duties and responsibilities of their officers and employees with the public interest and the other purposes of this Act,

How well are they doing in performing their duties?

Minister Noonan demurs from providing an assessment when asked. He also says there is no formal reporting line to the Minister. He says “public interest directors do not have a formal reporting relationship to the Minister or to the Department of Finance. As Minister for Finance, I am strongly committed to ensuring that the boards of the covered institutions act at all times in a manner fully consistent with key public interest objectives for the banking sector.”

Given the backgrounds of the chosen directors – four former politicians and a smattering from the business world that have weathered their own pay controversies, you won’t be surprised that it is just now that revelations about banking pay and pensions are causing such outrage and there is no evidence of the public interest directors lifting a finger to pursue the subject privately in the banks.

Minister Noonan confirms there is no specific mandate given to public interest directors as opposed to all other directors, though Michael Somers is NOT a public interest director but a “Government nominee” so public interest directors aren’t even “Government nominees”. They’ve cost us €2m to date, they’re part time and generally have other preoccupations.

Is it time to terminate them?

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