AIB Approves NAMA Participation

AIB shareholders have (unsurprisingly) approved the company's participation in NAMA. Executive Chairman Dan O’Connor's speech at the EGM on Wednesday, 23rd Dec., contained several interesting lines:

I want to start by stating very clearly that both my colleagues on the AIB Board and I fully accept that many of AIB’s problems have been self inflicted. I also want to express our deep regret to all our shareholders for the part AIB has played in the events which have led us here today.

On the resolution to approve NAMA participation:

"the Board believes that NAMA participation will reduce uncertainty relating to AIB, its business and its financial performance because it will (firstly):

• improve AIB’s liquidity and funding position;

• reduce the Group’s leverage by reducing the level of loans held on its balance sheet; and

• enable AIB to sell certain land and development loans and Associated Loans to NAMA and thereby determine the Group’s losses associated with those loans.

Secondly, the Board believes that NAMA participation will help restore confidence in AIB.

The TINA factor was trotted out as well:

In the absence of NAMA, the Company would need to put in place additional term funding and raise further capital.I have to tell you that there are no viable alternatives for raising that capital and having committed funding in place in the necessary timeframe.

With regard to capitalisation:

... it is our intention to raise additional capital within the next year. We are currently exploring a number of ways to bolster our equity capital base through asset sales, the introduction of a strategic investor, and a public share issue which may require Government support.

The WSJ's Quentin Fottrell has an excellent article on the prevailing mood in Ireland about the economy in general, and AIB in particular. It quotes one investor at the AIB EGM: “I have more confidence in the Blessed Virgin Mary appearing at AIB bank sector than Colm Doherty saving us from a cesspool of financial ruin.” Another supposedly screamed (only to be met with complete silence) “We don’t want AIB taken over by foreigners, be they from Moscow or New York."

These two quotes neatly sum up the contradictions and confusion in the popular mood about capitalism and free markets in Ireland today.

AIB Pay Mess - political grandstanding

Politicians got another opportunity to grandstand because of the poor way in which AIB handled the kerfuffle over how much to pay its new Managing Director, Mr. Colm Doherty. The Irish Times reported that the Department of Finance had "received a broad outline of the bank’s intention to retain Mr Doherty on his existing pay level as head of the capital markets unit ... [at an] annual salary of €633,000." Having received no response, it ought to have negotiated informally with the government rather than putting forth the proposal, which was ultimately rejected. Had the matter been handled with discretion, it could have prevented much embarrassment to Mr. Doherty and avoided negative media attention. Instead, politicians of all hues took shots at beleaguered bankers and sought to feed popular anger rather than focusing on the task of real reform.

Reducing Mr. Doherty's pay from EUR 633,000 to EUR 500,000 will not clean up the current mess. Government mandated pay caps are not the answer to the financial crisis. The only certain consequence of such caps is to drive away good talent. If, as is claimed, the government is acting on behalf of shareholders, this is the last thing that a rational shareholder would want. The need of the hour is to attract the best talent available and pay them what they deserve to drag AIB out of this morass.

A singular obsession with punishing bankers at the expense of addressing the more difficult systemic challenges only serves to appease popular opinion. While this is attractive in the short term, the real task of reform suffers.