Overview of Operations and Functioning: Discussion with IBRC (Continued)

Wednesday, 31 October 2012

Joint Committee on Finance, Public Expenditure and Reform Debate

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Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath Can I ask about the impact of the promissory note? I understand the IBRC is a passive participant, as such, and the negotiations are between the Government and the European Central Bank. Mr. Dukes said the final bill for the Anglo Irish Bank element of IBRC may be affected by any restructuring of the promissory note. What did he mean by that? Is he involved in the discussions that have been under way for some time on redesigning the promissory note arrangement?

Mr. Alan Dukes: We are not involved in the discussions on arrangements that might be made in the future. We have been able to participate in some of the background work in modelling solutions and approaches because we have the expertise in the bank to do it. As the committee knows, broadly speaking the promissory note as it is currently structured produces a level of income for the bank. If the maturity of or the rate of interest on the note were to be changed, it would have an effect on the amount of income accruing to the bank over the period. What those changes might be, I cannot say. I do not know what kind of outcome we can expect from the discussions. If there is a change in any of the major characteristics of the note, they will obviously have an impact on the bank.

Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath In his opening statement, Mr. Dukes stated the IBRC owes €42 billion to the Central Bank and other monetary authorities. The promissory note money the bank receives every year goes to pay down its emergency liquidity assistance, ELA, to the Central Bank. Is there a schedule agreed with the Central Bank on the repayment of that ELA? Obviously, the IBRC would be able to settle all its other liabilities from existing resources, apart from the ELA, which it depends on the promissory note to fund.

Mr. Mike Aynsley: Broadly speaking, the promissory note sits on the balance sheet and is lodged with the Central Bank along with several other assets that we also can put into the ECB to generate funding to support the organisation. As we wind down the balance sheet of the bank, all of the funds we collect are used to pay down the ELA facility, without exception. What would be left out is a balance of borrowings which are secured by the promissory note. Success for us is the removal from the balance sheet of all the commercial and residential loans from Anglo Irish Bank and INBS, to the point where we are left with just a government instrument - in whatever form that ends up being restructured to - on the balance sheet.

Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath In his opening statement, Mr. Dukes spoke of how high-profile borrowers are dealt with, and he referred to me. I intend to raise the issue of the evidence that emerged in the High Court case in London involving Mr. Paddy McKillen and the Barclay brothers about text messages sent by Mr. Aynsley to Mr. McKillen conveying a board decision. Perhaps this was put into the public domain to embarrass Mr. Aynsley. However, it does raise certain questions as to whether it is common practice for the IBRC to liaise with its largest debtors. Was this an isolated case or is it common practice, as opposed to issuing an electronic memorandum? I am asking this question because we want to be reassured that what is left of the former Anglo Irish Bank and INBS has moved away entirely from the culture that prevailed in the past in which there were close relationships between those running the banks and their largest borrowers. Mr. Aynsley is involved in making commercial decisions involving hundreds of millions of euro. One can go through all of the governance process to which Mr. Dukes referred, but ultimately it does come down to judgment calls. It is not my job to say whether these are correct. It is my job, however, to seek assurance that it is been done in the right way, with nothing else influencing decisions.

Mr. Mike Aynsley: There was nothing untoward in any way about the approach to Mr. Paddy McKillen to advise him of the board’s decision. We were going through a process, of which Mr. McKillen and the Barclay brothers’ representatives were aware, which culminated in a submission to the board and its approval of the maintenance of a process of consensual restructuring of Mr. McKillen’s loans rather than the sale of a portion of these to the Barclay brothers. When we came out of those meetings, my colleague Mr. Richard Woodhouse was given the authority to contact the Barclay brothers to inform them of the decision. I attempted to call Mr. McKillen but, of course, could not get hold of him. He does not do e-mail so I sent him a text. It was as simple as that. The reminder to him, following it up, was simply that this was a board decision and that it was a bank-client relationship that should not be divulged, as we were aware at the time that he was in litigation with the Barclay brothers. It was inappropriate, we felt, that he went to the press with that. Of course, it ultimately came out during the discovery process in that litigation. That is all there was to it.

It is very important that the Deputy is confident that this bank is operating in a different way from the old management of the bank before nationalisation. The key point is that there is no one individual in the organisation who has the capacity to influence or make decisions on any of these loans. We have a very well-structured governance process. It starts off with an account management team that is responsible for analysis, monitoring and oversight of the relationship every day to ensure the organisation has all the information that is required. That in turn is overseen by a client relationship manager for each one of these accounts. In the case of Mr. McKillen, Mr. Woodhouse is operating as his client relationship manager. We have a series of asset quality forums that examine these accounts on an ongoing basis, assessing the appropriateness of the various impairment levels or the performing loan portfolio, although it is a small one given what has happened to the bank. Decisions are processed up through a group credit committee that has representatives from the business, independent and risk management oversight units of the bank. There are two main operating committees in the bank - the transaction review committee and the investment product committee - which deal with the sale or holding of loans, equity participation or investment or divestment decisions, wealth management business and the protection of investor interests. These committees have various delegations that come down through the board. There are multiple people within the organisation that scrutinise every aspect of the loan decisions. For loans above certain levels, as in the case in question, there is a requirement to take these facilities in detail to the board to seek main board approval.

Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath One departure from the practices of the past in the institutions Mr. Aynsley inherited is how hospitality is dealt with. I know the bank has a very clear policy that, in general, directors and employees must not accept gifts or the conveyance of anything of value, including entertainment, from current or prospective banking customers or suppliers. Is that fully adhered to in IBRC?

Mr. Mike Aynsley: We have a full entertainment and travel policy in place. We still maintain a situation in which we will have client entertainment in certain circumstances, which is controlled under the policy.
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