directors are putting the champagne on ice down at the Court of the
Bank of Ireland. Happy days are here again.
the board members open the bottles, they must still jump the little
hurdle of the agm on Wednesday, April 24, but that will simply be the
usual endurance test. The board will win the annual battle, crushing
the small shareholders.
Bank of Ireland has two reasons for celebration. First, the bankers'
bete noire , regulator Matthew Elderfield, has just announced that he
is on the way out of Ireland. Second, BoI boss Richie Boucher's old
pal, Pat Farrell, has revealed that he is on the way in – this time
to work as a super spinner for Boucher. The two guys are close:
Boucher even attended a milestone birthdayparty for
Pat a couple of years ago. Oh well.
new broom is in retreat. The old guard is back. Elderfield, barely a
wet day in Ireland, is heading home to the UK. Farrell, currently
head of the Irish Banking
Federation (IBF), has decided to give the Bank of Ireland the benefit
of his talents, acquired during the property madness.
who has spun so cleverly for Ireland's bankers for nine troubled
years, who spun so well for Fianna Fail as general secretary for six
years, who even spun for the EBS for a spell, is now about to spin
for the Bank of Ireland.
of Ireland will be run by three of the old guard. Governor Archie
Kane will be the titular head. Archie has made a bit of a name for
himself since becoming Governor. He has now been twice stripped of
performance bonuses, due to losses in the payment protection
insurance (PPI) scandal at his last employer, Lloyds TSB. Boucher, a
miracle survivor of Bank of Ireland's property lending lunacy,
remains chief executive. Farrell, ace banking propagandist and
lobbyist during the bankers' years of shame, will be the main link
with the media.
we wonder why Matthew Elderfield threw in the towel?
should mourn Elderfield's exit, not because he leaves having achieved
so much, but because he leaves so much to be achieved.
there more to Elderfield's departure than the bland statements
offered last week? Central Bank Governor Patrick Honohan's and
Minister for Finance Noonan's responses to the shock news were
tailored to reassure the markets.
affected no surprise: "Although it was evident to me that we
were very likely to have Matthew with us for only a few years, it is
sad that this period is now drawing to a close."
But wait, Matthew was on a short five-year contract. He cut and ran
after a mere three. A little puzzling with so much still to be done
to clean up the banks.
tribute was similarly nonchalant. He claimed that Matthew was
"leaving at a time when normality is returning to the financial
system and the Central Bank is suitably prepared to deal with his
departure in six months' time".
Ho-hum. The most ominous sign of "normality" is the
recruitment of Archie Kane as Governor and Pat Farrell as chief
spinner at the Bank of Ireland. Although that is hardly what Noonan
there will be celebration in the bankers' boardrooms at the departure
of Matthew, there will be hangovers for Honohan and Noonan. Matthew
was their mudguard against claims that banking reforms were too slow.
He was the acceptable outsider, plucked from Bermuda and Britain. He
had independent street cred.
why did Matthew jump ship?
was partly right: everybody believed that Matthew was destined back
in the UK, via Bermuda and Dublin. No one expected his return to
happen so soon. The Central Bank statement says he will now pursue
his "other interests", usually a euphemism for a guy being
given the push. Matthew was, emphatically, not pushed. He jumped.
has been offered a job in the UK, probably in the private sector. He
will command a fat salary, as the UK has recently radically changed
its regulatory structure – an area where his expertise is highly
marketable. A big bank or multinational would snap him up. Fair
enough, but the timing is peculiar. He should be equally in demand in
two years' time. But he does not want to wait.
has achieved much as regulator. He felled the mighty Sean Quinn, held
his nerve and gained respect. He began on the long battle of taming
the banks, but is less than half way there.
is more likely that Matthew looked into Ireland's banking abyss in
recent weeks and began to wobble.
realised that the banks were far from out of the woods. Reassuring
noises from Government that our mortgage arrears problem is under
control do not wash. It is chaotic.
still, Matthew himself had been put up front in setting targets for
the banks to meet in solving mortgage arrears. They are most unlikely
to be met. The mortgage problem is again being long-fingered.
Matthew, above all, realises that the refusal of the banks and the
Government to make proper provision for these bad mortgage loans on
their books is a time bomb that will explode soon. The prevailing
fiction – that the banks are solvent – will be blown to kingdom
come the day that they are forced to recognise their real losses.
should not be left holding the parcel when that day arrives. If he
stays he could be. Stress tests on the Irish banks will be held
within six months. This time the tests may be above suspicion. If so,
the testers may finally expose the fantasy that the loans can be
repaid and that the properties providing the security are worth their
padded values. They may recognise the hidden losses. They may force
realistic provisions for bad debts.
that happens government policy will be in tatters and Matthew's high
reputation will be tainted. He might even become the fall guy. The
consequence will be recapitalisation, an event that politicians and
bankers, in denial about underprovisioning, have refused to
contemplate. Matthew, almost alone, is not an ostrich.
the retiring regulator was spooked by last week's unwelcome IMF
report, insisting that Ireland's banks remain in a precarious state
due to mortgage arrears? Or did he sense the panic in Europe (not in
Ireland) that led to Friday's hurried decision to allow Ireland
another seven years to pay our bailout loans?
he is keeping his counsel to himself. Some of his colleagues are not
so reticent. Jockeying for his position has already begun. The
favourite to succeed him, the feisty Fiona Muldoon from the Central
Bank, told the Cantillon conference on Thursday that it would not be
"clear if the Irish banks would need more capital until they had
worked through their non-performing loans".
Central Bank code for "the Irish banks will soon need billions".
was right to quit while he was ahead. The man who steadied the ship
has recognised the reality. Little has changed; while the banks are
up the creek, bankers Boucher, Kane and Farrell are back in seventh
heaven at the Bank of Ireland.