Inside The World Of Business
JC Flowers UK moves lend credence to EBS interest
ANYONE WHO doubts the interest shown by US buyout firm JC Flowers in EBS only has to look at its manoeuvres in the UK.
The New York-based company is on the verge of investing £50 million in a joint venture with Kent Reliance building society – the mutual minnow that is better known for its sponsorship of Charlton Athletic football club than for its financial prowess.
JC Flowers, which is led by former Goldman Sachs executive Chris Flowers, is planning to take a 49 per cent stake in Kent Reliance, marking the first time a private equity company has invested in a UK mutual lender. It is thought that the company will seek to create some class of vehicle to consolidate other medium-sized building societies.
This is a trend being followed in other countries where smaller lenders are corralled into capital-strengthening mergers. Spain, for example, is busy mopping up its weakest cajas, or regional savings banks, and merging them.
The Government has propped up EBS with €350 million and the mutual lender needs another €435 million to meet the Financial Regulator’s new capital targets.
JC Flowers is not the only private equity firm sniffing around EBS. Cardinal Asset Management – led by Dublin businessmen Nick Corcoran and Nigel McDermott and backed by private equity giant Carlyle – and TV3 owner Doughty Hanson are also in the mix.
Cardinal has plenty of interest in Irish financial services but no experience in frontline retail banking. Founders Doughty and Hanson emerged from the world of banking to set up their private equity firm but their investments are largely in manufacturing, property and technology. Irish Life Permanent is the only banking operator in the running for the building society, but JC Flowers’s activities in the UK gives their interest in the Irish market a whole new significance.
Ryanair arithmetic
RYANAIR RARELY passes up the chance to have a dig at the Dublin Airport Authority (DAA). On Tuesday, in its first-quarter results release, Ryanair predicted that passenger numbers at Dublin airport this year would fall to 17 million – from a peak of 23.5 million in 2008.
“The Government’s failed policy of gouging tourists with a €10 tax and the DAA monopoly’s policy of increasing charges (by up to 40 per cent in 2010) must be scrapped if this downward tourism spiral is to be reversed,” Ryanair roared. The airline plans more cuts to its Dublin schedule this winter and its bearish prediction will have done little to comfort holders of the DAA’s quoted debt.
The DAA declined to respond but its projection for this year is something between 18 million and 18.5 million. And that’s after a loss of 500,000 passengers due to the volcanic ash crisis. “I don’t know where they’re coming from,” Ryanair deputy chief executive Michael Cawley told The Irish Times in response to the DAA’s figure. “Our calculations are based on ourselves and Aer Lingus and we account for 85 per cent of all passengers through Dublin.”
This might well be the case. But another possible explanation is that Ryanair took the number of people who travelled through Dublin in the first six months of this year – 8.5 million as published by the DAA recently – and simply doubled it to arrive at a total of 17 million for 2009 as a whole. This would ignore the fact that July and August are by far the airport’s busiest months and that the ash crisis (hopefully) won’t be repeated later this year. Not that Ryanair would let such considerations get in the way of a good headline.
Breaking the stereotype
THE ROLE of non-executive directors has once again been thrown into the spotlight, this time in the somewhat surprising context of a Central Bank report on the first-time buyer mortgage policies of Irish banks.
Yesterday’s report by the Central Bank – its first publication since the launch of its major strategy document last month which promised a new era of regulation – chose to focus not on the senior management of Ireland’s financial institutions, but on the non-executive directors of banks.
The report criticises what it describes as the “limited involvement” of non-executive directors in assessing, scrutinising and challenging new mortgage lending policies.
It says that there is more scope for non-executive directors to challenge executive decisions on mortgage lending.
The notion of non-executive directors of banks playing a more active role in the governance of our banks is an interesting, and potentially radical idea.
As the Central Bank rightly points out, mortgage lending is a key business line for Irish banks, so why shouldn’t non-execs get to grips with the minutiae of their company’s lending policies?
As the unravelling of the banking sector has played out over the last few years, the old adage has often been brought to mind. What’s the difference between a supermarket trolley and a non-executive director? Both hold a vast quantity of food and drink, but only the trolley has a mind of its own. One welcome outcome of the financial crisis has been to focus attention on the role of the non-executive director in the corporate structure.
As corporate Ireland tries to rebuild itself, non-executive directors have an opportunity to challenge that stereotype and reinvent themselves as active participants and decision-makers rather than passive observers of the companies they serve.
Today
Department of Finance officials to appear before Public Accounts Committee to discuss the September 2009 bank guarantee.
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