Inside The World Of Business
AIB board thumbs its nose at Lenihan over choice of boss
IT’S HARD to see the outcome of the search for a new boss at AIB as anything other than a comprehensive defeat for the Minister for Finance and victory for the board of AIB.
The board has engineered a situation where not only is it on the verge of appointing an insider to run the bank, it now transpires he will not be subject to the Government’s €500,000 cap on the salaries of chief executives.
Colm Doherty, the combative head of the bank’s capital markets division, is set to be revealed as managing director designate tomorrow when the bank releases its interim management statement. There may be an executive chairman in the form of Dan O’Connor, and Michael Somers may be parachuted in as deputy chairman, but the reality is that Mr Doherty will be running the bank. The kicker is that, because he is not chief executive, Mr Doherty can retain his salary of €633,000. Of course, there is nothing to stop him submitting voluntarily to the cap.
This turn of events could not be more at odds with the express wishes of the Minister for Finance, the bank’s largest shareholder and the issuer of the guarantee that stands between AIB and oblivion. It is suggestive of a board that is now out of control and has lost sight of its responsibilities. One wonders how the directors of AIB would react if the board of one of its subsidiaries thumbed their noses at it in a similar fashion?
Weary observers suggest that the issue will shortly be rendered academic as the taxpayer will almost certainly own most of AIB by the time its recapitalisation is complete. They also note that the position of chief executive has not been filled and once the Government has control it can fill the post as it sees fit.
This intriguing prospect assumes that the supposed obstacle presented by the cap on bank bosses’pay can be circumvented, although AIB seems to have solved this conundrum for the Minister. But more pertinently it also presumes that the Government will at some point develop the requisite will to finally assert its authority over the banks.
No one mentions the levies
AN ODD aspect of the ongoing debate about the introduction of a third, higher income tax rate is that there is such little talk about the fact that we already have not just one but two higher rates by way of the income levies.
Last April, Minister for Finance Brian Lenihan introduced three levies – at 2 per cent, 4 per cent and 6 per cent. The entry points are, respectively, €15,028, €75,036 and €174,980.
The top rate of tax is 41 per cent so people on higher incomes are paying a de facto rate of 45 per cent on income over €75,036 and 47 per cent on all income over €174,980 (leaving health levies out of it). That latter figure is only one point off the Sinn Féin proposed rate of 48 per cent.
That party says such a new rate, applied to all income over €100,000, would bring in €435 million in a full year. Interestingly, the best estimate from the Revenue is that the levies will raise €547.4 million in 2009 from income above the €100,000 threshold. It will raise €97.12 million from income in excess of the €1 million threshold, with just 921 income earners contributing to that figure.
The world from Merrion Street is that Mr Lenihan has not as yet decided what he will do with the levies in the Budget. From all that’s been said, it appears he is not in favour of a third rate of income tax.
A number of issues arise. The levies catch income that is sheltered by the now discredited property tax schemes and the like. Rolling the levies into the general income tax rates would mean some income would escape taxation.
Also, if the levies are rolled into a two-rate income tax system, very high earners will actually end up paying less, unless the marginal rate is a massive 47 per cent.
Lastly, the Government says it does not want a third rate of tax as it might prompt some people to flee our shores. However, there has been little heard to date of people fleeing Ireland because of the levies. In fact there has been very little talk about them at all.
Pinning down floating charges
ACC’s decision to appeal the High Court’s approval of examiner George Maloney’s rescue plan for the Fleming group is seen as further evidence that its Dutch parent, Rabobank, just wants shut of its Irish property loans.
But whatever the motivation, it’s possible that the Dutch will help to clarify an issue that has been keeping company law anoraks awake since the mid-Nineties – just what happens to floating charges once an examiner has been appointed after a receiver has moved in?
It used to be held that once a bank appointed a receiver on foot of a floating charge, it “crystallised” into a fixed charge. This was thought to apply even if an examiner took over from a receiver, which they can do within 48 hours, until the Supreme Court ruled that the charge “de-crystallised” back into a floating charge.
There was no real precedent for this but the logic ran that crystallisation effectively breached several sections of the examinership legislation, as it risked putting company assets beyond the examiner’s reach.
The ruling drew howls of outrage from the banks, as it drove a coach and four through their rights, but the Oireachtas shied away from tackling it when it amended the law.
ACC’s counsel, Paul Sreenan, hinted that he could take up this very issue if there were an appeal. The irony is that some banks that complained about decrystallisation do not want this appeal at all, as they support the rescue plan.
Today
Irish Life & Permanent issues a trading statement this morning with changes to bad debt provisions the focus of market attention as the property lender confronts mounting mortgage arrears. Developments in the move towards a third banking force will also be of interest.
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