ANALYSIS:David Duffy planning to convince investors to buy back in and get AIB back to profitability, writes SIMON CARSWELL
DAVID DUFFY did his homework before returning home to Dublin from an international banking career abroad to take charge at the virtually nationalised AIB.
He took the job on the Government’s salary cap of €500,000 after a very public race.
“The challenge is what I expected it to be – complex,” he told reporters in his maiden presentation as chief executive.
It was a strong display. Duffy is a polished performer, succinct speaker and a big-picture kind of banker. He needs to be, given the various parties he must work with if AIB is to escape the clutches of the State and a heavy reliance on cheap funding from Frankfurt.
Borrowing from the ECB fell €6 billion to €31 billion but this is still an unacceptably high 24 per cent of funding.
Despite €1.5 billion of new deposits coming into the bank in the first quarter of this year, the drag is still the cost of funding and the hefty fees paid to the State to borrow using the bank guarantee.
Duffy’s plan to get the bank back in private hands is straightforward. Start selling AIB’s story to investors this year so they’ll buy into the bank next year and get AIB back to profitability by 2014.
This may be optimistic given how AIB’s fortunes are tied to the economic prospects of the State, which will, by then, only just be out of an EU-IMF programme (if another one is not required).
To get there, Duffy must cut more costs. AIB has to become “a smaller bank in a smaller banking universe,” he said. One in six staff are going, though employees still await details of where the axe will fall and how much they’ll get.
Branch closures may also follow. “We are looking at the cost structure and looking at making ourselves economically viable. Within that context there is inevitably some unviable branches that may be affected,” said Duffy.
The one flash-point during his presentation was over his refusal to provide a figure for the sum paid to consultants last year.
This is contained within the €670 million spent on “general and administrative expenses”, up from €548 million in 2010. The focus is on accountants PricewaterhouseCoopers which last year had a large number of consultants in AIB helping chairman David Hodgkinson before Duffy arrived.
Duffy admitted that consultant costs were high due to one-off sales and restructuring work but he refused to break the fees down, saying this would be “a dangerous path” to go down as it was “a very sensitive commercial matter”.
He plans to reduce consultant costs “to a bare minimum” so as to “empower” employees at AIB.
Duffy wants to continue changing the culture from the top down. The board and executive team at the time of the crisis were replaced and 20 of the next 50 to 60 most senior staff are also gone.
He has another CEO title, that of “chief ethics officer”, to oversee new controls to prevent a repeat of mistakes of the past, including the embarrassing findings on AIB in the Mahon tribunal report.
Duffy hopes new senior management and “a very heavy bias” on better controls will help change the bank. “I am confident that we won’t be reading Mahon-style findings in the future culture of this bank,” he said.
