ALLIED IRISH Banks (AIB) is facing pressure from the Government to recruit an external successor to departing chief executive Eugene Sheehy amid expectation in financial circles that Bank of Ireland governor Richard Burrows will consider his position in advance of the bank’s annual meeting in July.
The AIB board by tradition appoints insiders to the top job so the Government’s stance may threaten the likely candidacy of senior banker Colm Doherty, head of AIB’s profitable capital markets division and widely held to be the internal favourite for the job. He has been on the AIB board since 2003.
Mr Sheehy will leave the bank whenever his successor is appointed. AIB chairman Dermot Gleeson and finance director John O’Donnell will also be standing down in the coming months. The bank has engaged recruitment firm Spencer Stewart to conduct a search for external candidates for the post of chief executive.
Government sources acknowledged that the €500,000 cap it has imposed on the chief executive’s salary may limit the pool of external candidates. However, they believe an outside appointment would help put some distance between the current management team and the person charged with rebuilding the bank after its recapitalisation.
AIB shares have collapsed in the past year, losing more than 90 per cent of their value amid severe doubt about its capacity to weather a spike in losses on its extensive property loans as a result of the recession.
“In general there is a view that there is greater credibility with complete change,” said a source with direct knowledge of the Government’s position.
Another well-placed source said that the recruitment of an external banker would be “politically easier to explain” for the Government.
This position reflects the €3.5 billion in new capital that the Government is providing to AIB. The bank resisted recapitalisation for months, but has revised upwards the amount of new money it says it needs to support its capital base on two occasions since the start of the year.
In its preference for an external candidate, the Government is keen to avoid a repeat of the dissatisfaction that surfaced over Bank of Ireland’s choice of inside candidate Richie Boucher three months ago in succession to Brian Goggin. That appointment was criticised by Bank of Ireland investor Dermot Desmond.
Asked about anticipation in business circles that Mr Burrows is unlikely to seek re-election to the bank’s board or court of directors, Bank of Ireland’s spokesman dismissed such suggestions as “speculation” and would not comment further. However, it is widely expected that he will not seek to continue in a position he has held since July 2005.
Mr Doherty was an unsuccessful contender in the race for the top post when Mr Sheehy was appointed in 2005. While profits in AIB at large dropped significantly last year after big write-downs in its domestic business, the unit led by Mr Doherty increased its pretax profit to €585 million from €532 million. This has led some figures within the capital markets unit, based in the International Financial Services Centre, to characterise AIB’s current troubles as a problem made in “D4”, a reference to the Dublin 4 address of the bank’s headquarters in Ballsbridge.
In a circular to his own staff last month, Mr Doherty drew a contrast between the performance of the capital markets division and the performance of AIB at large. In reference to the fact that no AIB staff received profit-share payments for 2008, he is understood to have said that “our division” performed well but added that group profits were well down due to rising bad loans provisions “in other areas” of the bank.
AIB sources stressed, however, that the tone of the circular was that all staff in the organisation would have to pull together in the current period and that they would have to adopt an open and flexible approach.
