Category Archives: Finance

Institute of Chartered Accountants in Ireland investigates Anglo Directors’ loans situation

Posted on by
1
Members of the Institute of Chartered Accountants should be relieved to read that the ICAI is to investigate the directors’ loans situation within Anglo Irish Bank.  Important for all members that matters are cleared up.  Hopefully investigation leads to prompt and clear conclusions whereby any relevant Institute members are cleared of any alleged wrongdoing or appropriate action is taken by the Institute in the event of proven wrongdoing.
 
 
 
 

Look back to 2004

Posted on by
Reply
Excellent talk given by Lucy Gaffney, Chairperson Communicop Group Limited, at yesterday’s Dublin Chamber of Commerce breakfast meeting.  She gave an interesting insight into the approach being taken by both Communicorp and Digicel to tackling these challenging and difficult times.  And they have taken real, practical steps.
 
Ms. Gaffney informed us that their main shareholder, Denis O’Brien, had advised them to take out the financial statements for 2004 – and to use the overhead expense number for 2004 as the overhead budget for 2009.  That gave everyone an interesting sense of purpose.
 
The key message of the presentation was that optimists will win out eventually.  You’ve got to break the problems down into manageable chunks and get started. 
 
 
 
 

Preference shares or Ordinary Equity

Posted on by
Reply
Writing in Fortune, Feb 16th, Allan Sloan’s article, ‘Geithner’s Redemption’ rings bells in the context of Ireland.  Sloan focuses on the mess that has been made of Citi and Bank of America – requiring a €90bn government bailout.  He references concerns that the banks will not seek to lend to business at a lower return than  the 5-8% they are required to pay on the government preference stock.  He argues stongly for conversion to common stock – with the government acquiring controlling interests in both banks.
 
In Ireland the government has nationalised Anglo Irish – when there seemed only one other choice: to let it go under (with all that would entail).  For now the government has followed the recapitalisation route (via preference shares) in respect of the two main banks – AIB and BoI.  Any number of commentators seem to expect that there will be a requirement for further funding – notwithstanding that there may be some merit to a phased, careful, approach (has any other country actually worked out the right solution yet?).  But eventual government ownership may be the outcome.  Sloan would argue: ‘The dilution (of the common stockholders) would inflict pain in the right places – institutional shareholders – and perhaps cause them to police their investees in the future’.

When should you get a bonus?

Posted on by
Reply
Seems to be all the rage.  In particular in the context of banks: why are bank management in receipt of bonuses while their banks are ‘losing their shirt’?
 
There are a number of issues.
 
What is the purpose of a bonus?  Is it a pseudo entitlement – almost ‘deferred pay’ or is it earned in respect of above expectation performance? Is it an actual contracted entitlement?   Is it based on individual, divisional or group performance?  Or is there some ‘balanced score card‘ type formula for calculating the entitlement?
 
Should there be any bonus pool if the group makes a loss?
 
Should management/ the Board be entitled to defer the payout of all bonuses to retain funds in view of expected (and imminent) trading & cashflow difficulties?  Or is this more correctly the concern of the shareholders?
 
None of this is as clear cut as we would like.  I have always operated in businesses where, in theory, there was no bonus pool unless the business itself made a profit.  However the rule may have been bent (ie ignored) on  a number of occasions e.g. to attract a new ‘heavy hitter’ or to compensate someone for outstanding performance.
 
What is clear though now is that where public funds have become required to sustain businesses which are in danger of ‘going down the toilet’ the public expects government, representing it, to apply stringent processes and controls to bonus payments (and indeed base salaries themselves).  It is for government in these circumstances to decide the merits and basis of investment, in the context of previous bonus commitments which the entities, without funding, may not be able to meet.  And this investment decision may incorporate negotiation re waiving of all or some previously ‘expected’ bonuses.  In the context of ongoing government influence in rescue and management of near or actually failed entities there should be no room for confusion with respect to bonus expectations going forward.
 
 

Encourage those trying to do something

Posted on by
Reply

Over the last few weeks have seen a number of examples of restaurants in Dublin offering excellent value.  I see Tom Doorley writing on the same subject in the Irish Times today.  The begrudgers will moan about the prices the restaurants were charging during the Celtic Tiger days.  What’s the point?  These business ares fighting (1) for their existence and (2) to keep people in jobs.  One of the owners makes a point – when you ‘cut to the bone’ no money to advertise to tell people about the offers.  Use the web!  And if, as a customer, you think you got great value promote them on facebook, your own blog, wherever. 

 My example – gourmet burger kitchen in Temple Bar – last week on offer: outstanding cheese burger, bowl of chips and a softdrink – €10.