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IBOA The Finance Union has called on the Government to reject substantial investments by private equity funds in Irish banks.



Responding to media reports that Bank of Ireland has received unsolicited approaches from a number of potential investors – including representatives from private equity funds, IBOA General Secretary, Larry Broderick, said that if Bank of Ireland was to embrace involvement by these interests to any significant degree, it would represent a disaster for the Bank’s customers, staff, share-holders and for the country as a whole.



“Far from facilitating this development, the Government should intervene now to advise the Bank that such an approach would offer a short-term easing of its current problems – but at too high a cost in the long term,” said Mr. Broderick.



“Private equity funds are the real sharks of the business world. They operate on the basis of maximising short-term opportunities. These people have no interest in the long-term viability of the business; they have no concern for the development of the Irish economy or the future well-being of the Irish people: they are only attracted by the prospect of massive returns on their investment.



“Predators like these,” he said, “aim to buy cheaply and reduce costs in whatever way they can – by cutting staff numbers and pay; by squeezing customers and cutting services. They aim to realise as much asset value as possible; and then sell on what’s left of the business. They are not philanthropists. They are highly secretive entities that are feared and despised in equal measure throughout the business community.



“After the sharks have moved on to prey upon some other institution in some other part of the world, the lives and livelihoods of customers and staff left behind in Ireland would have been profoundly damaged. The State would then have to deal with the long-term consequences – which apart from these many human tragedies –would also be a banking system even more distressed by a further loss of assets to these predators,” warned the IBOA leader.



“Almost every reputable commentator in the country has serious misgivings about such a development. Furthermore, if the Government were to acquiesce to the involvement of private equity funds, it would undermine the very objectives enunciated by the Minister for Finance at the launch of the State guarantee: objectives like protecting the public interest, capping excessive remuneration packages, providing for greater regulation and transparency – as well as facilitating the release of credit into the economy.



“A further dimension to the suggested involvement of the private equity funds is the proposition that any deal with Bank of Ireland should be sweetened by adding Irish Life and Permanent to the pot as well. We estimate that a merger of these two financial institutions would result in the loss of 3,500 jobs at the very least – and considerably more if the private equity sharks were involved. The merged entity would have around 100 duplicate branches – likely to be deemed surplus to requirements.



“The Government should not offer any encouragement to the Bank of Ireland or these private equity funds in pursuing this dangerous proposition,” declared Mr. Broderick. “Instead the Government should provide State investment to recapitalise the financial guaranteed institutions in the form of a State investment bond.



“The National Pensions Reserve Fund is reported to have invested in a number of overseas banks in recent years (including AIG, CitiGroup, Fannie Mae, Freddie Mac, Lehmann Brothers, Washington Mutual, Barclay’s, Lloyds TSB and Royal Bank of Scotland). Surely it is not unreasonable to suggest that some or all of the €1.5 billion in cash it has available at present ­ not to mention the additional funds it holds elsewhere – could be invested in the Irish banking system. Likewise Irish-based pension funds – which already have a major stake in the Irish economy –should also be persuaded to provide further support for Irish financial institutions.



“IBOA urges the Government to show leadership in the current difficulties by avoiding another quick fix solution which is based on short-term expediency rather than the long-term interests of the Irish economy and people,” he said.



“An unhealthy obsession with short-term profit-taking got us into this mess in the first place. Engagement with private equity funds may offer a temporary respite but would soon lead to an even more savage form of short-term profit-taking which would plunge the economy even deeper into crisis.



“We strongly urge the Minister for Finance to avoid the superficially attractive option of investment by private equity funds, since it will inevitably lead to even greater difficulties in the medium to long term,” said Mr. Broderick.



IBOA media release, 25.11.08: http://www.iboa.ie/banking_crisis2008.htm#item2