Dept of Finance admits bamboozlement by Bank of Ireland on bonuses
At this pace of news dumps, we’re going to need a bigger Dumpster. Today it’s the report into why Brian Lenihan misled Chris Andrews in response to his parliamentary question about the payment of bonuses at Bank of Ireland (the same question triggered the AIB bonus row). First, a digression. Let’s suppose you were considering a large investment in a bank about which this statement was written
While the diverse computer systems and difficulties experienced in retrieving the data are relevant, the failure to accurately summarise these data in tabular form suggests a lack of attention to detail by the bank.
Well, congratulations Irish taxpayer, you’re already invested up to the hilt in this bank — Bank of Ireland – despite its lack of attention to detail. And that diagnosis in the department’s own report! Let’s hope their loan book is in better documentary shape than their HR system. The short version of the report:
Bank of Ireland has, shall we say, a legally creative interpretation of the word “performance” as in performance-related bonus, and both the Department and Arthur Cox (who did the due diligence report on B of I prior to the previous recapitalization) say they were misled by it. Yet the fact remains that substantial bonuses were paid out and more are due in 2011.
Consider some other snippets from the report –
As long as the Government operates at arms’ length from the running of the bank, the Department does not have access to the raw data underlying replies to PQs and is reliant on the completeness, accuracy and factual nature of the information provided by the bank.
In other words, because we don’t run the bank, we can’t be expected to know what’s going on there. Which is the same argument they could make for all the non nationalized banks. Yet even if the face of that lack of information, they’ve allowed massive fiscal liabilities to pile up in these banks, both through the direct recapitalizations and the liquidity support from the Central Bank and the ECB for which we’re all on the hook.
Note: we wouldn’t have this problem if we’d nationalized the banks. Brian Lenihan used to like sneering at that proposal but he mightn’t be so confident about that position any more.
Finally, vis-a-vis the Arthur Cox due diligence, the department is in the strange position of saying that Arthur Cox was effectively misled by Bank of Ireland in putting together that report, but …
Arthur Cox have advised that the due diligence report accurately reported the information made available by the bank and met the report’s agreed scope and materiality thresholds in the context of the €3.5 billion State investment in the bank and the Department accepts that this is the case.
So if the due diligence was just a write-up of information given by the bank, what was its added value? And note the logic: because the investment is so large, the odd ten million here and there doesn’t matter. Would any other part of public spending be allowed to escape with such a materiality dodge?