Whats wrong with AIB?

Victor

What is it with AIB that it goes through this bi-annual cycle of scandals? While the amounts below are chicken feed compared to the Rusnak affair or ICI, they just can't seem to keep themselves out of trouble. Or is it just that other banks have better PR?

http://www.rte.ie/business/2004/0527/aib.html

Probe finds "unacceptable practices" at AIB
May 27, 2004 17:52

AIB has given details of a seperate investigation into what it describes as "unacceptable practices" at AIB Investment Managers and tax issues relating to current and former senior executives.

The statement comes following two investigations carried out by the bank. The first took place in September of last year. This centred on the relationship between AIB Investment Managers and a British Virgin Island investment company, Faldor Ltd.

Faldor was made up of five former senior executives of AIB and it had a relatoniship with AIBIM from 1989 to 1996.

The bank's investigation found there was a breach of tax law in relation to this company. It also found that the former AIB executives behind Faldor received a prefential allocation of investments ammounting to €48,000.

Seperately that investigation found that two former and three current senior executives at the bank had tax issues unconnected to Faldor.

A second investigation was then initiated supervised by former Central Bank Governor Maurice O'Connell. It found in total there were nine transactions that involved unacceptable practices.

The bank is to compensate clients of AIBIM €330,000 arising from this. AIB is also to underwrite €800,000 arising from tax and penalties.

AIB said in a statement it cannot, for legal reasons, identify the individuals involved but that appropriate disciplinary action is underway.

Mr Michael Buckley, AIB Group Chief Executive, said: ' The practices uncovered have no place in AIB.

The leadership behaviours I expect of senior management in AIB are clear. I am determined that they will be maintained and validated through a regular accountability process.

"I am happy that the historic, unacceptable deal allocation practices in AIBIM identified in the investigations are a thing of the past and had, by 1997, been replaced by the good practices and standards that remain in place."

Earlier this month AIB apologised for systemically overcharging foreign exchange customers over an eight year period due to a transaction fee error in its computer systems. It placed €25m with the Central Bank for potential refunds.

The bank, which is in the middle of a review of its internal procedures, said last week that another error had led to hundreds of mortgage customers paying for insurance cover they did not request.

Also, AIB said earlier this week that it was trying to trace the beneficiaries of trust funds it may have overcharged due to an error dating back to 1971.

It said in 2002 it had noticed that from 1971 it had been levying new fees on trusts that were entitled to have their charges remain unchanged. It had since paid €3.4m in refunds and compensation.

However, the bank said there were a number of funds that had been closed during the period in question that might also be entitled to refunds.

Earthhorse

It's hard to know whether AIB have worse preventative measures in place than other banks or simply better detection methods.

As you suggest it could be that the other banks are better at covering it up but as a customer this hasn't really effected my opinion of them one bit and it doesn't appear to have sent shockwaves through the Irish banking industry either.

Victor

Erm

http://www.rte.ie/news/2004/0529/aib.html

Aer Lingus chairman resigns in AIB scandal
29 May 2004 15:22

The Minister for Transport, Seamus Brennan, has accepted the resignation of the chairman of Aer Lingus, Tom Mulcahy.

Mr Mulcahy, who is a former senior executive with AIB, has resigned from his position with the airline as a result of the latest scandal at the bank.

He is understood to be one of five executives who had what were described by AIB as 'tax issues', due to arrangements unconnected to the controversial scheme.

Meanwhile, former AIB executives involved in a controversial offshore investment scheme have been named.

They include a former AIB Chief Executive, Gerry Scanlan, the outgoing chairman of Irish Life and Permanent, Roy Douglas, David Cronin, former treasurer of Allfirst in the US and the late Paddy Dowling, a former AIB deputy chief executive.

Another Faldor beneficiary was Diarmuid Moore, formerly the director of group strategic development at AIB in the 1980s.

The revelations came as the bank is being investigated for overcharging certain foreign exchange customers and for assigning payment protection policies to some mortgage holders without their knowledge.

alleepally

The answer to the question "what's wrong with AIB"... absolutely nothing. They want to make as much money as possible for their shareholders. Corporations don't have a conscience and nor do they give a monkeys about delivering good and honest service to their customers.... end of.

Oh and I will add the famous quote

"Money is the root of all evil"

BuffyBot

Corporations don't have a conscience and nor do they give a monkeys about delivering good and honest service to their customers.... end of.

I don't think it's quite as black and white as that.

Of course AIB is there to make money. However, I suspect many of the people at the top of the company became very complacent during it's boom years and things began to slide. Now the current adminstration of the bank are having to pick up the mess. I suspect there will be a few more AIB related stories in the future - best thing they can do is just be honest when they crop up, say "we made mistakes" and then rectify them.

Hmmmm,
I got a statement of charges from AIB the other day for a business current account.

It had one atm banklink transaction charge on it for 12 cent.
I don't have a banklink card.
I know it's only 12 cent but still.

alleepally

Originally posted by Earthman
Hmmmm,
I got a statement of charges from AIB the other day for a business current account.

It had one atm banklink transaction charge on it for 12 cent.
I don't have a banklink card.
I know it's only 12 cent but still.

a small amount to you but it all ads up. the 0.5% extra charged to people on forex dealings would have been small too - but all taken together that's a huge pile of money !!!

vector

Originally posted by Earthman
Hmmmm,
I got a statement of charges from AIB the other day for a business current account.

It had one atm banklink transaction charge on it for 12 cent.
I don't have a banklink card.
I know it's only 12 cent but still.

If an ATM card is not attached to that account then a ATM tranaction, regardless of amount, couldn't have been effected.

Victor

Originally posted by alleepally
a small amount to you but it all ads up. the 0.5% extra charged to people on forex dealings would have been small too - but all taken together that's a huge pile of money !!!

Ah, but realise. Banking costs are about 50%(+10%) of turnover. Increasing fees from say 1% to 1.5% increases profits 100%.

The SBP doesn't pull any punches here:

http://www.thepost.ie/web/DocumentView/did-953375754-pageUrl--2FThe-Newspaper-2FSundays-Paper-2FThe-Market-2FThe-Insider.asp

AIBIM: an embarrassing saga
11/07/04 00:00
By Michael Murray

Let's give it another chance. One more chance. The AIB board has been more than generous to AIB Investment Managers (AIBIM) with chances.

Everyone is entitled to a few.

But when a business has been given numerous chances to improve its act for more than 15 years - and instead of improving, it has become a case study in serial under-performance, it is time to do something radical. How about selling or winding up?

AIBIM doesn't produce profit numbers separately as a fund manager. We are told, however, that it earns a profit - albeit probably a tiny one.

AIBIM is profitable, despite almost consistently being at the bottom of the managed pension fund league tables for nearly two decades.

Like all fund managers, it is in the unenviable position of being able to charge its clients fees no matter how much of their money it loses and however often it loses it.

It is not surprising that, over the years, clients of AIBIM have drained away like water from an unplugged bath. The mystery is how they hold on to any clients at all?

How and why do clients continue to pay them for getting such a poor return for their money? Surely, based on the track record, the clients know that, on the law of averages, they would get better returns by closing their eyes and using a pin to choose their investments at random?

Over the past three years, AIBIM has lost an average of 6.2 per cent per annum on the managed pension funds of clients. Over five years, it has lost an average of 1.9 per cent a year. Over six months, one year, three years, five years, and ten years it has performed below the market benchmark.

The curse of consistency, as the late Brian Lenihan would have called it.

For AIB shareholders and board, the AIBIM under-performance is a major issue, despite the fact that AIBIM itself makes a small profit. Taken overall, the sub-standard performance of the business has cost AIB well north of €500 million over the past decade.

This is because AIBIM's biggest client is the AIB staff pension fund which has assets under management of €2.2 billion. And by AIBIM under-performing, it now has to pay in to the staff pension fund double what it should be paying each year to meet the future liabilities of the fund.

In fact, AIB's contributions over the past three years - at €184 million - are reportedly more than all of the contributions of Bank of Ireland (BoI) to its staff pension fund over the past decade. The two funds, up to a couple of years ago, had almost identical actuarial liabilities.

In the past three years, AIB - via disposals and closure of the fund to new members - has shrunk the actuarial liabilities of its fund by 20 per cent relative to BoI.

Despite this, AIB's contributions to meeting the shrunken liabilities soared from €50 million to €83 million last year, and over the last two years were almost exactly double BoI's.

So, while AIB's actuarial liabilities in its staff pension fund are now smaller than BoI's, the contributions to funding them are double those of BoI. And still the deficit in the fund is double. So much for the compounding cost of serial under-performance.

Fortunately, the trustees of the AIB staff pension fund have moved the management of some of the funds to other fund managers.

Even they have apparently lost confidence in the fund management skills of their own employer's fund management arm. Against that background, how on earth can third party clients retain confidence in AIBIM?

Of course, if the pension fund shortfall becomes more acute in the future - the latest reported deficit is over €500 million - then the trustees of the fund might have to answer to the staff pension fund members (to whom they have a fiduciary duty of care) as to why,when charged with overseeing the running of the fund, they employed such a demonstrably dreadful pension fund management company.

But it doesn't stop there.

AIBIM's under-performance also has to be affecting client goodwill in other parts of AIB Capital Markets, like stockbroking, corporate finance, corporate banking, and treasury - top rate businesses of which AIB can be proud.

The situation is compounded by the hangover from Govett, the fallout from the split capital trusts, the indemnities that AIB shareholders have had to give to directors to protect them from litigation, and the embarrassment called Faldor.

This is a formidable list for a minnow that has wreaked havoc on the wealth of staff pension funds and clients alike.

Some time back, I pointed out that in 2002 AIBIM lost more money for its staff pension fund in a year than John Rusnak lost in foreign exchange dealing in five years.

AIB responded by saying that a bright new fund manager was being brought in from Edinburgh to run the AIBIM funds, break the decades of under-performance, and turn it around. He has had his feet under the desk now for 18 months, yet the under-performance has continued.

AIB has gone through a rough time in the past three years - much of it a legacy from the past. Yet, many of its businesses are of world-class quality. The progress it has made in the Irish mortgage and business banking markets has been remarkable.

In Britain, its niche banking business and the manner in which it has built it in the past decade is equally impressive and the quality of most of its capital markets businesses, too, is second-to-none.

But after the current IFSRA investigation is over, the AIB board should turn its attention to AIBIM, and establish the true cost of this operation to shareholders, to the staff pension fund and to the AIB brand.

If it can't be sold, the board must now insist that management of its funds be sub-contracted out, and the core business wound up. Sub-contracting was suggested in this column a year ago.

AIB shareholders and the AIB pension fund would be better off today if they had taken our advice.

AIBIM is a poor advertisement for the Irish investment industry and an embarrassment to the bank's shareholders and to the AIB Capital Markets brand. It's time for this reality to be faced.