November 12, 2008
Now the Government needs its own people in the banks … they must be independent, not some patsies
Why doesn’t Bill Cullen choose the directors the Government wants to put on the banks’ boards? We could have a special ‘Apprentice’ programme, which could pick the new “Untouchables” who will shake up the way our banks are governed.
Given the toothless compromise that is being proposed by the Minister of Finance, the ‘Apprentice’ format would undoubtedly lead to a better outcome. Make no mistake about it: over the next few weeks, the decision made about the future of the Irish banks will be the most momentous financial decision in the history of this State. If we get it wrong, we face a depression rather than a mere recession. If we get it right, there will be light at the end of the tunnel.
Let us remind ourselves where we are. Lamentably, the clarity of the initial days following the guarantee (when the Government looked to be in control) has given way to six crucial weeks of indecision.
The guarantee — which was innovative but also risky — can only work if it is followed by two other initiatives. The risk that the Government’s guarantee would be called upon can be minimised by a successful recapitalisation. To make the recapitalisation successful, the State needs to know exactly what is going on inside the banks. In order to see clearly, the Government needs its own people in the banks. These representatives of the people must be single-minded and focused.
Most importantly, they must be independent, not some patsies who have been vetted by the banks’ present management who got us into the mess in the first place.
Rather than parachuting his own men into the banks (as this column argued a few weeks ago), the minister has allowed the banks’ management to have a say in the process. He says he will propose a list of 24 independent directors of whom 13 will be picked — not by him but by the banks’ management!
This is a joke. The only problem is that the joke is on us, because if it does not work, we the taxpayers will have to stump up for the guarantee. So having saved their skins last month with the guarantee, the State should be driving the agenda, rather than prevaricating.
The issue here is not about personalities, nor recrimination, it is about the process.
The reason the process is so crucial is that we will only get one chance at the recapitalisation. When Ireland goes to look for money on behalf of our banks from the capital markets in the next few weeks, we had better get our figures right. The banks’ management can’t be trusted to do this. Every time one of them has tried to “come clean” by giving an estimate of just how bad things are, the reality has been much worse.
In its simplest terms, the write-off that our banks will have to make, will be much greater than any of them are suggesting at the moment. And the reason they are prevaricating is that their jobs are on the line. The new owners of the banks will be partly international investors, partly the Irish State and, hopefully, partly Irish investors who will participate in raising new cash for our banks.
When the new owners are in place, they will fire the management. Therefore, the game is a struggle for survival on the part of the boards and management on the one side, and, on the other, a struggle for clarity on the part of the new investors of whom the State will be a big player.
The people charged with getting to the bottom of this mess and putting manners on the bankers — as well as getting the best deal for the State — are the State’s anointed directors. This is why these lads can’t be chosen by the banks, which are largely responsible for this predicament.
If the minister doesn’t want to put his balls on the line by choosing, what better way to choose than by the ‘Apprentice’? We could have a special ‘Apprentice Banker’ programme, orchestrated by Bill Cullen and shown on TV3.
The hopeful directors advanced by the minister could face Bill and a panel of our choice and be asked to perform the type of tasks that bankers will have to execute in the downturn.
The first task might be to analyse the balance sheet of a former high-flying, but now bankrupt, property tycoon.
Rather than protecting the developer, the apprentices would be asked how best to deal with this person’s ailing balance sheet on behalf of shareholders. Should the business be wound up and sold on at a much cheaper price for the lands which are the assets in the business? Or should the bank prevaricate and try to save a man that the board members regularly play golf with?
On the other hand, the apprentice might also be asked whether it is wise, for all concerned, to mark the value of the asset now when there is essentially no market? If the apprentice marks down the land, the value of the land will be obviously way below the value when “normal” conditions re-establish themselves, so there might be economic sense in keeping the developer afloat for a while. There’s the dilemma.
Like the TV3 programme, there will be numerous simple banking tasks demanded of the apprentices. They will make alliances, reveal petty jealousies and we, the public, will see how their characters stand up to the pressure. After all they will be paid to represent us.
We will see them in various pressure situations and then the big decision — Bill Cullen will sit in judgment of the best candidates. After Bill has whittled half of them out with the “you’re fired” line, the public will be reminded of the remainders’ talents.
Then the moment of truth. The public will be asked to decide. Given that these candidates will be acting in the public interest, paid by the public and work for institutions that are guaranteed by a public guarantee, why not let the public decide?
We could have a nationwide vote, sponsored by the now nearly bankrupt Australian venture capitalists that own Eircom, with the prize of a much “sought after” apartment in Bulgaria to see who might represent the people on the banks’ board.
Spread out over three nights, on TV3 — a national broadcaster owned by another hard-pressed British venture capitalist outfit — the nation would be transfixed.
If you think about it, a candidate chosen by Bill Cullen and the people in a public ‘Apprentice’-style process, has at least as good a chance of sorting out the financial institutions as a hopeful anointed behind closed doors by the cozy cartel of bankers who conspired to blow the boom. More to the point, it would be compulsive television. Just the type of thing we’d tune into on these winter nights.