Allied
Irish Banks plc - (en)
Allied Irish Banks, p.l.c. (AIB), ISEQ: ALBK, LSE: ALBK, NYSE: AIB, FWB:
AIB is a commercial bank based in Ireland not to be mistaken for Anglo
Irish Bank. AIB is one of the so called Big Four (banks) commercial banks
in Ireland.
Services
The bank has one of the largest branch networks in Ireland; only Bank of
Ireland fully rivals it. AIB offers a full range of personal banking
services, including loans, credit cards and mortgages. The bank also
offers a range of general insurance products such as home, travel, and
health insurance. It offers life assurance and pensions through its wholly
owned subsidiary, Ark Life Assurance.
The bank also offers the full range of corporate banking services. AIB
Capital Markets is the division of the company that offers international
banking and treasury operations. It offers stockbroking services through
its subsidiary Goodbody Stockbrokers.
Internationally, AIB operates mainly in the United Kingdom (as Allied
Irish Bank (GB) and First Trust Bank in Northern Ireland), and Poland (as
BZ-WBK). It also owns a 22.5% stake in M&T Bank in the United States.
Name
Allied Irish Banks is usually referred to, both inside and outside the
company, as simply AIB and often incorrectly as "Allied Irish
Bank". In Northern Ireland however, the bank is known as First Trust
Bank, while in Great Britain, it is called "Allied Irish Bank
(GB)" - the only part of the operation where the full name, in the
singular, is still in day-to-day use.
Initially, the bank operated under the names of its former constituent
companies, alongside a new AIB logo, a circle divided in three with an
"A" at the centre. From 1970, these were replaced by
"Allied Irish Banks". In 1990, AIB introduced a new logo (prompted,
it was said in some quarters, by the remarkable similarity between its
previous logo and that of Mercedes-Benz.). Since then, the bank has
preferred to be referred to as simply "AIB", though "Allied
Irish Banks plc" remains its legal name.
History
Allied Irish Banks was formed in 1966 out of the merger of three Irish
banks: Provincial Bank, Royal Bank of Ireland, and Munster & Leinster
Bank. The banks saw an alliance as the best way to overcome the fragmented
nature of the Irish banking industry. Ireland in the mid-1960s was
changing fast and the merger strengthened the banks position in the
emerging global business era. In 1966, AIB's aggregate assets were
323.8 million as at 31 December 2005, the AIB Group had assets of
133 billion.
Early history
1825 Provincial Bank commenced operations, pioneering joint stock branch
banking in Ireland. It also established a branch in London.
1836 Royal Bank of Ireland (RBI) commenced operations. It was known for
its mercantile links.
1837 RBI merged in Shaws Bank.
1864 The Munster Bank is established.
1867 The Munster Bank purchased some of the branches of the unsuccessful
Union Bank of Ireland.
1870 The Munster Bank acquired the long established private bank David La
Touche & Son.
1885 The Munster Bank failed due to mismanagement and fraud and is
liquidated. However, Munster and Leinster Bank commences operations.
Eventually it will become the largest of the three banks with the most
extensive branch network.
1923 The Royal Bank of Ireland bought the Free State business of the
Belfast Banking Company.
Recent history
Over the decades, AIB has become an increasingly international
organisation. The creation of a branch network in Britain in the 1970s was
followed by an investment in the USA in the 1980s.
In 1983, AIB first invested in First Maryland Bancorp in the USA. In July
1997, AIB acquired Dauphin Deposit Corporation which it merged with First
Maryland Bancorp to form Allfirst in 1999.
In July 1991, the merger of AIB Group's interests in Northern Ireland with
those of TSB Northern Ireland created First Trust Bank.
AIB invested in Poland by gradually building a majority shareholding of
60.1% in Wielkopolski Bank Kredytowy (WBK) between 1995 and 1996. In June
1999, AIB reached an agreement with the Polish State Treasury to acquire
an 80% shareholding in Bank Zachodni SA. In June 2001, AIB completed a
merger of the two banks to create Bank Zachodni WBK. The combined bank is
a leading Polish bank in terms of asset size and key product market shares.
Between 1999 and 2001 AIB had an interest in Keppel TatLee Bank in
Singapore, but withdrew after Oversea Chinese Banking Corporation (OCBC)
acquired Keppel TatLee.
In April 2003, AIB completed a deal merging AIBs US subsidiary,
Allfirst, with M&T Bank Corporation. AIB now has a 22.5% stake in
M&T, which is headquartered in Buffalo, New York. AIB maintains
representative offices in the United States in Chicago, Philadelphia,
Atlanta, Los Angeles, and White Plains.
Controversy
The Can of Worms at ICI was the headline in Business & Finance
magazine on November 8, 1984 Insurance Corporation of Ireland (ICI) was a
wholly owned subsidiary of AIB when it collapsed in 1985 with losses of
over ฃ200 million that had arisen due to severe under-reserving and poor
underwriting performance, particularly in its London office. Reinsurance
business accounted for nearly half the company's income. ICI management
were at fault for failing to monitor closely the activities of its London
office, to find out what business was being written, whether adequate
reserves were being maintained and to monitor the true profitability of
the business. When it was discovered in November 1984 that ICI was
operating below the statutory reserve ratio a request for further capital
was made to AIB - ICI had returned a profit of ฃ80 million the previous
year.
This collapse occurred at a time of deep economic recession in Ireland.
The level of Government debt at that time was 116% of GDP. But the Irish
taxpayer bailed ICI out of its difficulties. The Irish Government did so
to ensure a continuation of the insurance business and to protect
policyholders. AIB claimed that it could not resolve the problems of ICI
without putting its core banking business in jeopardy. The investment of
ฃ85 million by AIB in ICI was written off and the cost to the Irish
taxpayer was ฃ400 million.
John Rusnak
It was Ireland's biggest banking scandal and the fourth-biggest banking
scandal in the world when it was exposed on February 4, 2002 during
Michael Buckley's tenure as group chief executive. John Rusnak, a 'lone
wolf' currency trader at Allfirst, a regional Maryland based bank owned by
AIB racked up losses of almost $700,000,000.
Tax evasion
The 90 million settlement that AIB reached with the revenue in respect
of Deposit Interest Retention Tax evasion in 2000 was the highest tax
settlement in the history of the State. The banks internal auditor, Tony
Spollen, highlighted a potential DIRT liability of ฃ100 million for the
period 1986 - 1991, but Gerry Scanlon, the group chief executive at that
time rubbished this estimate, describing it as "infantile". The
Oireachtas Sub-Committee Inquiry into DIRT hearing on September 27, 1999
concluded that it was "extraordinary" when Scanlon told the
Inquiry that he was unaware of the scale of the DIRT issue.
Four former senior executives were fined by the Revenue Commissioners on
March 28, 2006 for a tax settlement arising plus penalties from their
interest, while employed by AIB, arising from investments they maintained
in Faldor Limited. Faldor was an investment company set up in the British
Virgin Islands to manage funds on behalf of these senior AIB executives as
well as people connected to them between 1989 and 1996. The funds in the
company were then managed on their behalf by Allied Irish Banks Investment
Managers at a time when Mr Gerry Scanlan was chief executive of the bank.
Faldor subsequently benefited from inappropriate deal allocations, and
artificial deals that amounted to 48,000 out of AIB Investment
Managers' own funds.
Those cited include:
Gerry Scanlon, chief executive AIB Group when this arrangement was in
place, of Glenageary, County Dublin from whom tax and interest penalties
amounting to 206,010 was secured.
Diarmuid Moore, former director of corporate strategy at AIB, Malahide,
County Dublin from whom tax and penalties of 51,044 was secured
Roy Douglas, chairman, Irish Life & Permanent Plc and formerly of AIB,
Howth, County Dublin from whom tax and penalties of 53,245.43 was
secured
Patrick Dowling, former deputy chief executive, late of Delgany, County
Wicklow from whose estate tax and penalties of 13,000 was secured
Excess FX charging issues
In 2004 it was revealed that the bank had been overcharging on foreign
exchange transactions for up to ten years. The overcharging affected 3
million purchase transactions of foreign drafts. Initially the projected
amount of overcharging was 14m. However the bank has set aside 50m
to cover the cost of refunds.
The Irish Financial Services Regulatory Authority published a Report into
an investigation of AIB Group concerning overcharging its own customers
for FX transactions and deal allocation and other associated issues. This
revealed excess charges of 34.2 million, including interest. AIB failed
to comply with the law for a period of almost 8 years and that certain
staff and management were fully aware of this at the time.
AIB announced on September 27, 2006 that the final outlay in respect of
restitution and interest arising from overcharging amounted to 65
million and that this included a donation of 20.6 million to an
unspecified charity on behalf of customers it was unable to identify. No
employee or officer of the banks is to be disciplined.
Other charging issues
Apart from FX, the Financial Regulator discovered, following an anonymous
tip-off, that AIB overcharged customers 8.6 million. The account
categories involved were:
Surplus Builder, variable rate mortgage product with savings; 4,200
customers impacted; financial impact 3.6 million
Student and Graduate facilities: 34,000 customers impacted; financial
impact 1.4 million
Overdraft limit amendments, fees incorrectly applies: 24,000 customers
impacted; financial impact 600,000
Financial & Leasing, early termination of consumer leases: 950
customers impacted; financial impact 230,000
Personal Savings Plans Products, loan discounts: 2,436 customers impacted;
financial impact 196,000
Overdraft interest in Foreign Currency Hold Accounts, incorrect reference
rate applied: 200 customers impacted
Merchant Terminal Rental Charges: 155 customers impacted
PPI Mortgage Top Ups: 573 customers impacted
Deal Allocation and associated issues
Between 1989 and 1996, funds of certain senior executives of AIB at the
time and/or related parties were managed by Allied Irish Investment
Managers Limited (now AIBIM) through a British Virgin Islands investment
company, Faldor Ltd.
Faldor benefited from inappropriate favourable deal allocations, by way of
artificial deals, amounting to approximately 48,000 out of AIBIM's own
funds. We have no evidence to indicate that the beneficiaries of Faldor
influenced or were aware of these allocations. AIBIM's own trading funds
were also used to boost, through the unacceptable practice of artificial
deals, the performance of certain clients' portfolios, other than those of
Faldor.
Further inappropriate deal allocation practices relating to eight
transactions in the period 1991 to 1993 were identified which adversely
affected the performance of two specialist unit trusts, amounting to a
total of 174,000, to the advantage of other clients. These were
unrelated to Faldor. While the Internal Audit function of AIB did identify
some inappropriate dealing practices in 1991 and 1993, there is no
evidence that the Faldor account was identified in these audits.
No disciplinary action was taken against individuals involved in these
practices at the time and compensation was not paid to the unit trusts
affected. When this episode of law breaking was exposed a disciplinary
process was put in place within AIB and compensation has been paid to
those who were disadvantaged.
Tom Mulcahy, group chief executive of AIB from 1994 to June 2001, resigned
his chairmanship of the board of Aer Lingus on May 28, 2004 following the
disclosure of this matter.
Charles Haughey and the Moriarty Tribunal
In 2006, the Moriarty Tribunal published its report into the financial
affairs of former Taoiseach Charles Haughey. Mr. Justice Moriarty found
that AIB had settled a million-pound overdraft with Haughey on favourable
terms for the politician shortly after he became Taoiseach in 1979; the
tribunal found that the leniency shown by the bank in this case amounted
to a benefit from the bank to Haughey. According to the report, the bank
showed an extraordinary degree of deference to Mr. Haughey despite his
financial excesses.
Current developments
The bank is currently involved in several high profile deals. Their
Capital Markets division is advising the Irish government on the
privatisation of the country's national airline Aer Lingus. They are also
providing the finance for the Doyle family's bid to take control of the
Jury's group of hotels. The bank is said to be considering selling its
stake in M&T.
The bank is currently involved in a number of "sale and
leaseback" deals with its properties. In 2005 it sold an extension to
its Ballsbridge Bankcentre headquarters for 367m. There also plans to
sell the remainder of the building for 275m, as well as the bank's
branch network for 421m.
In February 2006 the bank announced record pre-tax profits of 1.7
billion, a 23% rise on the previous year and the largest ever for an Irish
bank. The majority of the increase came from its Republic of Ireland
operations, but with its Capital Markets, Northern Ireland, Great Britain,
Poland and American divisions also making significant contributions. This
led to criticism from some newspapers, as their profit per customer is up
to three times that of other European banks. Irish Labour Party leader Pat
Rabbitte called for more competition in the Irish banking sector. In
August 2006 the bank again announced record profits for the first half of
2006, making 1.2 billion before tax, equating to 1.2 million per
hour, a figure equivalent to the earnings per hour of 156,862 people on
Ireland's minimum wage.
AIB were the main sponsor's of the 2006 Ryder Cup, which was held at The K
Club in Straffan, County Kildare. In May 2006 the bank launched a 5
million advertising campaign for the tournament.
