Dáil Éireann - Volume 546 - 13 December, 2001

Disposal of ACC Shares: Motion.

Minister of State at the Department of Finance (Mr. Cullen): I move:

[1069] That Dáil Éireann approves the disposal of the shares of the Minister for Finance in ACC Bank plc to Rabobank Nederland, pursuant to section 5(2) of the ACC Bank Act, 2001.

At the end of January this year the Minister for Finance mandated the board of ACC Bank plc to prepare the bank for sale and to pursue all options for a change of ownership by the end of this year. As part of this exercise, the board launched a sale process last February. This process has culminated in a deal under which the Exchequer will receive 140.4 million from Rabobank in respect of the 85.1% of shares that will be held by the Minister. The Exchequer will also receive a further 12.2 million from the ESOT in respect of the 9.9% stake in ACC that it is purchasing bringing total receipts to the Exchequer to almost 153 million.

This sale process has been managed by the board of ACC Bank, which recommended to the Minister for Finance on 18 October last that the bank should enter into negotiations with Rabobank on the basis of its firm bid valuing the bank at 165 million. The Minister accepted this recommendation and contract negotiations were concluded on 4 December and the board recommended the terms of the contract to the Minister. An information memorandum containing the main terms of the deal has been circulated to all Members.

Under section 5 (2) of the ACC Bank Act, 2001, the Minister is required to obtain a motion of approval from the House prior to disposing of any shares in ACC Bank other than to staff in connection with an employee share ownership trust. Before outlining the terms of the sale, I pay tribute to the role that ACC Bank, originally established as the Agricultural Credit Corporation, played in supporting the development of Irish agriculture since 1927. Until 1988 the Agricultural Credit Corporation was confined by legislation to providing credit for the agricultural industry. The Agricultural Credit Act, 1988, allowed the corporation to deploy up to 25% of its risk assets outside agriculture and in 1992 the legislation was amended to allow ACC Bank, as it was renamed, to become a fully-fledged bank. The bank has grown considerably over the years. It had a slow start and total lending between 1928 and 1988 amounted to only £7.5 million. The outstanding lending on the balance sheet now amounts to over 2.3 billion or £1.8 billion. It should also be pointed out that the bank is still closely involved in the agricultural sector even though it has expanded its portfolio of products and services over the last ten years. Approximately 20% of its income is derived from lending to the agricultural sector.

As Deputies are aware, the Government made a decision in principle in mid-1998 in favour of disposing of the State's interest in ACC Bank. Following this decision the Minister subsequently accepted a proposal from the board of ACC Bank and the trustees of TSB Bank, with the backing of the staff of both banks, that they should be [1070] merged and floated. After a great deal of work by all the parties involved, the Minister reluctantly accepted the recommendation of the board of ACC Bank and the trustees of TSB Bank in January 2000 that the project be abandoned. The trustees of TSB Bank subsequently carried out a sale process in 2000 which culminated in the successful sale of the bank to Irish Life and Permanent plc. In relation to ACC Bank, the Minister asked the board to review all options for the future and reiterated his view that the current status quo was not an option. As I have already said, the Minister mandated the board in January this year to pursue a change in ownership by the end of this year. This process has concluded with the successful sale of the bank to Rabobank Nederland.

On 4 December, the board recommended that the Minister accept an offer for ACC Bank which values the bank at 165 million. The Minister's corporate advisers, Merrion Corporate Finance, examined the offer and the board's recommendation and have advised the Minister that the offer represents fair value for the bank and should be accepted. Merrion Corporate Finance and A & L Goodbody, the Minister's legal advisers, have also examined the sale process as outlined to them by the board of ACC Bank and its advisers, NCB Corporate Finance and Matheson Ormsby Prentice, and concluded that the sale process has been carried out in a fair, open and transparent manner.

On that basis, the Minister accepted the offer from Rabobank subject to Dáil Éireann passing this motion of approval for the disposal of his shares. I will now outline the other main terms of the deal, which are set out in further detail in the information memorandum distributed to Deputies last Tuesday. Rabobank sought an indemnity in respect of any litigation against ACC, such as that arising from ACC's involvement in the syndicated loan for the Four Seasons Hotel and an indemnity has been given in certain strictly defined circumstances. I cannot disclose the nature and scope of this indemnity for reasons of legal and commercial confidentiality. Any such disclosure at this stage could affect the conduct of litigation that falls within the scope of the indemnity and be potentially damaging to the interests of the Exchequer and, by extension, taxpayers. The provision of this indemnity is an appropriate solution to issues which would otherwise have been a major obstacle to the sale of the bank. Taking into account all the relevant factors, the Minister has made the commercial judgment that the provision of an indemnity is appropriate.

Rabobank has stated that it is their intention not to create compulsory redundancies in ACC Bank as a result of this transaction. In connection with the sale process, Rabobank has also given a specific commitment to staff representatives that there will be no compulsory redundancies in the 18 months following completion of the sale.

Rabobank's financial strength and standing is a significantly positive aspect of the offer. Given the structure of funding of ACC Bank's deposits [1071] and borrowings, it is important that any purchaser should be of sufficient financial standing and strength to secure the current and future funding of the bank. I am glad that Rabobank has such a standing.

Deputies will be aware that over the years various State guarantees have been given in relation to deposits placed with ACC Bank. For some time there has been a policy in place of limiting and reducing the level of guarantees provided. The level of guarantees will be further reduced as facilities mature and as alternative facilities are made available. Meanwhile Rabobank is providing a counter-indemnity in respect of the outstanding funds that are State guaranteed, currently just under 600 million. Given the continuing, though reducing, guarantee which the State will be providing on some of ACC Bank's funding pending maturity, it is important that the party giving the State a counter-indemnity covering such guarantees is of appropriate quality and strength. Again, Rabobank provides such financial strengths.

In line with the sale of other semi-State companies, an employee share ownership trust will be established for the benefit of staff. The terms of the ESOT were negotiated between the management and staff representatives of ACC and subsequently overwhelmingly approved by the staff in a ballot. In return for entering into the transformation agreement, the Minister will transfer 5% of the shares in ACC to the ESOT. The transformation agreement provides that the staff will co-operate with the change of ownership process. Included in the arrangements to which the staff are committed under this deal is the voluntary separation scheme, which has already commenced. The board's intention under this scheme is that staff numbers can, by agreement, be reduced by up to 200 from the staff levels at the start of 2000. This is a significant element in the transformation undertaken by the bank and its staff.

Another element in the ESOT will be the purchase of 9.9% of the shares in ACC for 12.2 million funded through borrowings and the bank buying out part of the staff's bonus scheme. The total ESOT shareholding is to be sold to Rabobank in return for a Rabobank bond. The bond will be held by the ESOT in the way that shares would otherwise have been held. This is because the co-operative ownership structure of Rabobank does not allow for the ESOT to hold shares. The Minister will be proposing the necessary legislative amendments to the ESOP legislation in the Finance Bill to allow the ACC Bank ESOT to hold and distribute the Rabobank bond from within the ESOT. Based on the estimated staff numbers, the ESOT will be worth on average about 50,000 to each staff member. The ESOT's borrowings will be repaid partly through a 5% profit sharing arrangement subject to a cumulative limit of 6.35 million and partly from the interest income on the bond.

[1072] Regarding the strategy the purchaser will follow with ACC Bank, Rabobank Nederland is, as I have already said, a co-operative entity that grew from a rural base in the Netherlands. It is the only non-state guaranteed bank with the highest credit ratings from all the major rating agencies. It is a very large organisation, with assets of more than 378 billion and more than 55,000 employees in 36 countries. In the Netherlands, it controls 40% of the savings market, 85% of the agricultural credit market, 25% of retail mortgages and 40% of lending to small and medium sized enterprises. It operates in Ireland through three subsidiaries in the IFSC.

Rabobank's acquisition of ACC is part of its strategy of developing rural-based banking in developed countries with strong agricultural sectors, a strategy which has been pursued in Australia and New Zealand. Although Rabobank intends to operate ACC Bank on a stand-alone basis, it can be expected that it will provide support, expertise, new products and technology to its new subsidiary, as appropriate. It is hard to think of a more suitable parent company for ACC Bank. Many Deputies and Senators recognised the need for ACC to move on during the debate on the ACC Bank Act, 2001. Some were concerned, however, that the character of the bank and its rural branch network would change as a result of its sale. I am pleased ACC is to be bought by a bank with rural roots and which recognises and will develop the strengths of ACC. The bank will also pursue its current strategy of providing banking services to the SME sector and to personal customers.

The offer is favourable and fair. The purchase of ACC by Rabobank Nederland has advantages for the banks and for staff and customers. I am certain it will increase competition in the Irish banking sector. I thank the board of ACC, under the chairmanship of Padraic O'Connor, and the employees who have contributed to transformation of the bank and the successful completion of the sale process. I am pleased the interests of ACC's staff, the new owners and the State, as the former shareholder, coincide in the passage of this company into the private sector. The sale of ACC will bring the State's involvement as an owner in the banking industry to an end. The sale of ICC Bank to Bank of Scotland has improved competition in the SME lending market, while the sale of TSB Bank to Irish Life and Permanent has added to competitiveness in the retail financial market.

As I have outlined, the sale of ACC Bank to Rabobank is an improvement on the current position. The manner in which the State's interest in banking has been disposed of will enhance competition while providing opportunities for staff and strong support for customers. I do not doubt that in years to come, those who look back on this process will conclude that it was not only wise from the point of view of the banks concerned, but also that it was done in a manner which was [1073] in the best interests of the State and the banking market. I recommend the motion to the House.

Acting Chairman (Mr. Browne, Carlow-Kilkenny): Deputies McGrath and McDowell will have 15 minutes each to comment on this motion.

Mr. McGrath: It is obvious the Chairman is a good mathematician.

Acting Chairman: I used to be.

Mr. Cullen: I tried to facilitate Members by contributing as briefly as possible.

Acting Chairman: The Minister of State saved two minutes.

Mr. McGrath: With the permission of the House, I wish to share my time with Deputies Naughten and Tom Hayes.

The Fine Gael Party warmly welcomes this motion and will not oppose it, but a few matters need to be made clear. ACC Bank, which was established to serve the agricultural sector, has served this country well. It operates a successful network of 42 branches, mainly in provincial towns. Its dedicated and enthusiastic employees worked hard to build up the ACC and to attract a high volume of business. The Minister of State quoted some statistics which make evident the level of ACC's business. The bank's recent problems should not be ascribed to the lower echelons of its staff, but to its management. I hope these difficulties have been put behind the bank and that it can move forward as a result of its purchase by Rabobank Nederland. The selling price of about £132 million represents a tremendous bargain, given that Rabobank is to receive 42 branches, staff with great expertise and a presence throughout the country. It can be argued that the selling price should have been higher, but perhaps the current economic climate means that it is the best price that could be obtained. The transaction is worthwhile.

Across the banking sector, there is a common and conventional price to earnings ratio. When concluding the debate on this motion, I would like the Minister of State to outline to the House the ratio of ACC Bank. How does it compare to the ratio in the banking sector generally?

Acting Chairman: I am afraid the Minister of State will not have the right to reply at the end of the debate on this motion.

Mr. McGrath: I thank the Chair, who is in control of his brief. Perhaps the Minister of State will write to me at a later date.

Acting Chairman: The details may be included in a Christmas card.

[1074] Mr. Cullen: The spirit of Christmas is descending on this House.

Mr. Naughten: It is the spirit of goodwill.

Mr. McGrath: My party welcomes the sale of ACC, especially the fact that there will not be compulsory redundancies in the bank for at least 18 months. I hope this is written in stone and it would be marvellous if, after 18 months, Rabobank decides not to chop and change. I note the purchasers have indicated a willingness to retain the 42 branches of ACC throughout the country and I hope a firm commitment has been made.

The performance of Rabobank Nederland to date is tremendously encouraging. The Minister mentioned in his speech that Rabobank is owned by 385 independent local co-operative banks which, in turn, are owned by local members. The Minister mentioned that the co-operative now operates in 36 countries and has a staff of 55,000 people. It is an enormous company by any standards and particularly by Irish standards. It has assets of 378 billion, which is a huge amount of money, even more than the Acting Chairman has in the bank. Its profit level, however, seems small by banking sector standards, especially given its assets which I have outlined. I know the Minister cannot comment, but I hope he will clarify this matter when he gets the chance.

I welcome the fact that a large organisation, with 9 million customers, is entering the Irish market and I hope it will provide a nationwide banking service. Deputies have often said there is not enough competition in the banking sector and the demise of the local banks in small provincial towns has often been mourned. The bigger Irish banks have chosen to reduce their branch networks, and it is to be hoped Rabobank will fill the void and competitively market its products in rural Ireland.

Mr. Cullen: Rabobank has a track record of working in rural areas.

Mr. McGrath: It has a good track record of looking after agri-business and rural communities.

Mr. Cullen: And SMEs.

Mr. McGrath: Its experience of serving rural communities in Australia, New Zealand and the Netherlands will enable it to develop a strong foothold in rural communities here. In recent times, ACC has encouraged people to open accounts in rural branches. It is interesting to note that, as regards the special savings scheme, ACC Bank offered what neutral analysts suggested was the best package. I understand from ACC Bank staff that the money flowed in and the bank opened a large number of new accounts and attracted new customers as a result of the attractive package it offered on the special savings scheme.

[1075] I welcome the sale of ACC Bank to Rabobank Nederland which is the right kind of institution to operate in Ireland. I look forward to the continued operation of the 42 branches in provincial towns. I note the employee share option scheme involving 14.9% of shares which has been overwhelmingly welcomed and accepted by the staff of ACC Bank. There will be no compulsory redundancies and the network of branches will be maintained. I welcome this sale.

Mr. Naughten: I thank Deputy McGrath for sharing time. I wish to return to the important issue of the indemnity. Deputy McGrath pointed out that ACC Bank is being sold to Rabobank for about £132 million which is a relatively good deal. However, if one takes the indemnity clause into account it is a very good deal for Rabobank because it is exempted from any litigation which may be taken against ACC Bank.

The Minister of State said in his speech that Rabobank sought an indemnity in respect of any litigation against ACC such as that arising from the Four Seasons. Is it usual that any litigation would be covered in the purchase of a bank by another financial institution? The Minister of State's speech seemed to suggest that we are not only talking about the indemnity regarding the Four Seasons, but that there may be other cases of litigation against ACC Bank. If the Minister of State cannot clarify this issue now, will he come back to us at a later stage? The Minister of State also stated that the provision of this indemnity is an appropriate solution to these issues which would otherwise have been a major obstacle to the sale of the bank. I raised this issue about 18 months ago inside and outside the House and pointed out that there would be a major obstacle regarding the sale of the bank because of potential litigation involving the Four Seasons and other deals.

As regards the terms of the agreement, the Minister of State pointed out that there are certain strictly defined circumstances regarding the indemnity. Can he outline these circumstances without jeopardising commercial confidentiality? Is the Four Seasons the only case involved or is there the potential for other cases which the State would have to indemnify?

If ACC Bank loses the case, the liability could be in excess of £10 million. I do not wish to address the issue of the litigation which is before the courts, but I question the security obtained by ACC Bank regarding the Four Seasons loan. The favourable loan conditions, and the fact that ACC Bank was in the unbelievable position of not having first call on the assets, raises serious questions. The Bank of Scotland, which is taking an action against ACC Bank, had an opt-out clause without incurring losses. Everyone except ACC Bank seems to have secured a good deal and put protections in place.

How is it that Marlast Limited, a company registered in the Virgin Islands, rather than ACC [1076] Bank has first call on the Four Seasons assets? No one would obtain a loan from a bank without some protection regarding assets. However, ACC Bank was prepared to provide a loan to Harvard Properties to develop the Four Seasons Hotel without having first call on the assets. A company registered in the Virgin Islands has first call on these assets. Who is Marlast Limited, and who controls it? Surely ACC Bank must have been aware of who controlled this company.

One of the directors of Harvard Properties, the developers of the Four Seasons Hotel, was the former chairman of ACC Bank, Mr. Dan McGing. This raises serious questions regarding the handling of this loan, the reason the bank did not have first call on the assets and whether this case is the only one which may result in a potential liability which the State will have to cover.

Mr. T. Hayes: I thank Deputy McGrath for sharing time. As a result of this deal, ACC Bank will become a large institution with nine million customers. The bank has served the country, particularly farmers, well. Farmers went through difficult times, particularly in the early 1980s, and ACC Bank steered agriculture through that period. At a time when interest rates were high, the bank made provision for, and facilitated, people. We all know of cases in which the bank was very helpful.

The merged bank will have nine million customers. However, when some of the co-ops became bigger they lost sight of many small customers who were loyal to them over the years. Smaller customers who have been loyal to ACC Bank should not be forgotten in such a large operation with nine million customers.

Mr. Cullen: One of the bank's stated objectives is to increase the personal customer base. This is the point being raised by the Deputy.

Mr. T. Hayes: Agriculture has experienced significant changes in the past number of years. The Green Paper on Rural Development included many proposals, such as the expansion of the mushroom industry. ACC Bank was not forthcoming in financing this area. Monaghan Mushrooms expanded its operations into Tipperary where it had many customers. The company approached ACC Bank in this regard but it would not finance any of the projects. That was disappointing as people were willing to become involved in a new project which would create jobs in a community suffering from high unemployment. ACC Bank should have been to the fore in this regard, but it was slow to become involved.

Mr. McDowell: Does Deputy Belton wish to speak on this matter?

Mr. Belton: I require only one minute.

Mr. McDowell: I am happy to accommodate the Deputy at the end of my contribution. Much has been said in this debate and the debate earlier [1077] this year about the history of ACC Bank. When we debated ACC Bank earlier this year I was struck by the loyalty which Deputies on all sides felt existed in rural areas towards it and noted the service which its branches have provided to rural communities over the years. However, there was also recognition that the bank, or at least its management, has not covered itself in glory. Proportionate to its size and the amount of lending in which it engaged, ACC Bank's DIRT liability was probably the highest of the banks which were caught up in that difficulty. The bank has also engaged in some adventurous lending in recent years, which has caused some difficulty. Deputy Naughten's questions are well put and demand a response because it is now clear that if successful litigation were taken in the Four Seasons case, the taxpayer would be the effective loser and the potential maximum exposure would not be insignificant. Even though the bank is now passing into the private sector, it is appropriate that we put these questions on behalf of the taxpayer.

When we debated the issue earlier this year, I was anxious to ensure that we would not have a fire sale. The bank has had a difficult few years and had it been sold earlier this year it would not have been sold at best value. Indeed, it is possible that we would have got a better price if we had waited longer. Efforts have been made by the board, management and staff of the bank during the past year or so to bring about a transformation. Industrial relations are now better then they were and serious efforts have been made by management and the new board to transform the bank. Had we waited longer we might have got a better price than 165 million, which is in the lower range of what might have been an acceptable price.

On the other hand, the parent, Rabobank, is a good one. There was always a likelihood, had the ACC been acquired by an Irish based bank, that it would have tried to engage in substantial rationalisation. It is reassuring to hear that this is not likely to happen and that the branch network is, more or less, guaranteed for the foreseeable future. I also welcome the fact that there will be no compulsory redundancies for the first 18 months at least. The deal is better than would have been the case had the merger of ACC and TSB gone ahead in early 2000.

There has been a 97% level of support for the purchase by Rabobank from the bank staff. The staff will have been influenced by the generous ESOP which has been set up. I have expressed concern about the nature of these ESOPs in the past and I will not detain the House by repeating those concerns.

We might have got more money for the bank if we had waited longer and there is an element of fire sale about this purchase. However, given the bank which is purchasing ACC, the nature of the match and the guarantees that have been given, I am persuaded that we should not oppose this motion.

[1078] Mr. Belton: I welcome the takeover of the ACC Bank. The bank has a long history and tradition in the agricultural sector and its new parent bank has considerable experience in rural banking throughout the world. I also welcome the fact that the staff of the bank and its branch structure are to be retained. There was anxiety among the staff regarding the new structures, particularly as we approach the introduction of the euro on 1 January.

I abhor the way in which the euro changeover is being handled by the Minister for Finance and the Central Bank. Shopkeepers and traders are expected to exchange currencies while doing business at the same time. I hope this does not lead to chaos. Many retailers are in total confusion regarding the manner in which this is being handled. The State and the Central Bank should have set up bureaux de change to distribute the new currency. Traders are expected to exchange currencies during a holiday period at no extra gain. They are being asked to do what the Central Bank and the Government should have done.

The change is to be brought about on the worst possible day of the year. I accept this is the only day it could have been done but a holiday period is not a good time. The matter has not been properly thought out. Fancy advertisements on the television featuring personalities, including the Minister for Finance, are all very well but ordinary shopkeepers are being asked to do this job for no fee. I was told by an official of the Central Bank that shopkeepers will be trading and making profit, but this is not a way to do business. Independent traders are not bankers and should not have been asked to carry the entire burden of the exchange on their shoulders. I disapprove of the way this matter has been handled.

Question put and agreed to.