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bank failure

Bank of Ireland

The Bank of Ireland (Banc na hÉireann) , officially known as the Governor and Company of the Bank of Ireland is a commercial bank operation in Ireland, which is one of the 'Big Four' in both parts of the island.

Historically the premier banking organisation in Ireland, today Bank of Ireland is number two to Allied Irish Banks. The Bank occupies a unique position in Irish banking history. At the core of the modern-day group is the old Bank of Ireland, the ancient institution established by Royal Charter in 1783.

The Bank of Ireland should not be confused with the Central Bank of Ireland, as it is a commercial bank and not the Irish central bank (however, nor is the Central Bank of Ireland for most monetary policies, with the decision of most resting with the ECB) .

History

Bank of Ireland is the oldest bank in Ireland. The bank was formed by an Act of the Irish Parliament in 1782 to support public and commercial finances in Ireland. From the beginning, it was connected closely with the leading banking family in Dublin, the Huguenot la Touche family. A member of that family - David la Touche - was the first Governor.

Role as government banker

The Bank of Ireland is not, and was never, the Irish central bank. However, as well as being a commercial bank - a deposit-taker and a credit institution - it performed many central bank functions, much like the earlier-established Bank of Scotland and Bank of England. Bank of Ireland operated the Exchequer Account and during the nineteenth century acted as something of a banker of last resort. Even the titles of the chairman of the board of directors (the Governor) and the title of the board itself (the Court of Directors) suggest a central bank status.

From the foundation of the Irish Free State in 1922 until 31 December 1971, the Bank of Ireland was the banker of the Irish Government, but was not the central bank. This function was fulfilled by the Currency Commission, which was later superseded by the Central Bank of Ireland in 1943.

In 1958, the Bank took over the Hibernian Bank Limited and in 1965 the National Bank of Ireland Limited, and rebranded them as Bank of Ireland. In 1956 the Bank was authorised to operate the Prize Bond scheme, on behalf of the government, and continued to do so until 1989.

On 20 March 2005, Bank of Ireland announced 2,000 job cuts in a move to reduce its cost base, this coming despite profits in excess of €1 billion for that financial year.

Headquarters

The headquarters of the bank until the 1970s was the impressive Bank of Ireland building on College Green, Dublin. This building was originally designed by Edward Lovett Pearce in 1729 to host the Irish Parliament, and it was the world's first purpose-built two-chamber parliament building.

Following the Act of Union 1800, it was purchased by the Bank of Ireland in 1803. Although the bank's modern headquarters is now a modern building in Baggot Street, Dublin 2. As Frank McDonald notes in his book "Destruction of Dublin", when these headquarters were built, it caused the world price of copper to rise - such was the usage in the building. Built amidst a blazing row where Bank of Ireland was responsible for a weekend demolition of some Georgian houses, the bank as stands today is now regarded as an excellent example of the Miesien idiom, and among the purest contemporary corporate architectural forms built in Dublin. The bank was designed primarily by Ronnie Tallon, of Scott Tallon Walker Architects.

The old Bank of Ireland building continues today as a working branch of the bank. Today, visitors can still view the impressive Irish House of Lords chamber within the old headquarters building. The modern Irish Parliament is now housed in Leinster House in Dublin.

Recent history

  • 1995
  • 1996
    • 16 April: Bank of Ireland buys the Bristol and West building society for €882m, which keeps its own brand.
  • 1999
    • 22 May: It is announced Alliance & Leicester is in merger talks with the Bank of Ireland.
    • 17 June: It is announced that merger talks with Alliance & Leicester have been called off.
  • 2000
    • 31 July: It is announced that Bank of Ireland is to acquire Chase de Vere.
  • 2002
    • 17 May: Bank of Ireland acquires Iridian, the US investment manager, which doubles the size of its asset management business.
  • 2005
    • 21 September: Bank of Ireland completes the sale of the Bristol and West branch and Direct Savings (Contact Centre) to Britannia Building Society. This is the first re - mutualisation of a former Mutual company. Britannia promises that there will be no compulsory redundancies.
  • 2008
    • 22 September: Moody's Investors Service has changed its outlook on Bank of Ireland from stable to negative. Moody's pinpointed concerns over weakening asset quality and the impact of a more challenging economic environment on profitability at Bank of Ireland.

Banking services

Republic of Ireland

The Group provides a broad range of financial services in Ireland to the personal, commercial, industrial and agricultural sectors. These include checking and deposit services, overdrafts, term loans, mortgages, international asset financing, leasing, instalment credit, debt financing, foreign exchange facilities, interest and exchange rate hedging instruments, executor, trustee, stockbroking, life assurance and investment fund management, fund administration and custodial services and financial advisory services, including mergers and acquisitions and underwriting. With the acquisition of New Ireland Assurance in December 1997 the Group has access to additional distribution channels and products for its life assurance and pensions business. The group provides services in multiple currencies, but primarily in the Euro.

The Bank operates telephone and online banking services for its customers under the name 365 phone and 365 online respectively. The telephone banking service was launched in 1996 and was formerly known as Banking 365. The online banking service followed in 1997 and was initially known as Banking 365 online. It also offers the Laser payment system.

The Group markets and sells its products on a domestic basis through the most extensive nationwide distribution network in Ireland and its direct telephone banking service. The Group has built a market share among credit institutions in Ireland of over 20% of resources and loans outstanding.

International Operations

The bank is headquartered in Dublin, and has operations throughout the Republic of Ireland. It also operates in the United Kingdom, particularly Northern Ireland, where it prints its own banknotes in Pounds Sterling (see section on banknotes below). In Great Britain, the bank expanded largely through the takeover of the Bristol and West Building Society in 1996. On 21 September 2005 the Bristol and West retail and contact centre network was sold to Britannia Building Society. Bank of Ireland has still retained the right to use the Bristol & West name to sell Mortgages. Bank of Ireland also provides financial services for the British Post Office throughout the UK.

Operations in the rest of the world are primarily undertaken by Bank of Ireland Asset Management who provide fund management services to institutions and pension funds in Germany, Australia, Canada, Japan and the United States.

Banknotes

Although the Bank of Ireland is not a central bank, it does have Sterling note-issuing rights in the United Kingdom. While Bank of Ireland is headquartered in Dublin, in the Republic of Ireland, it has operations in Northern Ireland, where it retains the legal right (dating from before the partition of Ireland) to print its own banknotes. These are pound sterling notes and equal in value to Bank of England notes, and should not be confused with banknotes of the former Irish pound.

All Bank of Ireland notes, until April 2008, featured the Queen's University of Belfast on the obverse. Since this date, they have featured the Old Bushmills Distillery .

The principal difference between the denominations is their colour and size:

  • 5 pound note, blue
  • 10 pound note, pink
  • 20 pound note, green
  • 50 pound note, blue-green

The bank is due to issue new 5, 10 and 20 pound notes in May 2008 featuring an artist's rendition of the Old Bushmills Distillery on the obverse of the note.

The Bank of Ireland does not issue banknotes in the Republic of Ireland. Section 60 of the Currency Act 1927 removed the right of Irish banks to issue banknotes, however "_Consolidated_banknotes", of a common design issued by all "Shareholder Banks" under the Act, were issued between 1929 and 1953. Theses notes were not legal tender.

Controversies

Michael Soden

Michael Soden abruptly quit as group chief executive on 29 May 2004 when it was discovered that adult material that contravened company policy was found on his Bank PC. Soden issued a personal statement explaining that the high standards of integrity and behaviour in an environment of accountability, transparency and openness, which he espoused, would cause embarrassment to the Bank.

DIRT Controversy

An IR£30.5 million tax arrears liability was settled by Bank of Ireland in July 2000. The Bank told the Oireachtas Public Accounts Committee Inquiry that its liability was in the region of £1.5 million. The settlement figure was 'dictated' by the Revenue Commissioners following an audit by the Commissioners. It was in Bank of Ireland that some of the most celebrated of the "celebrated cases" of non-compliance and bogus non-resident accounts have to date been discovered and disclosed. Thurles, Boyle, Roscrea (1990), Miltown Malbay (1991), Dundalk (1989/90), Killester (1992), Tullamore (1993), Mullingar (1996), Castlecomer, Clonmel, Ballybricken, Ballinasloe, Skibbereen (1988), Dungarvan and, disclosed to the Oireachtas Public Accounts Sub-Committee, Ballaghaderren (1998) and Ballygar (1999).

The Public Accounts Sub-Committee Inquiry concluded that "the most senior executives in the Bank of Ireland did seek to set an ethical tone for the bank and unsuccessfully sought Revenue Commissioners assistance to promote an industry-wide Code of Practice.

Stolen laptops

In April 2008 it was announced that four laptops with data pertaining to 10,000 customers were stolen between June and October 2007. This customer information included names, addresses, bank details, medical and pension details.

The thefts were initially reported to the Garda Síochána, however the Banks senior management did not know about the problem until February 2008 after an internal audit uncovered the theft and the Bank did not advise the Data Protection Commissioner and the Financial Regulator until mid-April 2008. It also came to light that none of the laptops used encryption to protect the sensitive data.

The Bank has since released a press release detailing the seven branches affected and its initial response, later in the month the Bank confirmed that 31,500 customer records were effected as well as an increased number of branches.

Sports sponsorship

Bank of Ireland is a major sponsor of rugby union in Ireland, being the shirt sponsor of Ulster Rugby and Leinster Rugby - two of the three biggest teams - as well as Connacht Rugby. The Irish Cricket team also enjoys sponsorship from the bank.

2008 share price collapse

The international credit crunch presented the first challenge to Bank of Ireland - namely a dramatic fall-off in liquidity. As Bank of Ireland depends to a significant extent on the international financial markets for liquidity due to an insufficient deposit base, this has impacted the bank severely. The Irish government stepped in with a guarantee which effectively granted a triple A rating on Bank of Ireland debt, thus freeing up its access to finance. This step came, of course, at a cost to the Irish taxpayer, in terms of higher national debt repayments due to a greater risk premium that the markets have now placed on Ireland as a whole due to a perceived increase in systematic risk. Furthermore, any bank failure will present major costs to the Irish taxpayer. The second and more serious problem, unacknowledged by bank management, the financial regulator and the Irish government, is solvency. The question concerning solvency has arisen due to domestic problems in the crashing Irish property market. Bank of Ireland, like most Irish financial institutions, has substantial exposure to property developers in their loan portfolio. These property developers are currently suffering from gross over-supply of property, much still unsold, while demand has evaporated. They have also speculated billions of euros in land parcels such as agricultural land on the outskirts of cities, which is already valued several multiples above the value of equivalent land in other European countries.

Irish banks correctly identify a systematic risk of triggering an even more severe financial crisis in Ireland if they were to call in the loans as they fall due. The loans are subject to terms and conditions, referred to as "covenants". These covenants are being waived in fear of provoking the (inevitable) bankruptcy of many property developers. In turn, Bank of Ireland's assets are not being written down correspondingly on their balance sheets. Their accounts for the last financial year only states a bad debt provision of only €46 million which is a reduction of 8% from the previous year. This does not appear to be consistent with the real negative changes taking place in property market fundamentals. In late 2006 the Chief Economist of Bank of Ireland Dr Dan McLoughlin claimed that house prices would increase another 12% by the end of 2006 to reach an average national house price of €395,000 (over half a million dollars on average). In retrospect, the claim, made at the height of the Irish property bubble, was completely inaccurate, however, Bank of Ireland continued to expose itself to the property market on this basis.

In contrast, on the 7th of October 2008, Danske Bank wrote off a substantial sum largely due to property-related losses incurred by its Irish subsidiary - National Irish Bank. No such write downs have been done by the domestically-owned Irish banks. Rumours circulated that Spain's Grupo Santander had expressed an interest in aquiring Bank of Ireland but the acquisition was not undertaken when due diligence had been undertaken. This was subsequently denied by Bank of Ireland.

References

See also

External links

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