AIB reputation likely to suffer

AIB’S latest scandal may not cost the bank much in financial terms, but its reputation may be damaged for some time, a leading analyst said yesterday.

Stuart Draper, head of research at Dolmen Securities, said the bank will take a long time to recover its reputation in the minds of Irish and international investors following a month of revelation about overcharging of customers and now of possible tax evasion by former senior executives. AIB said on Thursday that it had uncovered evidence that five former senior executives were involved with an offshore company and using this to get “unacceptable dealing” practices with the bank’s fund arm, AIB Investment Managers (AIBIM).

The bank will have to make compensation payments to clients who were disadvantaged because of these deals and make an €800,000 tax settlement.

Mr Draper said while the sum involved was quite small, the real risk was to the bank’s reputation. “If you look at the tax settlement and competition for customers, it is less than one tenth of 2004 profits forecasts, so we are not talking about earnings issues, but management and regulatory credibility is the real issue. The risks on both fronts are quite high following the latest revelation.”

Ireland’s reputation as a base for financial services could be tarnished because of the current debacle. “Ireland has had a reasonably attractive position in the past and had a lot going for it and these scandals are very damaging to our credibility with international investors. People looking to invest in Ireland and companies giving fund to banks to manage may suffer,” Mr Draper added.

Finance Minister Charlie McCreevy said he was disappointed with the latest news to emerge from the bank.

“It is very disappointing for Ireland that higher executives in Ireland’s leading institution have been involved in somewhat dubious practices,” he told RTÉ News yesterday.

Mr McCreevy said that he hoped the financial services regulator would ensure that any practices that had gone on would be stamped out.

He said the country needed to have confidence in the banking system and that he wanted AIB’s management to ensure that the type of culture that led to the current scandals no longer exists.

The head of the Irish Bank Officials Association, Larry Broderick, said he is seeking a meeting with AIB’s chairman Dermot Gleeson and chief executive Michael Buckley to discuss the crisis and to ensure that junior staff will not suffer from the current woes.

Mr Broderick said he was shocked by what had emerged from AIB, and was seeking a review of the industry in Ireland.