AIB and BoI should put up or shut up

THE nation’s two biggest financial institutions — AIB and Bank of Ireland — won’t be in Irish ownership in five years unless the two boards change their tune.

They are sitting ducks for a takeover bid by cash-rich European or US banks.

The duopoly generate vast amounts of cash and top of their priority lists seems to be buying back their own underperforming shares.

Hundreds of millions are being flittered away to make management look good. It's like a cat chasing its tail; a lot of activity but no-one is getting anywhere.

The net effect is to push up earnings per share (EPS) allowing executives to claim they have improved the EPS indicator. This is lazy business, improving EPS by reducing the number of shares; it's a bit like a theatre manager claiming a better percentage of seat sales after he has removed half the seats from the auditorium.

They are fooling no-one and a clean out of the upper echelons of BoI and AIB management is overdue.

However, the cosy quangos the boards of AIB and Bank of Ireland must be cleaned out first.

If major changes are not executed then let foreign- owned, predator banks come in and eat up AIB and Bank of Ireland. The net effect for customers and investors should be positive. The bad news is that there will inevitably be job losses in the hundreds, if not thousands, among the ranks of common bank workers.

However, the bosses will prosper with fat cash pay-offs and sweet share deals that will see them comfortably well-off well into dotage. It is the boards who have allowed the lazy 'we have no idea what to do with all this money' approach to management take over.

This is where changes have to be made.

The board of governors at Bank of Ireland did appear to do something when they appointed Mike Soden chief executive.

Initially he talked the talk but failed to make a significant acquisition. Then, he came up with the ridiculous idea of a merger with AIB. Everyone, but Soden it appears, knew this would not have a hope of getting regulatory approval.

It's time to wave bye-bye to Mr Soden, if it did nothing else it would give the shares a fillip. So, perhaps the governors should not get the chop, but like AIB they need to be pushed. There are three inter-linked groups who should start asking for change.

The Irish Association of Investment Managers (IAIM) must use its largely- untapped clout to force change. However, as many of the investment managers are employed by one of the banks, the IAIM is sure to endeavour to mute criticism.

Ordinary shareholders will have to cause a rumpus at the annual general meetings to force real accountability and change.

But most importantly, the 30,000 or so staff of the two banks, who in the main are also shareholders, should be making a case for change as their careers and investments depend on the banks' long-term success.

Management may not take on board what they have to say but fellow shareholders surely will, and this is where they could have the biggest impact.

AIB and BoI did look to the west and bought up operations in the US but ran out of the continent with their tails between their legs. AIB looked east to Poland but that's not working out well either.

Meanwhile, British rivals like Royal Bank of Scotland Group and HSBC Holdings Plc have managed to build profitable operations in the US by hiring Americans to lead their operations.

These Brit banks are flush with cash and with a weak US dollar, are preparing to go west again. Meanwhile our lads are afraid to get into the game, any game.

BoI and AIB share a lack of vision ... the only visibility on forward earnings is more of the same. There are no prospects to boost the share price other than the possibility of a takeover.

Imagine the squealing when someone has a go at buying out AIB or BoI.

Red herring arguments will be trotted out by the dozen. Not in the national interest ... etc.

It's time for the two main Irish banks to put up or shut up. Buy or be bought.