I move that the Bill be now read a Second Time.
To avoid any misunderstanding, I should say at the outset that, while the purpose of this legislation is to facilitate the transfer to a new Irish company, The National Bank of Ireland Limited, of the Irish business of the National Bank, the legislation will become effective only if the shareholders of the National Bank approve by the necessary majority of the proposed transfer.
These two companies signed an agreement on 20 January, 1966 providing for the sale to the Irish company as a going concern as from 31 December, 1965 of all of the under-taking attributable to the business carried on in the State and in Northern Ireland comprising about two-thirds of the bank's total business.
The National Bank was established in 1835 by Daniel O'Connell, its first Governor, to provide a banking network in Ireland. In 1854 an office was opened in London to provide the bank with direct access to the London money market and membership of the London Clearing House. This office became the Head Office and Registered Office in 1882 when the company was incorporated under English Companies Acts. Other branches were opened in England and Wales mainly in centres where customers of Irish birth and descent could be served. The bank is thus essentially an Irish bank but its legal status is that of an English company.
In recent years it had become apparent to the bank that this situation was becoming increasingly difficult to reconcile with present day requirements. The differences between financial and business conditions here and in Britain affect not only a bank's day-to-day business but also official requirements as to liquidity and credit policy. The bank, as a London clearing bank, is obliged to maintain strictly defined liquidity ratios laid down by the British authorities which are not necessarily appropriate to its business in this country. The rapid expansion of the Irish economy in recent years also makes it increasingly desirable that banking business within the State should be more directly under Irish control. For these reasons the Dublin and London boards of the bank had for some time been exploring ways and means of bringing about a division of the bank, so that separate organisations for the two sections could be formed.
The arrangements provide for the purchase by the Bank of Ireland of all the share capital of the new Irish company and the acquisition by the National Commercial Bank of Scotland of the share capital of the reconstituted National Bank which will retain the business in England and Wales. Agreements to this effect have been entered into by the banks concerned. The new Irish company will continue as a separate entity but will be a member of the Bank of Ireland group. The consideration for the acquisition by the Bank of Ireland of the share capital of the new Irish company is £12.2 million—£6.2 million in cash and £6 million in a new issue of Bank of Ireland loan stock. The Scottish Bank will pay £4.75 million for the share capital of the reconstituted National Bank. Total payments to the Bank's existing shareholders will thus be £16.95 million. Nearly two-thirds of this amount will be paid to residents of the State.
The scheme of arrangement, prepared under the English Companies Acts, will require the approval of the shareholders and is being submitted for a decision at a general meeting of the company to be held in London on 24 February, 1966. The necessary resolution will require a 75 per cent majority of the votes cast, each share entitling to one vote. An order of the High Court in London sanctioning the scheme will then be necessary before it becomes effective. The scheme is also expressly conditional on the enactment of legislation in this country not later than 31 March, 1966, substantially in the form of the Bill before the House.
The Government support the proposal to transfer control of a significant part of Irish banking business from Britain to this country. This change is in the public interest. The implementation of official credit policy to suit the requirements of this country will be facilitated. The proposals should also help in the rationalisation of Irish banking and lead to a more economic and efficient service for the community. Finally, the Irish Exchequer will benefit because profits formerly assessed to tax in Britain will in future be assessed to tax here.
Since the early 1960s the rapid rate of growth in the economy and the increase in external trade has encouraged foreign bankers to take a more active interest in the country. Some overseas banks have opened offices in Dublin. The Northern Bank has been taken over by the Midland Bank and a number of merchant banks are now operating here. The Central Bank, in its report for 1964-65, drew attention to this extension by external banks and other financial institutions of their activities to this country and to the undesirability of any substantial growth of external participation and control of Irish banking activities. The transfer of the control of the Irish business of the National Bank is a welcome reversal of this trend.
An alternative possibility considered by the bank was the establishment of a wholly-owned Irish subsidiary company controlled from London but this was rejected as impracticable and inadequate. While such an arrangement would have some of the advantages of the proposed scheme and would solve some of the problems inherent in the present situation it would not have been favoured by the Government because of the maintenance of control from London.
The Bill provides, among other things, for the transfer from the National Bank to the National Bank of Ireland of accounts of customers, of securities held by the bank for loans and advances as well as securities held for safe keeping. It also provides for the transfer of staff and the continuity of their pension rights. The main problem relates to the transfer of secured accounts without disturbing existing priorities where securities are shared by different parties. In the case of overdrawn accounts it would be necessary, in the absence of legislation, to obtain the consent of individual customers to the transfer of accounts and also agreements or letters of consent to the transfer of any securities so as to make them available to cover advances by the new bank.
A stamp duty liability would arise in an artificial way on the arrangement to transfer credit and debit accounts. There is no provision for setting one off against the other. The operation amounts to little more than a bookkeeping transaction. In the circumstances, the charging of duty on the gross amount of loans and advances would not be justified and provision for the exemption is included in the Bill. These considerations do not apply to conveyances of real property and the appropriate duty is being charged on such conveyances.
The Bill, if enacted, will not become effective until an order is made by me. This procedure is necessary so as to ensure that the Act will not come into operation unless the scheme of arrangement is approved by the shareholders. I propose to make an order bringing the Act into operation at the appropriate time in advance of the 31st March, 1966.
I recommend the Bill for the approval of the House.
