Dáil Éireann debate -
Tuesday, 23 Nov 1999

Vol. 511 No. 3

ICC Bank Bill, 1999: Second Stage.

Minister for Finance (Mr. McCreevy)

I move: "That the Bill be now read a Second Time."

The purpose of the Bill is to facilitate the sale of ICC Bank. As Deputies may be aware, the Government decided on 27 July 1998 to dispose of the State's interest in ICC Bank plc. At this stage there is no strategic or policy justification for continuing State involvement on the margins of the banking sector. The market has moved on, industry has developed and State guarantees are not appropriate going forward. The bank should benefit from access to capital, broader expertise and, possibly, international opportunities.

In its decision on the matter, the Government authorised me to enter into negotiations with staff on an employee share ownership plan, an ESOP, of up to 14.9 per cent of the State's shareholding, 5% in return for change in the bank and 9.9 per cent through purchase.

ICC Bank was established in 1933 at a time when economic circumstances were very different from those pertaining today. At that stage, the aim was to encourage the financing of the development of an industrial base in Ireland. Since then the bank has been a strong supporter of the Irish SME sector. In focusing on the financial needs of indigenous SMEs, ICC Bank has played no small part in the development of indigenous industry, particularly in recent years.

ICC Bank has expanded steadily and has enjoyed consistent profitability. While the State has made equity investments totalling £36.9 million over the years, the bank has grown through its own efforts to a stage where its balance sheet now amounts to over £2 billion.

ICC has paid regular and increasing dividends to the Exchequer over the past two decades. In the past five years alone, such dividend payments amounted to £14 million, while corporation tax payments in the same period came to £10 million. In 1998, the bank made pre-tax operating profits of £21 million. In any assessment of the contribution of ICC Bank, its performance in the venture capital field deserves special mention. The bank has had a pioneering role in the provision of such funding in Ireland and continues to hold a market leader role in the venture capital area, an area vital to ensuring the continued accelerated development of Irish SMEs.

As regards the sale process, last February I appointed ABN-Amro and McCann FitzGerald to advise me on the corporate finance and legal aspects of the sale of my interest in the bank. During the following months officials of my Department and my advisers worked with the board, management and staff of ICC Bank to prepare the necessary documentation on the sale, to negotiate an employee share ownership trust and to agree procedures for the sale process. Expressions of interest in acquiring the State's remaining shareholding were sought by advertisement on 12 July 1999. Up to ten banks expressed an initial interest in acquiring the bank, but only three firm indications of interest were received on the closing date of 23 August. Having reviewed these tenders, it was decided that all three should enter stage 2 of the sale process where they would be permitted to carry out due diligence on ICC. One of these banks withdrew from the process shortly thereafter. The two remaining banks undertook a preliminary due diligence exercise on ICC and availed of the opportunity to meet key management and union officials. One of these parties subsequently withdrew at a late stage and one final bid from Bank of Ireland was received by the deadline of 19 October 1999.

Following consultations with the board of ICC Bank, the receipt of advice from my financial advisers and a discussion with senior representatives of Bank of Ireland, I issued a press release confirming that bank as the preferred bidder. Final due diligence on ICC Bank is now being undertaken following which final negotiations will take place. On completion of this exercise I intend to bring proposals to Government for its consideration. In firming up on my approach to the Government I will take into account the long-term interest of all the stakeholders – the company, staff, customers, suppliers and shareholders.

At this point the final price on offer from Bank of Ireland has not been finalised. Various figures on the valuation of the bank, many of them totally unrealistic, have been mentioned in the media. Obviously, I would like to have more competition in the latter part of the sale process, but I assure Deputies that ICC Bank will not be sold for other than a fair price.

In considering any sale I will take into account various aspects of the offer, including Bank of Ireland's business plan for the operation. I understand many Irish firms are appreciative of the support forthcoming to them from ICC Bank over the years and I would presume this is part of the attraction of the bank for any bidder. In such circumstances it should be in the interest of all parties to continue the SME focus which has been successful in the past. I hope that ICC Bank, if it changes hands, will continue to fulfil and expand its role in the development of Irish Industry. As much of the attraction of ICC Bank is attributable to its SME focus, it would not make sense for a purchaser to lessen the drive to expand that part of the business. Furthermore, from a seller's point of view, it is desirable to achieve a conclusive outcome at this stage if one can be reached on a satisfactory basis.

ICC Bank has been on the market in one form or another since the early 1990s and it is time to bring this uncertainty to an end. If a basis for selling is not achievable at this point, it would not be feasible to bring the bank to the market for a minimum period of about 2 years in circumstances where a full tendering process would again be necessary. In the prevailing climate of consolidation in the Irish and European financial sectors, it is debatable whether the value of an operation of ICC's size would appreciate in the meantime. Capital injections by the State would also be needed. Furthermore, the morale of staff and management could be affected by continuing uncertainty and it could be difficult to maintain the confidence of funding agents and customers. In short, the bank would have to run just to stand still.

I now turn to the main provisions of the Bill. Section 1 is the definitions section and is self explanatory. Section 2 provides for the transfer of relevant shares to an employee share ownership trust in line with the Government decision, and for related matters. The employee share ownership plan envisages 5 per cent of the issued ordinary shares in the company being provided in return for change in the bank and a further 9.9 per cent stake being available for purchase by staff.

Section 3 provides for the continuation of existing guarantees given by the Minister. No guarantees will be given in the future and the amount which is subject to guarantee will continue to be reduced. Section 4 is essentially an enabling provision to allow the Minister to dispose of his interest in Fóir Teoranta. Under the Fóir Teoranta (Dissolution) Act, 1990, the assets and liabilities of Fóir Teoranta were transferred to ICC Bank plc, then the Industrial Credit Corporation. It is proposed to sell the residual Fóir Teoranta portfolio to ICC Bank for its estimated realisable value, less a consideration in relation to releasing ICC's management contract therefor.

Section 5 provides that the borrowing limit of ICC Bank plc be increased by order. This provision is transitional to cover the period up to the sale of the bank. Section 6 is a standard provision requiring ICC Bank plc to take relevant action to alter its memorandum and articles of association in the context of the Companies Acts to make them consistent with the terms of the Bill. Section 7 provides that the borrowing limit of ACC Bank plc be increased by order.

Section 8, and the accompanying Schedule to the Bill, provide for the repeal of the ICC Bank Acts, 1933 to 1997, and the deletion of references to ICC in other legislation. This would be done by ministerial order under section 10.3 of the Bill. The relevant order will not be made until ICC Bank plc is granted a licence by the Central Bank. Section 9 is a standard provision in relation to the expenses of the Minister. Section 10 gives the Short Title, construction and commencement provisions.

I commend the Bill to the House.

Mr. Noonan

I thank the Minister for his brief and succinct summary of the reasons ICC is on the market and for his equally succinct explanation of the main provisions of the Bill. I also thank him for providing me with a briefing by his officials in advance of this debate which was very helpful.

Fine Gael shares the Minister's objective. We believe the State has no business being involved in banking and that the private sector can provide the banking and other financial services necessary for the country and the economy. We would like more competition in the banking sector and would be concerned if the takeover of small units by larger units became the norm. As we continue to become increasingly involved in the euro zone, competition will arrive from Europe and not just from the UK, which is not in that zone. However, we have seen competition being introduced into the market by the Bank of Scotland and Northern Rock, if that is the correct name for the north of England bank now advertising for deposits at a decent interest rate.

Fine Gael agrees with the purpose of the Bill, which is to sell ICC Bank. However, I am concerned that the sale did not attract greater attention in the financial services sector. The ten initial inquiries were quickly reduced to three when the discussions became serious. Of the three, one dropped out immediately and the other two went to preliminary due diligence. One of these then dropped out at a late stage and only Bank of Ireland is left. The Minister will maintain that the market will decide the value of ICC Bank but when there is only one willing buyer it is difficult for him to claim that whatever price we get from Bank of Ireland is fair and is the market price. There are and were many considerations in the market when this process began. In his reply, will the Minister dwell a little on the price he is going to get for the bank? Will he state whether he believes it is a fair market price or if he is in a situation where, having gone so far down the road, he has to sell? Obviously, the Minister is correct in saying that if the last purchaser dropped out it would not be possible to bring the bank to the market again for two or three years and that it would have run very fast to stand still. This would also continue the uncertainty for both staff and customers. It is a serious issue on which I do not want to dwell unduly for obvious reasons. However, I would like the Minister to give us further assurances that the final price being negotiated between his Department and the Bank of Ireland will represent a fair market value for ICC.

It is important to pay tribute to ICC. At a time when the banks were extremely averse to risk and when the concept of venture capital was very far from the minds of the main banks, ICC in the 1930s and subsequently provided what is now termed venture capital for many industries. It continued to be used by emerging industries, beginning the industrialisation of Ireland. Frequently behind tariff walls indigenous industry was developed and much of the credit is due to ICC. Like anyone supplying venture capital, it took on many bad customers and historically had many bad loans. However, as the economy grew and prospered this also changed and ICC's returns over the past five years are worthy of compliment. They have returned £24 million by way of dividend or corporation tax to the Exchequer over the past five years, a very creditable performance for a small bank. Not only is credit due to the board and its directors, but prin cipally credit is due to the dedicated staff. I am glad the Minister intends that the staff will be rewarded by a share allocation when the bank is finally sold.

This brings me to the second purpose of the Bill which is to enable the Minister to require the company to create extra shares and to dispose of them. I presume the principal intent is that there will be an allocation of shares to the trust on behalf of the employees which will act as a safe deposit for the shares. The employee share option trust will acquire a 5 per cent stake in ICC Bank – I am working from the briefing provided by the Minister's Department. It will do so in exchange for a transformation agreement, namely, changed work practices, etc. On an optional basis it will acquire a further 9.9 per cent stake through purchase. It is envisaged that this will be financed through a loan. This seems to be the norm in State companies. It is beneficial for this material to be made public and for the transactions to be transparent. Under the replacement share mechanism the ESOT will exchange its shares in ICC Bank for shares in the purchaser company. The shares in the purchaser company will be mortgaged to secure the loan, which seems straightforward enough. In effect, the Government will get cash for the company which will be returned to the Exchequer. However, the employees of the company will get shares – free and purchased by loan – which will be exchanged for shares in Bank of Ireland, to put it bluntly. It is good that the shares will be used as security on the mortgage which will be provided to the ESOT for the purchase of shares.

When the ESOT is in place allocation of notional shares, ie shares which will not actually be passed to employees, will commence, the first on the establishment date and the others at six month intervals. Three years after its establishment shares will be transferred from the ESOT to an approved profit sharing scheme at a rate of shares to the value of £10,000 per employee per year. These will then be transferred to the APSS to individual employees. Neither the ESOT nor the APSS will pay any capital gains tax on the disposal of the shares. Similarly, employees do not pay tax on the value of the shares received, although there is a suggestion that they might pay tax on subsequent dispersals over £10,000 from the residual fund. Dividends received by the ESOT will be used towards servicing the loan. Neither the ESOT nor the employees will pay tax on dividends in these circumstances. However, after the loan is paid off, dividends received by the ESOT will be distributed to employees. In this scenario the ESOT will pay no tax, but employees will be subject to tax in the usual way. Along the way each employee's notional allocation will be reduced by the amount of shares appropriate to him or her and by any shares sold by the ESOT to clear the loan. Participants may either hold or sell the shares in the market. If employees chose to hold the shares they will be liable for capital gains tax in the usual way when they subsequently dispose of them. This will continue for a maximum of 20 years after the establishment of the ESOT, if there are sufficient shares. At this stage the ESOT will be wound up and any remaining shares must be distributed among employees. To the extent that the value of such distribution to any employee is in excess of £10,000, that person will be liable for income tax on the excess.

It is a complex but very carefully worked out scheme and I think the employees will sign up to it, or perhaps have already done so. It will be used as a template for other sales in the public sector and that was why I put the outline of the scheme on the record.

The Minister should examine the taxation provisions of the scheme because some of the provisions being put in place according to the briefing note of the Department are not similar to the provisions which would apply where companies follow the advice of the Tánaiste and profit share by way of share options with employees. The Minister will be aware of the advice of the Tánaiste in the past few days that companies should be willing to profit share and that this will be part of the negotiations for a new social partnership agreement.

One of the current difficulties is that when employees decide to divest of the shares they have been given by way of option they will be charged income tax on the basis of benefit in kind, rather than being subject to capital gains tax. Having to pay tax at 46 per cent rather than 20 per cent takes much of the good out of the scheme. It becomes a deferred employment package and is not a real share option scheme.

I see the Minister has protected the ESOT and the APSS from any tax and that an employee on the disposal of shares will be subject to capital gains tax and that income tax will apply only to the residual amount over £10,000. There is a serious issue concerning tax in this context and I am using this debate to point out a more general matter. If the intention of the Government is that share option schemes will be one of the planks on which the next social partnership agreement is built, the Minister will have to decide before the budget whether the shares on disposal should be subject to income tax, capital gains tax or both. The scheme which the Government, including the Tánaiste, is advocating will not be a runner if share options are treated as benefit in kind and are subject to income tax at the time of disposal, whereas it would be a strong runner if they were subject to capital gains tax at 20 per cent.

State guarantees are maintained in the Bill but the intention to run them down in an orderly fashion has been signalled by the Minister. I would like him to return to this in his reply. Under what circumstances will guarantees continue? What practical situations does he envisage emerging where new guarantees may have to be given? I would also like him to comment on whether the provision of such guarantees in future might be regarded as an aid to industry by the European Commission. Perhaps he would reflect on that and give his views on it.

Would the Minister comment further on the section which allows him to dispose of his interest in Fóir Teo to the company? What liabilities are now in this portfolio? How will he handle the management costs which will accrue to the company arising from the Fóir Teo portfolio? Does he intend making provision for a deduction to compensate the company for the administrative costs which would arise from administering the portfolio?

I note the Minister is increasing the borrowing limit of ICC bank from £2.3 billion. If this were ordinary legislation, I would disagree not with the increase in the limit but with the manner in which the Minister does it. Rather than following the traditional route and setting a new limit, he is taking the power to set the new limit at his discretion. In effect, if he has a rush of blood to the head, he can make it £5 million, £10 million or £100 million as the case may be without any reference to the House. In all such Bills as this, be they concerned with the IDA, Shannon Development, the ACC or the ICC, it has been customary to set a new ceiling on borrowing. The Minister is not doing that on this occasion and it is acceptable to my party on the basis that this is effectively an enabling Bill to facilitate the Minister to dispose of the company and that he needs flexibility when he addresses these issues.

However, I have a different view when, in the same section, he takes the power to raise the borrowing limit of ACC. This Bill is about ICC, not ACC. I understand why the Minister would use it as a vehicle to introduce a provision to raise the borrowing limit of ACC at the same time, but he is not justified in empowering himself to do this by order without setting a new limit. I would prefer if he separated the two issues and returned on Committee Stage with a borrowing limit for ACC. I have no difficulty with the Minister using this legislation as a vehicle for increasing the borrowing limit of ACC. It is also on the market with its merger with TSB. Things may happen later next year. However, the Minister should return with a specific ceiling on ACC and follow the tradition. The same arguments which he might advance for raising the ceiling by order in respect of ICC do not apply to ACC at this point. I take issue with the Minister in respect of that.

I also notice in section 10(3) that the Minister does something with which I would normally disagree. The section states:

The Act shall come into operation on such day or days as, by order or orders made by the Minister under this section, may be fixed therefor either generally or with reference to any particular purpose or provision, and different days may be so fixed for different purposes...

The Minister takes the maximum flexibility on board. This Bill and its various provisions will become law whenever he decides. That is effectively what the provision says. That would be bad legislative practice if this were normal legislation and I would oppose it. However, I understand, with the negotiations with Bank of Ireland at their penultimate stage, and in light of the fact that there is now one willing buyer, that the due diligence conducted by Bank of Ireland is either complete or almost complete and that we are down to a final set of decisions, it is important that the Minister should have maximum flexibility to allow him control the calendar of events from now until the company is signed off. As it is an exceptional measure, I will not object to this type of catch-all provision. It is a very generous provision for the House to allow the Minister and we will allow it in these exceptional circumstances.

We do not have any difficulty with the principle underpinning the Bill nor with the individual measures in it as they apply to ICC. However, I have a difficulty with the measure as it applies to ACC. I will return to that on Committee Stage, but perhaps the Minister would facilitate me by bringing forward his own amendment at that stage to place a borrowing ceiling on ACC. I wish the Minister well as he conducts the final stages of this negotiation. It is important that ICC be sold to Bank of Ireland. It would be a great pity if anything went wrong with the process. My party does not intend creating any difficulty for the Minister. I hope the business can be concluded expeditiously and to the satisfaction of the Minister, the Bank of Ireland and the employees of ICC.

Mr. McDowell

I am glad to have the opportunity to contribute to this debate. I do not approach this from the same point on the ideological spectrum as the Minister or Deputy Noonan. I will explain why as succinctly as possible. The Minister said, "...there is no significant strategic or policy justification for continuing State involvement on the margins of the banking sector". I do not agree with him, and he continued after that to make a case for a strategic involvement.

ICC has played a significant role in the SME sector. It may be less vital than it was ten years ago but who knows what might happen in future. However, the main point is that the Minister has got it the wrong way around. We should not say there is no significant justification for the status quo. We must justify the sale. We must especially do so when there is only one bidder and when all the indications are that the Minister is receiving a good deal less from the sale of the bank than he thought he might receive a few weeks ago. The Minister has not discharged that onus in his contribution to the House nor in any of his contributions on this issue over the past two years.

This is a sad day because it marks the definitive end of a concept my party introduced into politics some seven years ago, namely, the notion of a State-owned third banking force. The truth and harsh reality is that it did not happen because we failed to bring about the degree of consensus necessary to make it work. We lost the argument. It is worth recalling that the notion of a third banking force was first developed in 1991 by MSF, the principal union in ACC and ICC. We in the Labour Party were happy to co-operate with our colleagues in the trade union movement, and we included it as an issue in our manifesto in 1992. A commitment to explore the possibility of a third force in banking was contained in the Fianna Fáil policy outline of December 1992 and was later included in the programme for Government of the 1992-94 Fianna Fáil-Labour Government of which the Minister was a member.

The idea was simple. We were and still are aware that the State banks had been drifting for some time. ICC is a significant player in the SME sector. ACC is still struggling to find a niche, having previously been identified with the agricultural population. TSB, at that stage, had emerged from the savings bank sector with a distinct identity but no clear mission. Last but not least, the post office system still is in need of massive upgrading entailing the provision of new services and the installation of new technology.

On the other side of the coin, the banking sector is dominated by two big banks and there was widespread concern that they were, in effect, operating as a cartel to the detriment of real competition and, ultimately, at the expense of the consumer and economy as a whole. I mention all this now because I think it will quickly be seen that much of it still holds true today.

In the event, it proved impossible to get agreement at any one time from the management or staff of the banks concerned and, ultimately, the proposal ran into the ground. It was a good idea whose time never came. It foundered in the face of political hostility and indifference or opposition on the part of many of the interest groups concerned. The question that now arises is whether there is a distinctive role for ICC within the State banking sector. Had that question been posed a few years ago, I would have said "yes" definitively. Now, I am not quite so sure.

The ICC has fulfilled a clear and distinct role over the six decades since its establishment. It has, as the Minister pointed out, provided venture capital and loan facilities to the SME sector. It is probably fair to say that that part of the economy is well catered for as things stand, but that has not always been the case. Back in the dark days of the 1980s, it was decidedly difficult for people with a good idea to gain access to finance. In many cases, they were required to give personal guarantees if they did not have some track record and were made to do so in a way which made a complete nonsense of the whole idea of corporate liability. It was not at all unusual for someone starting out in business to be required to borrow on the security of the family home. If one adds in the exorbitant rates of interest then being charged, one will see there was a distinctly unattractive cocktail for someone trying to set up a small business.

ICC was important in that it was prepared to tread where others refused to. It developed a relationship with small business and came to hold about 10 per cent of the SME sector business. In 1994 the then Minister for Enterprise and Employment, Deputy Quinn, made available a fund of £100 million to small and medium sized enterprises at favourable rates of interest. The money was quickly availed of and the major associated banks were quick to match the ICC intervention. In effect, the ICC was very appropriately used as a vehicle to lever funds from the bigger banks. The bad days of the 1980s are behind us and start-up capital is no longer quite so difficult to find.

It would be wrong to think, however, that the bad old days will never return. It is not difficult for banks to lend at times when the economy is expanding, particularly at the current extraordinary growth rates. When I look at the credit figures produced by the Central Bank, I wonder whether the banks are not lending too easily and whether we might, at some future stage, come to regret the generous nature of their current lending.

What will happen when the cycle turns, as it inevitably will? What will happen when the returns on lending are not as assured as they currently are? Can we say for sure that we will not then need the foot in the door which the ICC gave us? The Minister is confident that the market will provide, but I do not share his confidence in the banking sector in the marketplace.

This is a time of extraordinary change in the banking sector. Irish Life has been privatised, Irish Permanent has been demutualised and the two have merged into Irish Life and Permanent. By all accounts, the new bank is seeking further expansion. The First National Building Society has also demutualised and it too is struggling to find a new identity as a bank. Ulster Bank looks set to be sold and ACC and TSB will be merged and may well be floated. The word on the street is that National Irish Bank is seeking to make further acquisitions and may leave if it does not succeed. The overall effect is to consolidate the sector and reduce the number of players in the market. This in turn will reduce the choice available to potential customers, which may or may not be a bad thing. The central question is whether the reduced number of players will reduce the level of competition. It is of little benefit to customers to have a wide choice of banks if they are all offering the same product at the same cost.

Ultimately, what matters to consumers is the level of competition between banks. Our experience in this regard is mixed, to say the least. The main associated banks have operated as an effective cartel for many years. They may differ in relation to individual charges but the overall level of charges is much the same. There have been occasional shocks to the system such as the arrival of the Australians some 15 years ago, but these have been the exception rather than the rule. More recently we have had the experience of the Bank of Scotland. Only a few months ago we were told by the domestic mortgage holders that they were not in a position to pass on the full benefit of the ECB interest rate cut. We were told they would be unable to maintain the rates paid on deposits if they had to pass on the cut. Then Bank of Scotland arrived on the scene and offered mortgages at 3.99 per cent. Within a few days, this rate was matched by all the major banks without any reduction in deposit interest rates. On the contrary, deposit interest rates have started to rise following a further intervention by a UK bank. Ulster Bank has raised its deposit interest rates in recent days and, doubtless, other banks will follow suit.

The banks are constantly balancing the interests of their shareholders with those of their customers. A quick glance at the profits of some of the bigger banks gives a clear picture as to who is winning out. Only genuine competition in the market can decisively alter the way in which that balance is struck. More likely than not, competition will come from the new players in the market, but we cannot afford to depend on this happening. We need an effective competition policy and a means of enforcing it. At the moment, we have neither. As things stand, prudential supervision of the banking sector is in the hands of the Central Bank. The Director of Consumer Affairs has responsibility for bank charges although her responsibility does not extend to interest rates. The Competition Authority looks at competition issues, usually on foot of individual complaints.

The Government is committed, in principle at least, to setting up a single regulatory authority to deal with financial services. The Government should consider setting up a competition directorate within the SRA whose function would be to promote the maximum possible level of competition within the banking sector and to take action to prevent anti-competitive practices. The advantage of having the directorate within the SRA is that they could benefit from the exchange of information, particularly that which becomes available to the SRA by means of its exercise of the supervision and prudential part of its remit. This would offer us a reasonable chance of ensuring direct, genuine benefits to the consumer.

In the context of all the exceptional changes which are occurring in the banking sector, there is, or could be, a role for a small State-owned bank with a defined and important place in the market. The question arises as to why the Minister so badly wants to offload the ICC and the other State banks. I have repeatedly asked the Minister this question and have yet to receive a satisfactory reply. The Minister merely repeats the mantra that he sees no role for banking in the State sector and he persistently tells us he is taking a non-ideological view of the issue. What is the Minister's problem with a State-owned bank with a strategic role? I suggest his view is driven by the precise ideology he is so anxious to eschew. He is opposed to State banks because he is opposed to the whole notion of a commercially successful semi-State sector. I suspect he is greatly taken with the views of his colleague, the Minister for Enterprise, Trade and Employment, who recently referred, rather laughably, to the "joy of flotation". I suggest the Minister's view is quite simple, namely, that if a bank can be sold, it should be sold. This holds good even if the needs of consumers and the needs of a particular company or a particular sector suggest otherwise.

The Minister is quick to accuse those of us on this side of the House who have always argued in favour of public service that we do so out of what he would call "ideology". I suggest that in this case, it is the Minister who is putting ideology ahead of the needs of the circumstances. When this process started, there were ten potential bidders, three of which made indicative offers. Two of those have since withdrawn, leaving Bank of Ireland as the sole bidder. All the indications suggest the final offer will be somewhat lower than the indicative offer made earlier by Bank of Ireland. We are entitled to know how this happened. Why has this apparently attractive offer attracted only one bidder?

I asked the Minister in the House last week if he was determined to push ahead despite the collapse of the competitive tendering process. He repeated the mantra that he sees no role for State banks, which he again repeated today. The implications are clear. The Minister is determined to sell come what may. He is determined to sell not to the highest bidder, but to the only bidder. Bank of Ireland has the Minister, and I am tempted to use a colloquial phrase but I will confine myself to saying, somewhere between a rock and a hard place. He has to sell because he has no other strategy. The Minister is in no position to get best value for the taxpayer because he is ideologically committed to selling the bank come what may.

In any event, this Bill does not even require the Minister to satisfy himself or anybody else, much less the House, that he is getting best value, for what is a public asset. On the contrary, section 2 gives extraordinary powers to the Minister for Finance. In effect, it allows him to dispose of the ICC Bank in whatever way he chooses. The section is nothing less than a blank cheque and I object in the strongest possible terms to being asked to sign this blank cheque on behalf of the taxpayer.

The Minister should give us every possible detail of the proposed sale at this stage. I accept there is some information which is commercially sensitive but given that this is an asset in public ownership, there is a special onus on the Minister to make the maximum possible level of disclosure. Let us face it, he has given almost no details to the House today. If that cannot be done now, it should be done later. Whenever the deal is done, as surely it will be done, the Minister should be required to put the terms of the sale before the House for approval, and I will table an amendment on Committee Stage to oblige the Minister to do that.

I will outline an analogous case. In the past, the Minister was a member of a local authority and those of us who are members of local authorities will be familiar with the statutory requirement whereby local authorities, to dispose of property in their ownership, must put the details of that property before the city or county council for approval. I see no reason in principle that a similar provision should not apply to the sale of a major asset such as a bank.

Deputy Noonan referred at some length to the ESOP and the ESOT and I concur with everything he said, particularly as it relates to the taxation of ESOTs. The Minister in his Budget Statement last year introduced a sale as you earn scheme and he has indicated in the past, as have some of his colleagues, his general support for ESOPs and ESOTs and that is something with which I concur. There is justification for looking at the taxation of increases in the value of shares, particularly as they are dealt with under the income tax code. I concur with Deputy Noonan in that regard.

We must stop and reflect on the use of ESOPs in the context of this Bill and Bills of its kind. In a sense, ESOPs are now being used in the State sector as a straightforward bribe to facilitate privatisation. I see no reason in principle that we should not allow an ESOP or ESOT to operate within any semi-State company where the workers want it. It should not be seen as a bribe to facilitate privatisation but as a normal part of the social partnership structure to which this Government and other parties in the House claim to be committed.

The details of this ESOT are not dissimilar to those of the Telecom Éireann ESOT and it seems likely that workers will benefit to a considerable extent. I congratulate them on the deal they have done; it is a very generous one and, from their point of view, a good deal. I wonder whether employees of Bank of Ireland, who presumably in time will find themselves working side by side with ICC Bank workers, will have some cause for envy and jealously regarding the type of conditions and benefits enjoyed by former employees of ICC Bank.

We need to generalise this matter. It must become more than just a means to facilitate privatisation. By all means, we should grant a certain percentage of shares to workers in exchange for a transformation deal, but it should be immediately available as a matter of principle and right within the ESB and CIE, for example.

In a statement of July 1998, the Minister guaranteed the current employees of ICC Bank that their terms and conditions of work would be respected in any sale. What does that mean? We know from the experience in the merger of TSB and ACC Bank that the terms and conditions of people working in ACC Bank have been signifi cantly changed. Some have been transferred from Dublin to Cork, which they apparently did not want. What does the Minister's commitment to retain the terms and conditions mean? Does it mean, for example, that employees cannot be transferred from one branch to another or within the Bank of Ireland system generally without their consent? What does the commitment not to have any compulsory redundancies within the company mean in the context of the overall Bank of Ireland structure in the future? Does the Minister intend to draw up an agreement with Bank of Ireland? Does he expect the trade unions currently involved in ICC Bank – I understand it is principally MSF – to involve themselves in an agreement with Bank of Ireland before the sale goes through?

The Bill provides that the proceeds of the sale should be simply absorbed into an ever increasing Exchequer surplus. I will make a suggestion to the Minister. We all agree An Post is greatly in need of considerable investment. We need to increase the use of new technology and improve the level of service provided by An Post. That is something which will require investment, perhaps not in each post office but certainly in the main post offices in county towns. That would be a useful way to earmark the £200 million or £250 million which the Minister will obtain from this sale. He should plough it back into that section of the State banking sector, namely An Post, which I assume he intends to keep.

The sale of ICC Bank, assuming it goes ahead, will leave a gap which is currently being filled largely by banks such as the Anglo-Irish Bank, AIB and, to a small extent, by Bank of Ireland. There will always be a need for the State to get involved directly in providing venture capital in circumstances where companies find it difficult to get it or, for that matter, in providing additional capital or loan facilities to companies seeking to expand. Companies seem to experience difficulties, not at the entry level, but at the expansion level when they reach a certain size and want to increase the number of workers, their output and perhaps get into the business of export. They seem to find it difficult to make that crossing or to bridge that river. At that stage there is a role, which has been identified by Enterprise Ireland, for the State to provide not only loan facilities and capital but the type of back up facilities, advice and consultancy sometimes required in those circumstances. Does the Minister see a role for Enterprise Ireland, for example, in filling the gap that may well be left by the absence of the ICC Bank?

The Bill, as the Minister and Deputy Noonan pointed out, allows for an increase in the borrowing requirement of ICC Bank. I presume we will have an opportunity to debate the issue of ACC Bank and TSB at a later stage. I supported the Minister in the case of the ACC Bank and the TSB. I believe ICC Bank has a potential strategic role and for that reason should be retained. However, I see no such strategic role in the State D511–A10

banking sector for ACC Bank or the TSB which are, in effect, small banks with no obvious strategic role in the State sector. I supported from the start what the Minister proposes to do and I am well aware of the origins of those proposals.

We are in some difficulty here, and the proposal to merge and float virtually at the same time is the core problem. I do not want to get into the industrial relations difficulties. It would not be useful to explore them on the floor of the House.

The Minister will be aware that there is a feeling within ACC Bank that it is being taken over, in effect, by TSB in advance of its flotation and that to date the merger has served the interests of TSB rather than the employees of ACC. I do not want to debate the pros and cons of that, but the core problem here seems to be the decision to do everything in one bite. The Minister has, in effect, bitten off more than he can chew in that decision and should at least keep it under review, even if he cannot reverse it at this early stage. If the Minister has to reverse this decision early next year there would be a benefit in signalling it now so that we do not inflict untold damage on the bank when we ultimately get to float it, which I imagine will happen in the next two to three years. The Minister has asked Mr. Phil Flynn to intercede as a trouble-shooter and has appointed people within his Department to perform a similar role. I wish them well, as that is a good concept and one I hope we can bring to fruition. However, given that there are difficulties here and that we cannot be sure the flotation will happen, or if it will happen soon, I share Deputy Noonan's concerns about giving the Central Bank and the Minister unfettered power to increase the borrowing limit of ICC. The Minister should specify a particular limit in the Bill on Committee Stage.

Let us be honest, we are talking about a takeover by Bank of Ireland and I am a little bothered about it because I am not sure what the Bank of Ireland is seeking to do. Neither the Minister nor the Bank of Ireland have informed us in that regard, but that may be expecting too much from them at this stage. However, before the process is finished we should know what the Bank of Ireland is planning to do and we should have sight of its business plan. We need to be reassured that Bank of Ireland intends that ICC, when in the ownership of Bank of Ireland, will continue to provide particular facilities to the SME sector. That sector of our economy is vitally important, particularly as it is largely indigenous, unlike the multinational sector where so much of our recent growth has been centred. We are entitled to see that business plan and I urge the Minister and Bank of Ireland to make it available to us before the process is completed. It is fair to say that the Bank of Ireland has not always been to the fore in helping small businesses and if it was being honest it would acknowledge that. I hope this move signals a sea change and is not just a move to acquire market share. I hope it signals that it will be more helpful to that sector in future. If that is the case it is a welcome move.

I do not like the principle of this Bill, though I acknowledge we are a considerable way down the road with it. It would be difficult to row back at this stage and I am not suggesting that is possible. However, I do not like the way in which this deal has come out or been carried through. I do not like the way the Bill effectively gives the Minister a blank cheque to do with as he wishes, and for that reason I will oppose it.

Mr. O'Flynn

I support the Minister in bringing forward this Bill. I agree that the time is right to sell off ICC Bank. I note the main reasons for the sale of the bank and the Minister's statement that there is no significant strategic or policy justification for continued State involvement in the banking sector.

ICC Bank was established in 1933 when economic circumstances were very different from today. The aim then was to encourage the financing and development of an industrial base in Ireland and since then the bank has been a strong supporter of the small and medium sized business sector. The market has moved on and industry has developed. It is envisaged that under its new ownership ICC will continue to play a role in the development of indigenous industry. I note that State guarantees are not appropriate going forward and that the bank will be able to raise capital more readily at the time and level needed to expand under its new private sector ownership. I also note the problems the bank would face if not sold.

The sale of ICC Bank has been mooted for a number of years. It is time to bring matters to a conclusion and I agree with the Minister in this regard. If we do not sell ICC Bank now it may not be feasible to bring it to the market for a number of years. In light of consolidation in the European banking sector, it is debatable whether the value of an operation the size of ICC Bank would appreciate in value in the meantime. I also note that capital injections from the State would be needed if we do not proceed with the sale of the bank now. Also, the morale of staff and management could be affected by the continuing uncertainty and I appreciate the Minister is trying to bring the matter to a conclusion in their interests also. It would also be difficult to maintain the confidence of funding agencies and customers in those circumstances.

I thank the Minister for empowering the employees with the employee share ownership trust. I understand the Government authorised the Minister to enter negotiations with staff on an employee share ownership plan for up to 14.9 per cent of the State's shareholding: 5 per cent in return for change in the bank and 9 per cent through purchase. Details of the scheme have been worked out and will be implemented on the sale of the bank. Disposal of benefits to employees will be managed in an agreed way which will be tax efficient from the perspective of the employees. This gives those employees reasonable compensation for their full co-operation with the necessary changes at the bank as well as facilitating their buying into the new operation in a way that will prove mutually beneficial for owners and employees. I understand that ICC Bank employees are in favour of the decision to sell the bank.

I wish to turn to the bank's progressive Cork branch. I must declare my interest, as I have been a customer of the bank since 1992 in a number of business transactions. I do not have any money in the bank, but I have always considered the arrangement as a partnership – business people provide the projects and the bank provides the finance. The Cork branch is highly regarded in business and banking circles in the Cork region and I hope under its new ownership it will retain its own identity and unique corporate market. ICC Bank is located in a landmark riverside building facing the South Mall on Grand Parade since 1980 and sees itself as a very important business market. The bank celebrated 30 years of business in Cork this year.

Mr. Noonan

Would the Deputy not send his bank manager a Christmas card?

Mr. O'Flynn

I might do that; I think I get one from him every year. The bank is in the old Legion of Mary premises in Cork and since the first regional office was established in Cork in 1969 it has held a very strong financial position in the southern capital and throughout Munster. It has been very supportive of small businesses in Cork and the greater Cork area and I am particularly pleased that this year it entered a prime example of public-private partnership with Aer Rianta and the developers of the Cork Business Enterprise Park at Cork Airport. This is a prime example of the bank and the public sector, in the form of Aer Rianta, becoming involved in a unique e-commerce project which is turning out to be very successful. Several years ago the bank was involved in providing finance to small businesses at 6.75 per cent. That percentage was probably very low – interest rates on long-term or term loans was 9 or 10 per cent. This was a Government initiative, but the bank was most successful in supporting small businesses which wanted to develop their factories or business premises. At the time those rates were extremely competitive and they helped the business sector grow, although they would be considered high compared to the rates available now.

There is another important aspect of this bank which I hope will not be lost. It has a venture capital investment programme to which it appointed a director in Cork earlier this year. It got involved in a number of businesses and venture capital projects in the Cork area, for example, Alps Electric Ireland Limited in Millstreet and Phoenix Peripheral Solutions which was established in Mallow. I hope the bank will not be absorbed completely into the Bank of Ireland and that it will retain its unique position serving the corporate sector. I hope it will retain its identity and continue the many services it has been providing to businesses in the greater Cork region and throughout the country.

I am not sure if Deputy Noonan has ever been in business or been involved with ICC Bank. I have personal experience of the bank and I would be the first to say if I thought it was doing a bad job. My experiences have all been good and the business people with whom I am associated in Cork have nothing but the highest praise for the bank.

Contrary to Deputy McDowell's comments, in my experience Bank of Ireland has been to the fore in assisting small businesses. I am involved in a number of business enterprises in the Cork area and I have great admiration for Bank of Ireland which has been most supportive of small business in Cork. Perhaps the Deputy has had different experiences.

I wish the Minister luck with the sale. Many business people in Cork will continue to support the ICC Bank when the sale is completed.

Mr. Higgins

(Dublin West): I am utterly opposed to this Bill. It simply continues the privatisation mania which dominates the philosophy and, in recent times, the practice of this Government. The Government of Fianna Fáil and the Progressive Democrats worships at the altar of the capitalist market and its decisions with regard to valuable State assets are in the interests primarily of those who dominate that market.

Mr. O'Flynn

The Deputy saw what happened to Russia.

Mr. Higgins

(Dublin West): The Minister for Finance is an advocate of capitalism, red in tooth and claw. Fine Gael, as Deputy Noonan indicated, is of the same philosophy. In his contribution, he tried to make a weak excuse about competition, but ICC Bank is not being sold to a competitor in the market but to a massive banking corporation which already controls a huge sector of that market. Competition is being lessened, not increased. In any case, where Irish banks are concerned, there has been a cartel for many years wherein the banks' profits had primacy over all other concerns and the customer was far down the line in the order of priorities.

The banks in this economy already wield enormous power. The two major players, Allied Irish Bank and Bank of Ireland, each have annual profits of nearly £1 billion. Unquestionably, these institutions wield huge power over virtually all aspects of the economic lives of ordinary people. This power is wielded by faceless men and women in the boardrooms and policy making sections of the banks which have no democratic accountability.

Take, for example, one of our most fundamen tal human needs, shelter. Two cartels, the builders and landowners, on the one hand, and the banks and financial institutions, on the other, control the ability of people to put a roof over their heads. In the process of fulfilling that basic human need, people are bled dry by those institutions. They think they are paying £90,000 for a modest home, which is an enormous sacrifice for them. This Government and, to a certain extent the previous Government, sat on their hands for four years and allowed profiteers to put up the price of houses to these levels. However, people do not pay £90,000 for such homes, they pay £250,000 or more over 20 years. There is now talk of homes being bought over two generations, over 30, 40 or even 50 years. That is enslaving people to the financial institutions, to whom the Minister is now proposing to give further power and control over the lives of these people.

What is the track record of these institutions? All the major banks have been exposed as being up to their necks in tax and other fiddles over the past 15 years, yet nobody has alluded to that in this debate. Major banks have systematically defrauded the tax system to a level that is currently unknown, although we know it is substantial. Banks and financial institutions colluded in the establishment of bogus offshore accounts to assist a privileged minority to defraud the taxation system while ordinary people paid heavily. In some cases, bank charges were falsified behind the customers' backs to maximise the profit of these powerful economic cartels.

A major investigation is being carried out by a committee of the Dáil into those financial irregularities and fraud. It has not yet reported and will not do so for a number of months. A High Court inspector is currently examining the Ansbacher affair, which may well touch on the activities of other banks, yet the Minister informs the Dáil that he has already agreed to sell ICC Bank to one bank, the Bank of Ireland. Why not wait until these investigations are concluded? Why not wait until the Committee of Public Accounts publishes its report? We will find out if the Bank of Ireland or any other institution is fit to be considered a suitable purchaser of a vital State asset. The Minister is showing utter contempt for the investigation by the Dáil and other investigations into the tax fraud activities of the banks by proceeding with this sale before the investigation results have been announced.

There has been an extremely unhealthy relationship between the banks and the major political parties for many years. The major banks have made substantial financial donations to Fianna Fáil, Fine Gael and the Labour Party. Banks and financial institutions have written off substantial debts to leading former members of Fianna Fáil and Fine Gael. The Labour Party, which admittedly came up a poor third in the stakes, was also found to benefit at a time when these institutions squeezed the life blood out of the ordinary people and small businesses. No ordinary person believes that relationship between the political establishment in this State and the banks means politicians, parties and Governments are not influenced in their policy decisions towards the banks at budget time and in respect of other decisions. Perhaps there is no corruption in the sense of illegality, but ordinary people believe a legally corrupt relationship exists where financial institutions pay massive sums to the parties who make crucial decisions that affect the profitability of those institutions. One or two percentage points in tax can mean tens of millions of pounds for these institutions. That has been the nature of the relationship between the political establishment, the parties which make up Governments and these institutions.

The Government proposes to sell an asset that was created by the labour of our working people and by the involvement of the ordinary people in its dealings over the past several years. As was the case with Telecom Éireann, that asset is to be handed over to a private cartel.

On the question of share ownership for its employees, workers should beware of Fianna Fáil and PD Ministers bearing gifts in the form of shares in privatised institutions. There are a number of things happening. The Government and the champion of privatisation wants to wipe the eye of workers with this offer of shares, for which they must pay. It wants to draw workers into the loop and thereby overcome opposition to privatisation. It also wants to draw in trade union leaders, in particular, who shamefully had their eyes wiped by the Government in regard to privatisation and who now go along meekly with ideas that are alien to the co-operative spirit and philosophy that underlines the idea of the trade union and labour movement. Workers who become involved in these share ownership deals should watch out.

The international financial markets are infested with sharks, not with benign people who want to protect the welfare of these workers and their families and work for the good of society. Workers will be given the impression that shares can move only one way, up in value, but the opposite is the case. Workers would do well to read some of the articles in newspapers that are not found on every news stand, The Financial Times and The Wall Street Journal, which highlight how tied in all the international markets are at present and how dependent shares in the banks here are on the health or otherwise of shares in the stock exchanges of New York, London or Tokyo. Those stock exchanges will have a major influence on the value of Irish shares and, therefore, directly on the lives of Irish workers, particularly the workers being tempted into the privatisation loop by these deals.

The boom in the economy of the United States has extended for much longer than many commentators predicted due to certain worldwide events, including the flight of capital from South East Asia in search of safe havens in the United States. However, that boom is built on enormous indebtedness of households and corporations in the United States. By common consent, stock exchanges are greatly overvalued internationally, and that is also true of the Dublin Stock Exchange. Under the laws of capitalism, it is inevitable that a shake out will come and then workers will see their shares tumble in value. What will the Minister's promises and blandishments mean when workers see the asset that was supposed to guarantee them some kind of remuneration fall significantly in value?

Who really benefits from privatisation? All we need do is reflect on what happened across the water. It was not the ordinary people who benefited from privatisation in Britain, but the major institutions, the fat cats, who were given the privatised companies at knock down prices and who then went on to enrich themselves obscenely at the expense of the ordinary people whose asset was handed over to them. The water companies were notorious. We have seen the Government ape what happened in Thatcher's Britain. The Government privatised Telecom Éireann, a vital national asset, and within a matter of weeks those who were appointed by the Government to positions in Eircom moved in for a slice of the action. The Minister, Deputy O'Rourke, appointed a former member of her party, Ray MacSharry, to an important position, chairman of Eircom, and within weeks his income from a part-time job was bumped up from £7,500 to £100,000 a year.

An Leas-Cheann Comhairle

The Deputy is wandering from the substance of the Bill before us.

Mr. Higgins

(Dublin West): If a Fianna Fáil Deputy can go on about his local branch of the ICC Bank, there is one or two small problems I would like to bring to the attention of the Dáil.

An Leas-Cheann Comhairle

I was not present to hear that.

Mr. Higgins

(Dublin West): I cannot move on from this point without mentioning the sitting Deputy Spring of the Labour Party – I listened to what Deputy McDowell said – whose slice of the privatisation of Telecom Éireann is £35,000 a year, which is quite legal.

An Leas-Cheann Comhairle

The Deputy is wandering from the substance of the Bill.

Mr. Higgins

(Dublin West): I was going to comment on Deputy McDowell's opposition to the Bill. If the Labour Party is serious about opposing privatisation, it should expel Deputy Spring for being part of the scandalous privatisation of Telecom Éireann.

An Leas-Cheann Comhairle

I ask the Deputy to focus on the substance of the Bill.

Mr. Higgins

(Dublin West): Far from handing over this national asset to the banking cartels, the matter of public ownership of the banking system as a whole should be under discussion. Any institutions that wield such enormous economic power over the lives of ordinary people should be democratically accountable for their decisions. If there was support or desire for real democracy in the financial institutions that serve the needs of ordinary people, they should be under the democratic control and ownership of the people whose lives they influence to such an degree. Instead of banking being an activity for speculation on the international marketplaces, it would be run on the basis of social and human need, for the wellbeing of society, for the planning our economy to meet the needs of our people, for progress, for economic security, for environmental protection and for all that would make life so much better for our people. Far from making the banks more democratically accountable, the Government wants to give them more power.

Tá mé glan in aghaidh an Bhille seo, glan in aghaidh príobháidiú an ICC agus glan in aghaidh fealsúnachta an Rialtais seo go dteastaíonn uathu gach comhlacht mór stáit a phríobháidiú. Tá Eircom déanta acu cheana féin agus teastaíonn uathu agus an rud céanna a dhéanamh le Aer Lingus, le Aer Rianta agus le comhlachtaí stáit eile. Tá sé riachtanach go seasfadh daoine suas agus go ndéarfaidís leis an Rialtas seo go gcaithfear stop a chur leis an bhfealsúnacht seo agus leis an rás seo ag an Rialtas i dtreo gach comhlacht tábhachtach stáit sa tír seo a thabhairt do na boic mhóra, do lucht an rachmais.

Teastaíonn uaimse córas bainc a bheadh faoi smacht ag na gnáthdhaoine, a bheadh á rith ar mhaithe le cosmhuintir na tíre agus ní ar mhaithe leis na milliúnaithe agus na billiúnaithe agus daoine móra eile sna margaidh airgeadais idirnáisiúnta.

I strenuously oppose the Bill. People should take more interest in it than they have up to now. They should rise up and cry stop in case the Government thinks it can move from Eircom to ICC Bank and on to Aer Rianta and Aer Lingus, which is its intention. It is time the trade union movement cried stop instead of doing sweet heart deals with employers and bosses in Government and haggling over valuable State assets, the handing over of which is anathema to the spirit of the trade union movement. We will be denounced as being old fashioned, as party after party, including the Labour Party – although I am glad it is opposing the Bill – bow their heads to the new gods of privatisation and the marketplace.

The wheel will turn and the pendulum will swing again in the same way as it is doing in Britain where 73 per cent of people now want to renationalise the railways as a result of the catastrophic effect of privatisation on people's lives. I hope the pendulum swings before more valuable assets are given to the big cats by this Government.

Mr. Fleming

I wish to share my time with Deputy Kelleher.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Mr. Fleming

I welcome the opportunity to speak on the Bill, the purpose of which is to facilitate, not to finalise the sale of ICC Bank. Much background work has already been done. The Minister should sell ICC Bank only if the price is right as it would not be in the public interest to do otherwise.

There are two options when it comes to selling State assets, such as ICC Bank. The first is a public sale, like we had with Telecom Éireann, and the second option is to invite interested parties, both nationally and internationally, to make an offer. Because ICC Bank is a small bank, a public sale would not be suitable. The only feasible option, therefore is to invite banks to state their interest.

ICC Bank has always played a key role in the area of small and medium sized businesses. I hope the new owner ensures it continues to provide, through its five branches, for this special niche in the market, whether it operates as part of a group or as a separate subsidiary. One of the reasons Bank of Ireland has expressed an interest in ICC Bank is that it is not a strong force in this area. I do not fear for the future operations of ICC Bank or for its staff when it is in private ownership. Because of its size, the State does not have a strategic interest in having a bank specifically for this sector. Over the years the assets and liabilities of Fóir Teoranta have been absorbed into ICC Bank so that is no longer an issue.

As regards the employee share option plan, this Bill proposes that employees will get 5 per cent of their shares free and that they will have the option of purchasing 9.9 per cent of the company thereafter. I ask the Minister to weigh up the final sale price because it will have implications for the Exchequer. The price must attract one or more purchasers. We must also consider the rights of the customers who have been with ICC Bank over the years and the rights of the employees. These factors must be taken into account before a final price is decided.

I ask the Minister to clarify the tax employees will pay on their shares. If employees sell shares, will they be subject to capital gains tax or income tax? I presume if they pay income tax, it would be at the top rate of 46 per cent, whereas the capital gains tax would be at a lower rate. Perhaps there will be an announcement in the forthcoming budget about the tax payable on the sale of shares in an organisation in which employees have a stakeholding. Deputy Joe Higgins said share prices do not always increase. Perhaps the Minister could clarify if an employee's PAYE tax will be reduced if the shares are sold at a loss? I understand employees will receive shares in whatever bank purchases ICC Bank and that they will not receive direct cash payments.

I am pleased the employees in a subsidiary of ICC Bank are being dealt with fairly under this Bill. When Telecom Éireann was sold, there were long and protracted difficulties about the employees of Golden Pages who were excluded from the employee share option plan because it was not a wholly owned subsidiary. Perhaps the Minister could clarify the position on Committee Stage.

Section 5 provides that the borrowing limit for ICC Bank be increased by order, following consultation with the Central Bank which is the appropriate regulatory authority and is responsible for the prudential supervision of the bank. Section 7 provides that the borrowing limit of ACC Bank be increased by order following consultation with the Central Bank which is the appropriate regulatory authority and is responsible for the prudential supervision of the bank. The role of the Central Bank in the banking sector and the importance of the prudential management of the banks must be highlighted. This Bill deals with one of the largest and one of the smallest banks in the country. The prudential management of banks has strong implications for the quality of management in banks. Last year, the Governor of the Central Bank told the Joint Committee on Finance and the Public Service that the Central Bank has a responsibility in relation to the quality of management in various banks. In that regard the Central Bank has a prudential role.

My comments relate to the banking and financial services industry. They are not specific to ICC Bank, ACC Bank or Bank of Ireland. The Minister said that a due diligence test would be carried out on ICC Bank by the purchaser. I ask the Minister to ensure the Revenue Commissioners carry out a due diligence and revenue audit on the potential purchaser. I would like the purchaser to provide a tax clearance certificate confirming that the tax audits of this purchaser of a large State asset are fully in order and are confirmed as such by the Chairman of the Revenue Commissioners. The smallest sports club in the country must provide a tax clearance certificate before it can draw down a grant from the sports capital programme or the National Lottery. The same should apply to the potential purchaser of this bank.

I have major concerns regarding the non-compliance of the banking sector with regard to the payment of tax. Despite recent inquiries and revelations the banks and other insitutions in the financial sector are still not paying their correct taxes. When the annual report of the Revenue Commissioners was issued in July I asked the chairman for details of amounts recovered by the Revenue Commissioners from the banking and financial sector as a result of their audit tax procedure. Banks exist for the sole purpose of making profit for their shareholders. We have been far too reverential in our treatment of the banks and have placed them in an exalted position. They are run by mere mortals and are subject to the same human failings as the rest of us, and we should always bear that in mind. The chairman of the Revenue Commissioners confirmed to me that Revenue had uncovered £40 million of unpaid taxes by the banking and financial services sector in the years 1996, '97 and '98. In 1998 alone, the Revenue Commissioners carried out 169 audits of the banking and financial services sector and uncovered £16.7 million that should have been paid in tax. This money has now been paid as a direct result of tax audit activity. In 1997, 115 audits were carried out by the Revenue Commissioners, uncovering £9 million in unpaid tax and in 1996, 126 audits were carried out into the banking and financial services sector, uncovering £13.3 million of unpaid tax. This is a major indictment of the banking system in Ireland which is still trying to avoid paying its full share of tax. The chairman of the Revenue Commissioners has also informed me that recoveries have been made to date in 1999 although it is not possible to give a final figure for those. The banks are still up to their old tricks.

The recently published annual report of the Revenue Commissioners for 1998 highlights that the Revenue carried out 19,260 audits last year yielding £160.7 million. This is an average yield of approximately £8,000 per audit. The average yield of audits in the banking sector was £99,000. More than 10 per cent of the total amount recovered last year – £16.7 million out of £160 million – was recovered from the banking and financial services sector. This is information which I received in writing from the chairman of the Revenue Commissioners. The number of audits conducted in this sector was less than 1 per cent of the total audits carried out in the entire country, but it yielded approximately 13 per cent of the total amount of money.

The banks and financial institutions have a clear obligation in an era of self-assessment to pay their proper tax. If they have any queries on the tax due they should contact the Revenue Commissioners for clarification. They will talk about technical adjustments and interpretational differences but that does not seem to apply to the other tax audits. Everyone must pay his or her proper share of tax. This money – £40 million in the last three years – would not have been paid over to the Irish taxpayer had the Revenue Commissioners not done their work. I congratulate the Revenue Commissioners on their outstanding work in uncovering this amount which the banks and financial institutions would not otherwise have handed over to the Irish taxpayer. Is the banking and financial services sector still a high risk category in terms of paying proper tax? If so, I ask the Revenue Commissioners to seek additional powers in the forthcoming Finance Bill. I would be happy to support the Revenue Commissioners in that.

I make two final comments. First, the purchaser of ICC should provide a certificate that its tax affairs are in order. That requirement would apply to any institution dealing with a State organisation. Second, the Minister should sell only if the price is right. I am sure the Minister's excellent negotiating skills will achieve an excellent price and in that regard I wish him every success.

Mr. Kelleher

I thank Deputy Fleming for sharing his time with me and I welcome this opportunity to discuss the broad thrust of the Bill.

This is a Bill to facilitate the sale of ICC Bank. In view of the fact that there is now only one bidder, I am concerned that the Government may not receive a fair price for ICC Bank. I hope the Government has already decided on a minimum price and that the sale will be called off if this is not achieved. Time could then be allowed for other bidders to tender for the purchase of ICC Bank. The bank has been on the market for quite a while and since the early 1990s has been spoken of as a bank which could be sold.

One could argue that there is no need for State involvement in banking at this point in Irish economic life. The Industrial Credit Corporation is a very small player in Irish banking but in its early years ICC Bank played a very important part in developing the ethos of business in Irish society. I hope whoever purchases the bank will allow that ethos to develop and flourish. One could argue that the bank which purchases ICC Bank will have that business ethos. However, if it is bought by a large bank, ICC Bank could be absorbed completely and the driving force which made it a success could be diluted. I am concerned about that possibility. I am concerned about the customer. A customer with a business plan involving a long-term loan with ICC Bank who suffered a slight hiccup in regard to repayments could renegotiate with ICC Bank if it were on its own. However, there could be difficulties for such customers if ICC Bank were taken over by another institution which did not have the same mentality in regard to lending to small and medium sized businesses. While I hope that will not arise given our healthy economy and low interest rates, it could have a bearing if there were a downturn in the economy or, more importantly, an increase in interest rates.

I am a little concerned about the sale. I hope the Government and the Minister's advisers and officials have a bottom line and that if the bid is short of that, a plan will immediately be drawn up to allow ICC Bank to continue and to provide any investment necessary for it to grow and flourish. I understand a further State injection would possibly be needed to allow that happen.

I am also concerned about interest rates. Far too often we have heard of individual cases of overcharging by banks in regard to interest rates. We need to appoint an ombudsman on a statutory basis who would have the full authority and legislative power to, at the behest of any bank customer, investigate their documentation and arbitrate on whether they were overcharged. I have heard of numerous occasions of overcharg ing by banks, whether intentionally or unintentionally. My main concern is not mortgage loans because people are very conscious of mortgage interest rates, which are very high profile. However, there is potential for the banks not to pass on interest rate reductions on smaller loans such as credit cards, motor loans and home insurance loans. The banks have been very slow in the past to reduce interest rates on those type of loans because the market for them is not as high profile or cut and thrust as that for mortgages. We must take a serious look at the whole banking system because of the evidence that is emerging about overcharging.

Deputy Fleming referred to the fact that banks are avoiding tax. If people in the banking sector are avoiding tax, it may also be suggested that they are continuing to overcharge their customers. Not every customer has the ability or expertise to find out how much they should be charged on a loan, particularly the smaller loans which do not relate to house purchases.

Publicans need a tax clearance certificate to renew their licences. I am of the firm opinion that anyone purchasing ICC Bank or any other State asset should have to produce a guarantee from the Revenue Commissioners that they are fully up-to-date in the payment of their taxes. We were too soft on these institutions in the past and it is time for us to state firmly that tax avoidance is not acceptable at any level, whether by small farmers or large banks.

Mr. Broughan

I am glad the Minister for Finance is in the House so I can tell him how much I enjoy his performances on the programme "Bull Island".

Mr. McCreevy

Deputy Noonan and I will be charging a copyright fee soon.

Mr. Broughan

The Minister is much better than Deputy Noonan on that programme.

I share the deep and profound reservations of my colleagues on these benches in relation to the sale of ICC Bank. Six years ago, in the happy early days of the partnership Government, the Minister and I would have strongly supported the idea of a third force in banking. We recognised that key elements were lacking in the then system, particularly the total lack of competition. There was, effectively, a cosy cartel among the clearing house banks. They set the interest rates and consumers had to respond as best we could. We also felt we desperately needed a bank which reflected the ethos of the credit union movement and the TSB, not just because those institutions were more relaxed in how they dealt with consumers and more supportive of people on very low or no incomes, but because they provided financial services which were much more consumer oriented. On that basis, the third force was a relevant idea which we could have pursued in relation to ICC Bank.

There are similar institutions in many of our European partners, such as the Banques Populaires. The Unity Trust Bank, which is part of the co-operative movement in the UK, visited the Labour Party a few years ago. Those are examples of banks which are oriented towards very small businesses, households and consumers in a way that the big banks in this country have not been.

The fundamental question always asked by people on the right in politics is should the State be involved in running a bank. As my colleague, Deputy McDowell, has so cogently outlined, the short answer in relation to ICC Bank is "yes". There is a continuing, long-standing role for a bank providing essential services to SMEs. When one of my close relatives was starting her first business she and her colleagues depended on ICC Bank to get the business going.

Throughout Europe, especially in the UK, there has been a recent rethink about the whole privatisation mania. That is noticeable in the current controversy between Vodafone and Mannesmann, where Vodafone is trying to effect a reverse takeover. The German financial regulatory authorities are examining whether a major German utility should be allowed pass into what they regard as volatile foreign ownership. This is also the situation in regard to utilities generally, such as rail, water supply, nuclear fuel and so on, in the United Kingdom. Anyone who travels on the new rail networks, as I did last year from Newcastle to London, and who compares it with the performance of British Rail some years previously, would have to conclude that the privatisation of the railways has been a tragic mistake which set the whole situation back ten or 15 years. The money business is regarded by many people as the most important utility. We must examine closely every step we take in that area.

I welcome a provision in the Bill which our party has supported strongly in the past. We were, along with the MSF union, the progenitors of the ESOP and ESOT concepts. I remember the battles I had in this House last year during the Dublin North by-election to encourage the Minister, Deputy O'Rourke, to finally put in place the ESOP in Telecom Éireann. When Telecom Éireann was sold, many citizens asked why they did not get free shares in their own company. It is hard to answer that question. However, it has given the Minister the huge sum of £6 billion to chart our progress over the next number of years.

Like most of my colleagues on these benches, I am opposed to the sale of ICC Bank. It is the wrong institution at the wrong time. There is a need to rethink. Ownership of State enterprises should not be transferred willy-nilly in response to the privatisation mania which has reduced many services in neighbouring jurisdictions to a primitive state of performance. I oppose the Bill.

Minister for Finance (Mr. McCreevy)

I thank Deputies for their contributions and Deputies Noonan and McDowell in particular for facilitating the early taking of this necessary Bill. I appreciate their assistance. Many of the points raised can be teased out in greater detail on Committee Stage.

Deputy Noonan said there is only one willing bidder left. The financial institutions market has changed in recent months. Each financial institution which was to make a bid has its own views on why it later changed its mind. I would prefer if there was more than one preferred bidder at this stage but such are the realities of the marketplace, and the appetite for smaller banking institutions is not what it was six months to one year ago. We and other financial institutions have a lesson to learn from this.

I do not envisage long-term involvement by the State in any of the State banking institutions. The proof, if proof were needed, is the lack of interest in the sale of the ICC Bank, a small but very good institution. No one would say it has not been well managed and run for a long time. It has filled a particular niche in the marketplace. Yet, there is only one preferred bidder left. Recent events in the financial sector show how difficult it is for small operations to compete.

The question has been asked how we can guarantee competition if financial institutions are amalgamated into larger institutions. The climate in Ireland has changed as a result of developments in Europe, particularly in the last six months with the introduction of greater competition in the mortgage market. This will become the norm. One will have to be able to compete in the financial world. This will bring its own problems.

I announced recently at the Institute of Bankers dinner a strategic review of the banking industry. It is time to consider what is likely to happen and to tease out the problems and opportunities. We are in danger of waking up one fine morning in six or seven years' time to find that none of the financial institutions operating in Ireland has an Irish base and somebody is likely to ask how did it happen overnight.

Mr. Broughan

What would we do then?

Mr. McCreevy

That is the reason I announced a strategic review in my Department in co-operation with the Central Bank to consider what is likely to happen and the available options. Perhaps there are changes we should think about now, but it has happened in other countries. I do not know what the shareholdings are, but I suspect ownership of the two major banks in Ireland – the AIB and Bank of Ireland – which have been floated on the Stock Exchange is held by persons living abroad. Yet, they are regarded as Irish banking institutions. In the present climate if someone makes a bid for either of them, nothing can be done about it.

I will endeavour to deal with the questions raised by Deputies Noonan and McDowell on Committee Stage. It is important that we facilitate the passage of this necessary Bill. The final due diligent process has been initiated by Bank of Ireland, the only preferred bidder left in the race. As I said at Question Time, when we receive a final offer I will discuss the matter with the board, my advisers and colleagues in Government and make a final decision. I thank Deputies for their contributions.

Question put.

Tá

Ahern, Dermot.Ahern, Michael.Ahern, Noel.Blaney, Harry.Brady, Martin.Brennan, Séamus.Briscoe, Ben.Browne, John (Wexford).Byrne, Hugh.Callely, Ivor.Carey, Pat.Cowen, Brian.Cullen, Martin.Daly, Brendan.Davern, Noel.Dennehy, John.Ellis, John.Fahey, Frank.Fleming, Seán.Foley, Denis.Hanafin, Mary.Harney, Mary.Haughey, Seán.Healy-Rae, Jackie.Kelleher, Billy.Kenneally, Brendan.Killeen, Tony.

Kirk, Séamus.Kitt, Michael.Kitt, Tom.Lawlor, Liam.Lenihan, Brian.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGennis, Marian.Martin, Micheál.Moffatt, Thomas.Molloy, Robert.Moloney, John.Moynihan, Donal.Moynihan, Michael.O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Kennedy, Michael.O'Rourke, Mary.Power, Seán.Wade, Eddie.Wallace, Dan.Walsh, Joe.Woods, Michael.Wright, G. V.

Níl

Bell, Michael.Broughan, Thomas.Ferris, Michael.Gormley, John.Higgins, Joe (Dublin West).Higgins, Michael.Howlin, Brendan.McDowell, Derek.

Moynihan-Cronin, Breeda.Ó Caoláin, Caoimhghín.O'Shea, Brian.O'Sullivan, Jan.Penrose, William.Stagg, Emmet.Upton, Mary.Wall, Jack.

Tellers: Tá, Deputies S.Brennan and Power; Níl, Deputies Ferris and Stagg.

Question declared carried.