Dáil Éireann debate -
Wednesday, 28 Mar 2001

Vol. 533 No. 4

Order of Business (Resumed). - ACC Bank Bill, 2001: Second Stage.

Minister of State at the Department of Finance (Mr. Cullen)

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

The purpose of the Bill is to provide for an increase in the authorised share capital of ACC Bank and to put in place the enabling provisions required to facilitate the establishment of an employee share ownership trust in the bank. It also provides for the future sale of ACC Bank, subject to the approval of the House at the appropriate time.

As Deputies are aware, ACC and TSB Banks had agreed to merge and float in 1999. This proposal had originated from the ACC group of unions in 1998 and had been signed up to by all parties. However, in the light of market developments, the boards jointly recommended in January 2000 that the merger should not proceed and the Minister reluctantly accepted this recommendation. At that time, the Minister asked the boards of ACC and TSB, along with the ICC board, to review all the options for the future and reiterated his view that the status quo was not an option. Since then, both ICC and TSB banks have undertaken successful sale processes.

ACC Bank on the other hand, had a difficult year for reasons we are all aware of, and it is now time to benefit from the lessons which have been learned and move forward in a positive manner. ACC has not yet reported its figures for the year ending 31 December 2000 but a loss for the year is anticipated. However, the management of the bank reports that the core business has been strengthened and that the bank is performing very well.

In relation to the DIRT settlement which is the main reason for the anticipated loss in 2000, the board has expressed its deep disappointment to the Minister at the evidence of widespread deficiencies in ACC revealed by the Committee of Public Accounts inquiry and the Revenue audit. The board and management have assured the Minister of their absolute commitment to ensuring full compliance in the future and their determination that the mistakes of the past will never be repeated.

The board and management have reviewed the bank's operations and recommended that the bank adopt a new strategy which involves moving away from general retail banking in order to concentrate on business banking and to provide a more focused personal banking service, which includes continuing to serve its original market, the agricultural sector. ACC has already rationalised its branch structure in Dublin. It regards its rural branch distribution network as one of its strengths.

This new strategy will involve a restructuring of the bank's operations. The Minister has mandated the bank to continue its course of negotiations with staff representatives on all aspects of this restructuring, including a new employee share ownership plan. The ESOP will be in line with previous ESOP schemes, with a 14.9% stake in ACC being available to staff, 5% in return for change in the bank and 9.9% for purchase.

The Minister has also mandated the board to explore all options in relation to a change in the ownership structure over the course of the next 12 months. The bank has appointed corporate financial advisers to help in this process. The Minister has recently appointed A & L Goodbody to be his legal advisers in relation to the sale of the bank.

One of the main purposes of this Bill is to provide for an increase in the authorised share capital of the bank. The current authorised share capital of £50 million has been nearly subscribed in full. As things stand, the Minister is unable to subscribe for further shares in ACC Bank. This is not a prudent position to be in even though the company currently has no requirement for additional capital. If the company requires additional capital, the board's proposals will be assessed at the appropriate time. It is the Minister's intention to ensure that the company remains adequately capitalised as long as it remains in State ownership.

The other objectives of the Bill are to put in place the enabling provisions to facilitate the establishment of an ESOP and a change in ownership in line with the provisions put in place in relation to ICC Bank in the ICC Bank Act, 1999, and the ICC Bank Act, 2000.

I will now turn to the main provisions of the Bill. Section 1 is the definitions section and is self-explanatory. Section 2 is a standard provision in relation to the expenses of the Minister. Section 3 provides for an increase in the authorised share capital of the bank from its current limit of £50 million to £100 million. It is the Minister's intention to ensure that the bank remains adequately capitalised as long as it remains in State ownership; £49.95 million of the current limit has been subscribed. ACC Bank is adequately capitalised at present and no request for further capital has been made by the board. The effect of this section is to allow the subscription of further capital. Any request for further capital will be considered at the appropriate time.

Section 4 provides for the establishment of an employee share ownership plan. This section is identical to the provisions made for the ESOP in ICC Bank in the ICC Bank Act, 1999. Section 5 provides for the disposal of shares by the Minister for Finance. It is identical to the provisions made for ICC Bank in the ICC Bank Act, 2000. Any disposal of shares, other than to a director of the company as nominee of the Minister or to the ESOP, requires a motion of approval from the Dáil. Section 6 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 as existing facilities expire. Section 7 is a standard provision requiring ACC Bank plc to take relevant action to alter its mem orandum and articles of association, in the context of the Companies Acts, to make them consistent with the terms of the Bill.

Section 8 provides that ACC shall no longer be subject to the requirement applying to statutory authorities under the Registration of Title Act, 1964. This section will only be commenced following a change of ownership. Section 9 provides for the amendment of the definition of "recognised lender" in section 23 of the Agricultural Credit Act, 1978, which regulates chattel mortgages. This is being done to eliminate the requirement for banks to be recognised separately by the Minister, in addition to their normal licensing requirements, in order to register a chattel mortgage. Section 10 provides for the deletion of ACC from section 2 of the Insurance (Amendment) Act, 1978. It will only be commenced following the sale of the bank.

Section 11 provides for the deletion of ACC from section 3(2)(b) of the Companies (Amendment) Act, 1990, which provides that only the Central Bank may present a petition to have an examiner appointed to a bank. Once sold, ACC will come under the provision as the holder of a licence under section 9 of the Central Bank Act, 1971. The Office of the Parliamentary Counsel to the Government has recommended that the relevant section of the Companies (Amendment) Act, 1990, should be consolidated as it currently stands which is the effect of section 11(1) of the Bill. Section 11(2) is a further consolidation which reflects the deletion of ACC and it will only be commenced following the sale of ACC.

Section 12, and the accompanying Schedule to the Bill, will only come into play if and when the bank is sold. This section provides for the repeal of most of the ACC Bank Acts, 1978 to 1999, and the deletion of references to ACC in other legislation.

The purpose of these repeals and deletions is to ensure that ACC Bank, once sold, will operate on the same basis as any other private commercial bank. They will be given effect by ministerial order under section 12(2) of the Bill. The relevant order will not be made until ACC Bank plc is formally granted a licence by the Central Bank. Section 13 gives the short title and commencement provisions.

I commend this Bill to the House.

Mr. J. Mitchell

I welcome this Bill. Given the experience of the ICC and the TSB, it is only right that the Agricultural Credit Bank or ACC Bank should also be outside of public ownership. Many years ago there was a strong case, a compelling case, for its establishment. Times have changed and now there is no case for the State ownership of banks.

Speaking in my position as Chairman of the Committee of Public Accounts and chairman of the DIRT inquiry, I should comment on the situation the bank is facing arising from that inquiry. The bank's situation is directly connected with this Bill and the forthcoming announcement of its results for the last financial year. It is true that the ACC Bank did not emerge well from the inquiry, and that is an understatement. It is also true that few if any banks or financial institutions emerged well from the inquiry. The important question is whether the ACC Bank has learned from the inquiry and whether it has put its house in order. The onus is on the bank to reassure the House and public opinion.

From my own research, I believe there is a determination on behalf of the board and senior executives of ACC Bank to take on board the lessons of the DIRT inquiry and cleanse the bank of the sort of culture that was exposed. If there is not a comprehensive clearing out of that culture, it will jeopardise the sell-on of the bank. If my perception is correct, they are addressing the issue seriously. It would be important that the bank would make full provision for all matters to be addressed prior to privatisation in its forthcoming annual report. If it fails to address those matters, privatisation will be jeopardised. There will be a once-off provision for payment to the Revenue Commissioners arising from a settlement from the DIRT inquiry. Further provisions must be made for the investment in the Four Seasons Hotel and a number of other lesser issues. The bank must address these matters comprehensively and must err on the side of making provision in regard to any grey areas. This is a once-off opportunity for the bank to get its accounts in order in a transparent and comprehensive way. Any examination of due diligence which will inevitably precede a take-over will then be satisfied that the bank's accounts are in order.

The bank intends to close its Dublin branches as part of its proposed economies. That may appear sensible on the face of it in that one might ask why an agricultural credit corporation would have branches in Dublin. However, the reality is that the bank's business has expanded far beyond an agricultural remit which currently represents a far smaller proportion of its business than heretofore. I query the wisdom of closing the Dublin branches. Is there a danger that the bank may sell off an aspect of its business which may prove very attractive to prospective purchasers? The bank has also made economies in its credit card business and has arrived at far more cost effective arrangements in this area which do not jeopardise or reduce services to its customers.

One of the aspects of the DIRT inquiry which should not escape us is that the Department of Finance – the bank's owner – seriously lapsed in its supervision responsibilities. Proper reporting procedures were not in place either between the chairman and the Minister or between the chief executive and the secretary general. The Department is still represented on the board of directors and while this is not unique, it raises some important questions. It is a normal feature of State companies operating under the aegis of Government Departments that the relevant Minister appoints civil servants as members of the board of directors. However, this can give rise to absurd situations in which a Department can deny knowledge of an issue because the civil servant representing the Department was wearing two hats, that of a Department employee and a director. In the past – I am aware of this from my ministerial experience – civil servants have claimed to have had knowledge as directors which they did not have as civil servants and pleaded ignorance on that basis. Why should civil servants be appointed to the boards of companies if their job is not to act as watchdogs for the Department?

The Department of Finance deserves to be roundly criticised for the manner in which it handled the ACC Bank in the past. It is all the more galling that banks owned by the Department of Finance, which sets down policy and law in regard to the regulation of all financial institutions, exhibited some of the worst examples of bad banking practice. Will the Minister assure the House that a proper reporting relationship is currently in place between the chairman of ACC Bank and the Minister and the chief executive and the secretary general and will he ensure such relationships continue for as long as the bank is in State ownership? Will he elaborate on the channels of communication which are in place and the frequency of such communications? Can the Minister assure the House that all is well in regard to the running of ACC Bank? It is important that we receive answers to these questions, not in an effort to dwell too much on the past but to be assured for the future. This House must have confidence in the running of the bank. The lack of such confidence and assurance will affect the bank's sale price.

This Bill follows on the legislation on the ICC and TSB, both of which were successfully sold and I hope it will result in a similar success for ACC Bank. I particularly welcome the provision in regard to ESOPs. It is very important that employees have the right to be shareholders in the enterprise for which they work. A precedent set in this regard in the case of Telecom Éireann was subsequently followed in ICC and TSB. Will the Minister assure the House that the net proceeds of the sale of ICC and TSB and those of ACC Bank, if and when it is sold, will go into a fund to provide for future pension costs rather than being remitted to the Exchequer?

I am informed that ICC was sold to the Bank of Scotland for £275 million, having been valued previously at a lesser figure. The sale price exceeded expectations. Of that £275 million, 85.1% or £234 million went to the Exchequer. Did that money go into a fund for future pension needs? The difference between £234 million and £275 million is £41 million, representing 14.9% of ICC's value of which 5% was given without cash payment to the bank's employees. Obviously employees paid a price in terms of accepting major changes, including redundancies. However, 5% went to the bank and I support the idea that a percentage should go to employees. The other 9.9% was purchased by the employee share ownership plan on behalf of employees. It has been very profitable for employees of ICC Bank and it is important to say that. Employees of ACC will be encouraged by the experience in ICC. Having invested in the company, the investment of ICC employees is worth a great deal more in terms of current stock prices. Some 320 employees are involved and the gain so far is £20.25 million, which is £66,000 per employee. That said, the price can fall as well as rise. The experience with ICC has been a happy one and is a good precedent for employees of ACC Bank and should encourage them to embrace the necessary changes.

The sale of TSB has also been a success for the bank and its employees. The TSB has been taken over by Irish Life and Permanent. Its value for the purposes of the ESOP purchase was £200 million, but the sale price was £339 million, which is a very good price and exceeded expectations. The TSB has 1,200 employees and, taking current share values, they have done very well from their free shares and from their investment. They appear to be ahead by about £31,000 at present. It must be emphasised that these are ballpark figures rather than precise ones, but they show that workers who co-operate with change can benefit. Those of us who invested in Eircom, like the employees of the company, will know that share prices can fall as well as rise. We should not be too sanguine. That said, in the case of TSB and ICC, it has been a very worthwhile investment. The Minister of State may be in a better position to give more precise figures but, on the face of it, ICC and TSB are happy precedents for ACC.

Will the Minister of State indicate the timetable for privatisation? Obviously the first step is for the Bill to be enacted in both Houses and signed by the President. When is it proposed to take steps under the Bill? What timetable does the Minister of State envisage for putting the bank on the market? Will it be before the end of this year or is it likely to take longer? Will he outline the steps he will have to take to get the bank into shape for sale? The bank will have to change its articles of association. When will that be done? Would it be too much to ask if there have been any expressions of interest?

The law has limited the amount of share capital the Minister may take in ACC to £50 million and he has already subscribed £49.8 million. Therefore, it is prudent to make further provision. The £200,000 still available to the Minister will not be much good if there has to be a cash injection to ready the bank for sale. I am aware there is not any certainty that money will be needed, but perhaps the Minister of State will comment on whether he envisages having to pump further money into ACC before privatisation.

The bank began as a service principally and overwhelmingly to the agricultural industry, especially farmers. It has gone far beyond that and a great majority of its business is now outside farming. The Four Seasons hotel experience indicates how far beyond agriculture it has gone. The Bill is being debated at a time when agriculture is in crisis because of foot and mouth disease and many farmers will have major credit problems arising directly from that. Will the Minister of State say whether the Department of Finance will make available some guarantees or credits for farmers in the current climate or will make any approaches to or arrangements with ACC Bank and other banks to ease the desperate plight of some farmers arising from foot and mouth disease? Given the heartbreak for farmers in losing their entire stock or the danger of same and all the other matters which flow from that, such as restrictions on animal movements, the fact stock cannot be sold and cash flow and other financial problems created by that, I appeal to the Minister of State to make a statement urging the banks to take a generous and lenient attitude towards farmers who are not able to meet their commitments in the current crisis, and to say if it is his intention to make some financial provision to assist with these debts.

I welcome the Bill. I hope and believe ACC Bank is getting its act together and I wish it well. I hope the Bill will be a harbinger of success for the future and that the bank's flotation will be every bit as successful as its predecessors, the ICC and the TSB.

Mr. McDowell

I approach this debate from a different ideological prejudice to other colleagues who have already spoken. I have said on a number of occasions that the Minister's stance on banking is a curious one. He has stated unremittingly and repeatedly since he came to power that he does not see any role for State banks, but he has not said why. There has been and can be a significant and strategic role for the ICC and the ACC. Whether that role still exists is an open question and one with which I will deal in some detail later. It is important to state that there can be a strategic role for them.

The Minister of State will be aware that my party in the early 1990s favoured the formation of a third banking force within the State sector. We wanted to combine the three State banks with An Post to compete effectively with the privately owned commercial banks. That was a good strategy. There was and still is an urgent need for competition within the banking sector, but what has happened in the meantime, especially the sale of ICC and the prospective sale of TSB, renders that strategy redundant. We must now examine the ACC in isolation to see if it is has a strategic role.

The ACC has existed in one form or another for about 75 to 80 years having been set up in 1927. For most of the first 40 to 50 years it was obliged by statute to concentrate exclusively on agricultural lending. It did so effectively, especially in the 1960s and 1970s. It was a driving force in assisting the rural community to capitalise itself, improve its efficiency, buy the combine harvesters and increase capital use on farms. This made agriculture more efficient and opened it up to European competition in the 1970s and 1980s.

I was surprised to discover that the bank was only allowed to diversify outside the agricultural sector in 1987 because it did so very quickly, to the extent that most of its lending at this stage is outside that sector. We must question whether the diversification over the past 13 years has been good for the bank. It is the case that virtually all the various indicators have increased, including the bank's costs, with the singular exception of the p/e ratio. The bank has not become more profitable and there is no evidence, in terms of looking at it as a purely commercial exercise, that the diversification over the past 13 years has been good for it. This aspect is relevant in terms of its future. If the ACC Bank is to have a future inside or outside the public sector, it needs a focus. It is difficult to see its purpose because it is a long way from the agricultural lending of the 1960s and 1970s to the type of Four Seasons expedition in which the bank has engaged in the past year or two. It is difficult to foresee a serious strategic role for the bank.

The bank's board and the trade unions have on a number of occasions in the past three or four years considered developing a strategic plan. In 1992, it considered developing such a plan in the context of the third banking force. It produced a corporate strategy for the period 1997 to 2000 and the board has been asked to produce another strategy for the next few years. I was interested in the Minister of State's comment that the board and management of the bank have decided to adopt a new strategy which involves moving away from general retail banking and concentrating on business banking and providing a more focused personal banking service. Perhaps the Minister could elaborate on this in his reply by outlining what business banking and particularly what a focused personal banking service means.

I hope it means the bank will try to develop the type of business which is done by the Sparkassen in Germany. It concentrates largely on relations with individual customers. We are all aware of what has happened in the major commercial banks in the past year. They have become depersonalised and are increasingly concentrating on technology. The average customer is receiving less service to the extent that one cannot cash a cheque. There is a role for a small regional bank that would provide personalised services to individual customers. The ACC is in a position to provide that type of service in the future, albeit on a relatively limited scale.

The conclusion of my argument is that, in terms of the diversification that has taken place and the fact that a third banking force is no longer a viable proposition, there is no reason to retain the ACC within the State banking sector. To that extent, I am not opposed to the central tenet of the Bill. However, I do not like the way it is being done. It is not the first time it has been done in this way, but I do not like it because we are, in effect, signing a blank cheque. I appreciate the Minister must introduce a motion in the House in the future, outlining the rest of the important details. However, it unreasonable to present a Bill which effectively provides a blank cheque and I would not be inclined to sign it.

Deputy Mitchell asked the Minister about the timetable for the sale. I assume there is no timetable for a sale because it is an open secret that there is not a posse of potential purchasers knocking on the door, wanting to buy the ACC Bank, and there is unlikely to be such a posse in the near future. The Minister will not give the House a timetable today, but the ACC Bank should not be sold yet. It needs to get its act together before it is sold. If the bank is sold now, the State will not get good value for it because it does not have a developed strategic plan and it has not sorted out what exactly is its core business. It has poor industrial relations and it needs to sort itself out. Until that happens, the bank should not be sold. I hope the Minister will confirm this position when he responds to the debate.

I suspect the principal purpose of the Bill is to kick the ACC's management and trade unions in the hope that they will get their acts together. There must be a better way of doing this than producing a Bill, although there is a need for a message to be sent to the management and work-force of the ACC that they must get their acts together and that the type of adventurism of the past two years must come to an end.

Deputy Mitchell referred to the ESOP. The more such plans that arise, the more sceptical I become about their purpose. In principle, ESOPs are meant to encourage stakeholding and financial participation. They are meant to make workers feel that they are part of the company and to give them an incentive. They are supposed to give workers a share of profits and a sense of belonging to the company. They are supposed to create a sense of purpose on issues that are common to the management and workforce of an organisation. This is all wonderful in principle and I agree with it. ESOPs in the private and public sectors have a serious role to play in creating such a culture in companies and I support that idea.

However, it is difficult to relate that argument to what happened in State companies where effectively, a random amount was given to individual employees and the company was privatised. It was little more than slipping people a few quid to keep them quiet during the sale process. It did not encourage any of the issues I mentioned earlier, such as any sense of identity between the workforce and the company. In some cases, operations were sold to different companies and they became part of bigger companies. As I said in the debate on the Bill relating to the TSB recently, this created an extraordinary anomaly where some employees in Permanent TSB have shares in the company, but the majority do not have shares. A similar situation is likely to arise in the future with regard to ACC and this does not perform any of the important strategic roles ESOPs can perform in the State or private sector.

If that is the case, one wonders why it is done in the first place. If it is to be done, it should be on a more rational basis. The likely capitalised value of ACC will be between approximately 160 million and 200 million. On that basis, the value of the ESOP will be approximately 30 million to be divvied up between the employees. Even within the banks, the range of value of ESOPs to individual employees has been huge, but the ESOP will be worth a great deal less within the ACC than it was in the ICC. There is no logical or good reason why that should be the case since it is only a payment to people to smooth privatisation. It might as well be a uniform figure for the various banks rather than having different amounts for different banks.

Deputy Mitchell mentioned the DIRT business and he is much more qualified to speak about it than I am. However, it is crazy that the operating profits of a State bank for last year were wiped out because it must make payments for taxes, interest and penalties to the Revenue. It is extraordinary that this was allowed to happen. If nothing else, it points to serious deficiencies in management and in terms of accountability to the Department of Finance, the stakeholder and the owner, and also the House. I agree with Deputy Mitchell that there are lessons to be learned. It is clear that when a State company, in this case a State bank, does not know what it is meant to be doing and when nobody in the House is paying particular attention to it, a capacity exists for matters to go seriously wrong. This happened in the case of ACC. We hope the DIRT debacle is over and that the ACC and all the other banks have learned a bitter lesson for which they paid dearly to the Revenue in monetary terms. We hope that, in the future, those lessons will be taken on board and the mistakes will not be repeated.

I wish to refer to industrial relations within the ACC but it is not my business to allocate blame to either management or the workforce. Usually in these circumstances, problems arise only when there is a problem on both sides, which is likely the case within the ACC. I would like the Minister to give us some assurance that the difficulties which arose during the attempt to set up Newbank have been surmounted. It is an open secret that things were not good at the time and that the capacity to manage within that company did not seem to be what it should have been. That being the case, the workforce presumed a licence which in many other companies it would not presume. I do not wish to say any more than that. There is a need to ensure that the lessons of that experience have been learnt and that in future things will be a good deal better.

I am not comfortable with the main thrust of the Bill which is to provide the Minister with the cheque about which I have been talking. All of us support the other significant provision, that is, the increase in the share capital.

Mr. Fleming

I welcome the opportunity to speak on the Bill about which I have mixed feelings. I am pleased the Minister is dealing with the issue but I have mixed feelings at this time because of the difficulties ACC has been going through in recent years.

The essential purpose of the Bill is to facilitate the future sale of ACC. There are other provisions in the Bill relating to employee share option schemes and the possible increase in share capital, if necessary. That may or may not arise because it depends on when the sale takes place. Deputy McDowell has often mentioned this aspect and we have different views on the sale of State assets. Following the policy announcement by the Minister last year in relation to the sale of ICC and Telecom, the funds went to the pension superannuation fund. The Minister of State said in his speech that the proceeds of the ACC bank sale will go to the Exchequer. The Minister for Finance, Deputy McCreevy, has said that at the end of the year, when the figures are known, it will be easy to arrange for that amount to be transferred to the superannuation fund. This does not have to take place on the day of the sale but it must happen in the year of the sale to ensure the money is not included in the overall Government surplus for the year.

The TSB, ICC and ACC were originally looked at collectively but, for a variety of reasons, it was not possible to merge them into a third banking force. When these discussions were taking place, I was a bit miffed that An Post Savings Bank was not taken into consideration. An Post Savings Bank, through its national savings schemes and deposit accounts, traditionally got young people throughout the country to save money, whether First Communion money or Confirmation money. Many people began saving in the local post office. The post office does not have the facility to lend money as it is just a deposit taking institution. The facility to lend money would be encouraging for An Post given the difficulties it is experiencing in maintaining the sub-post offices network. The credit unions are well able to provide this facility at local level, therefore, it could be considered for An Post. I do not believe the local branches would make decisions in relation to loans, that would have to be done on a regional or area basis. However, providing loan application forms and making monthly repayments on any particular loan could be carried out through the local post office. I ask the Minister of State to consider the future role of An Post Savings Bank, even though it is not part of his brief today.

In the past year or two, we have dealt successfully with the ICC sale. It was discussed at committee and in the Dáil on several occasions and this sale has been very successful. We then moved on to deal with the sale of the TSB. Irish Life and the Irish Permanent Building Society merged and are now in the process of taking over the TSB. When that matter was being dealt with, I pointed out that there is a TSB branch in my home town of Portlaoise and literally two doors up there is an Irish Permanent Building Society office. Unfortunately, it goes without saying that one of these institutions will close because it is not feasible for any bank, regardless of how profitable it is, to have two competing branches two doors from each other.

The ACC bank, which is just a few hundred yards away, must also be taken into consideration. The structure of the ACC throughout the country has been one of its strengths and, therefore, I hope whoever buys it will continue to maintain all the branches in the main provincial towns. The Minister said that it is going back to its core business. It recently pulled out of the credit card business in which it was involved with the TSB and handed it back to the TSB. It has now notified its customers that it is no longer involved in credit card transactions, as was the case in the past.

As a result of ICC and TSB being successfully dealt with, it is now the turn of ACC. The climate for the sale of ACC is more difficult than for previous sales. While the Government has appointed A&L Goodbody as its legal advisers and NCB Stockbrokers as financial advisers to try to identify a potential purchaser and, while it is correct to move ahead with this legislation and make provision to facilitate the future sale of ACC, I would be in no rush to sell ACC at present. We could not have picked a worse time in its history since 1928 to put the bank on the market given that it had reasonable profits in previous years but it is now reporting a loss in relation to its accounts for last year, which are expected to be published shortly.

I will refer in detail later to its financial accounts following the bank's recent financial statements. I accept the Minister is a shrewd businessman and that he will not necessarily accept the first offer. If the first offer is attractive, I would encourage him to take it but if the offers are not attractive, he should wait until the time is appropriate. I suggest this for two reasons. The principal reason is to ensure taxpayers get value for the assets they have built up over the years through Government support of the ACC. The second reason was referred to at length by Deputy Jim Mitchell.

On the employee share option scheme, I would be very concerned that the 5% employees will receive as of right for facilitating the change in the bank's structure, and the 9.9% which they have an option to buy themselves, will be called 15% in round figures. If the sale price is very low as current market values may dictate, the value of the shares would be very low and ACC employees might rightly believe they could get a raw deal. If the value is sufficiently low, there will be very little interest by employees in taking up the 9.9% available to them. That is why I encourage the Minister to wait until the price is right. I have no doubt the price will be right at some future date. I am not sure when that will be but it is important to have the legislation in place to facilitate the sale. We must always ensure the taxpayer gets value for money.

The ACC was traditionally known as the Agricultural Credit Corporation which suggests it was heavily involved in the agricultural sector. In 1988 legislation allowed for 25% of its activities to be outside the agricultural sector. As a result, it has diversified and moved into personal and commercial banking. The Four Seasons situation has been mentioned. I believe that level of borrowing for the bank was out of proportion. Regardless of the costs involved, this project was too big for a bank of this size. Given the scale of the project, the bank should have been one of a consortium of banks, not the lead bank.

The network throughout the country is a major asset which should add to the value of ACC Bank's portfolio. While carrying out research during the past few days I was upset by an article in a recent edition of Business and Finance which suggested that today's market value of ACC Bank is £1. That may be correct today in that ACC Bank is experiencing difficulties, but it is not a true reflection of where it has come from or where it will be in the future.

The most recent accounts available for ACC Bank relate to 1999. I wish to highlight a few points in the accounts which are of interest and concern to me. When talking about ACC Bank it is no harm to look at the specifics, and the place to find these is in the last set of published financial statements. The profits of ACC Bank in 1999 were 24.4 million. Members will forgive me if I refer to euros as this is the currency used in the financial statements. While this figure represents a slight decrease on the previous year, it is well up on preceding years. This is a good figure which one would have thought would put a value of £200 million or £300 million on the bank at that time. I hope it will return to this position in the future.

One factor which weighed heavily against profits last year was the charge of 3.17 million for the ACC/TSB merger, which was ultimately cancelled. That was the financial cost, but much time was devoted by senior executives, the board of management and board of directors to dealing with the merger process. The reason they concentrated on the merger was that it looked like this was where ACC was headed in 1999. In addition to the charge of more than 3 million there was a non-financial charge in terms of morale within the ACC. The cancellation of the merger was a major disappointment to the people involved in the process.

I am intrigued by the provision in the accounts of 5.8 million for dividends to the Exchequer. The figure for the previous year was 5.13 million. Given that it was in the throes of the DIRT investigation and agreeing the biggest settlement in its history, it was not prudent for the board of directors to make a provision of more than 5 million for dividends. As the bank is expected to report a loss, the accounts for 2000, which will be published shortly, will unquestionably contain a figure for dividends. Given that the bank was in the middle of negotiations in 1999 and knew what was around the corner, it was not wise to include a figure for dividends.

No provision was made in the last set of published accounts for the DIRT settlement. I query the reason for this. I understand that the bank subsequently came to a settlement after the year end. A note in the financial statements in relation to the contingent liability for deposit interest retention tax states:

A Revenue audit of all DIRT at ACC Bank is currently taking place. Pending the outcome of that audit the Directors cannot reliably estimate the amount of outstanding DIRT. A contingent liability exists in relation to the outcome of the Revenue audit and also in respect of the statutory interest, penalties and fees which the Revenue may seek to apply.

The determination of the aforementioned contingent liability depends on factors which are uncertain and without precedent and, therefore, it is not possible for the Directors to reliably estimate the financial effect of this contingency.

The 1999 accounts were signed by the auditors in April 2000 and by the directors on 10 May 2000. Yet the half year accounts up to the end of June, which was only a few weeks later, contained a precise figure. At the time the accounts were signed the figures were well known to within a small margin. In its financial accounts for the half year up to the end of June 2000 the bank announced that it had made a final settlement. Given that it was a prior situation, the bank should have taken the hit, so to speak, in 1999 so that the accounts for 2000 would show a profit. Instead the bank will be hit for a big DIRT settlement of 227 million. I will not go into the detail of this matter as Deputy Mitchell dealt with it in detail. However, I echo the sentiments expressed. Given that the bank was on the verge of agreeing a figure last April-May which it knew would give rise to a loss, why did it make provision for dividends in the 1999 accounts of more than 5 million? I question the logic of the board of directors in going down that road. I am not criticising the Minister or the Department of Finance; it relates specifically to the institution we are discussing.

I query the provision of 1.017 million for bad debts. The figure for the previous year was 1.1 million. Lo and behold, in the accounts for the first six months of last year, the provision was increased to 4.6 million. This puts a question mark over the bank's management of its bad debts provision in previous years. Having conducted the DIRT inquiry, it also carried out an inquiry into the level of bad debts provision. Increasing the figure from 0.9 million for the first six months of the previous year to 4.6 million the following year shows that something was wrong the previous year. Everything did not go bad during the six months under review. I question the attention given to the management of the bad debts of this organisation.

As a former auditor, I have to ask what the auditors were at when the bad debts provision was a token figure for many years and then, when the spotlight was turned on the bank, the figure was quadrupled. This begs questions about what everyone was at. The auditors note that it was not possible at the time to quantify the effects of the DIRT settlement. In any financial institution, limited company or plc where one knows there will be a massive settlement in a few weeks it is prudent to hold off signing the accounts. This would have been the appropriate thing to do.

The bank contributes 16.7% of pensionable salaries to the pension fund. This seems generous and I am pleased for employees that it is so generous. I imagine many organisations would be envious of this scale of contributions. The bank operates a derived benefits scheme for employees rather than a defined contribution scheme. I hope that the pension fund will be left fully intact for the benefit of ACC members and will not be absorbed into the pension fund of the new owner. The Minister will have to come back to the House to get approval for the sale of ACC Bank. I hope at that stage there will be some clarification by the potential purchaser of its intention in regard to the ACC pension fund.

The accounts for 2000 have not yet been published. As a chartered accountant I have a difficulty with this. The audited accounts for 1999 were signed on 16 April last year. The audited accounts for 2000 should be due to be signed within the next fortnight. Draft accounts are available and if there is a proper financial management system they should have been available to us for this debate. The Minister should ask the board to make the draft financial statements available to us before Committee or Report Stages. They would provide current and up to date information and I ask that they be fully available so that we can have a more meaningful discussion and possibly estimate, based on the financial strength of the organisation, what this employee share option scheme will be worth. We must consider the employees also. Our discussion is in a vacuum at the moment in terms of the value of the shares and we could be more specific if we had more up to date information. I look forward to discussing this Bill on Committee Stage. I was a little hard on the ACC. This is a bad year for it. I hope the Minister will not sell until he gets a decent offer and I know he will act in the interest of the taxpayer to get maximum value for the State investment.

Mr. McGrath

I too welcome the ACC Bank Bill, 2001 and the ideas contained in it. It prepares the bank for future sale and is welcomed by all. I will comment on the contribution made by Deputy Fleming. I commend him on the work he has done in relation to the accounts. Many of the questions he raised are very worthwhile and the Minister as a shareholder should be in a position to respond to them or present a response document on Committee Stage. He has a responsibility to provide answers to the House.

All the contributions to date have been overshadowed by the successful sale of the ICC Bank and the TSB Bank. They all point to the fact that the original estimates for the possible sales were handsomely surpassed. That creates the expectation that when ACC is on the market, and it has been unofficially on the market for some time, its estimates too will be surpassed. We do not know what ACC will realise for the State but I hope something good will happen. It is our job to be conscious that this is a State asset, owned by the taxpayers. We should play up the value of it for future sale so that the taxpayer will get the maximum benefit available. We must be quite cautious in what we say but should at the same time be prepared to raise questions.

The two great assets of the ACC Bank are its staff and its branch structure. In Mullingar, my own area, the ACC Bank is across the road from my office and I know many of the staff well. The bank building is a fine, well situated structure and would be a tremendous asset for anybody. ACC will be seen in the wider spectrum as a branch structure right around the country. It is up and functioning and I hope it will be acquired in that light.

The original intention of the ACC was to facilitate farmers. When it was set up by the State it was with the far sighted view that the farming community needed support. Farmers needed someone who knew and specialised in their business and who would be able to understand their cash flow difficulties. The bank also recognised the huge need there was for infrastructural development in the farming area. There were a myriad of banks in Ireland at the time and we did not have the major banks like the Bank of Ireland or the AIB. When the ACC was established it was seen as a support for the farming community and it filled a niche in the market and did a tremendous amount of good. Many of the staff have been with the bank from the early days. They were young qualified graduates when they joined. They understood the farming scene and were able to assess what was needed and take decisions. They were in touch with the people and knew their difficulties. They have come through a difficult time and generally did a good job.

There have been some problems in recent times and everybody has referred to the difficulties in relation to DIRT. I have discussed how this could have arisen with some ACC employees. We all feel that being a State bank the ACC would have felt a particular obligation to live within the rules and since the Minister was a stakeholder its obligation would be greater than that of the commercial banks. I understand that what was happening at the time was that people had money to invest and they began to drift away from the ACC. As a result there was pressure on the ordi nary worker whose job it was to see that there were investments. They had to compete with the other banks and they felt they were in danger of losing their jobs if they did not compete for this money. Obviously, decisions were taken at management level that they would prepare the same packages and offer the same facilities as the major banks. The workers, in good faith, did what they did and what they felt should be done to keep the bank afloat.

There have to be questions at management level and those questions have been there for some time. For a long period also there were major industrial problems between management and the workers. That dampened morale to a great extent within the ACC. They have come through that now and are at the edge of a new beginning. There was disappointment that they managed to be separated from the possibility of a merger with TSB. That opportunity is gone now and they must look to the bright prospects of the future.

The major difficulty with any merger, and Deputy Fleming alluded to this, is that in many of the larger provincial towns all the major institutions are represented. In Mullingar we have ACC, TSB, the Irish Permanent and all the major players. Any merger will cause major difficulty for staff and it is difficult for many people to realise the difficulty of suddenly losing a job and having to start again. As politicians we may have a better understanding of that than others. It is very difficult for people in a permanent job with homes and families and children settled in schools to contemplate their work place closing down and having to move somewhere else and we should bear that in mind.

It was interesting to hear Deputy McDowell's comments and description of the share option plans as being a bribe to workers. I would not describe them as a bribe. I would perceive a bribe as being an offer to somebody to do something slightly illegal or on the fringes of legality. I do not see the share option plan in that light. It is a reward for work well done in the past, a guarantee of the future and the security of being involved in the running of the company. He raised the rightful difficulties. In any merger people with shares will be working alongside others and that is difficult to countenance. The whole concept of share options for employees is worthwhile. That ACC is maintaining its 14.9% stake is in line with other companies and should be maintained in future sales.

It is interesting from Deputy McDowell's point of view because in the initial discussions about Telecom I remember some of his colleagues, who are still Members, said that if Telecom Éireann was sold off they would resign from this House and would not be part of the process that would facilitate its selling off.

Mr. Cullen

The Deputy has a long memory.

Mr. McGrath

It sticks in my mind because—

Mr. Cullen

It was a different Labour Party then.

Mr. McGrath

I recall it very well and I recall going to meetings with Telecom workers and being asked where my party stood in relation to it and getting the banter and so on that goes with it and losing votes following on from that. It is interesting to note when things moved on and the bribe, as described by Deputy McDowell, was put on the table that it worked. The workers accepted it and new Labour was able to change its mind and say it was all worthwhile.

The whole question of the future of ACC and the service it provides are important. When a suitor comes along with a deep purse and is prepared to buy ACC it is important to ensure that the type of service it provides particularly to the farming community will still be available. I do not know how those conditions can be stipulated for a new purchaser. The ACC has carved out an important niche in the market. I realise the farming business is only a small proportion of its total business. Nonetheless it is an important business for the agricultural community. At a time when the agricultural community has its back to the wall it is important to point out to the new purchaser the necessity of serving the agricultural community to the same extent.

Another interesting point raised was that of State banks. Should we have State banks? In the context of selling off ACC as a State bank, what should be the role of the State? I strongly support the idea that An Post has a huge role to play. An Post which has a network of branches in every parish is grossly under-utilised. We have failed to invest adequately in An Post and we have failed to support the postmasters and the postmistresses in the small rural communities to ensure they have business by bringing them on line electronically, by enhancing the facilities they can offer to the public and by moving into the new era required in dealing with money.

Recently my local bank told me that soon I would not be able to come in to the bank to take money out of my account, that I would have to go to an ATM machine, a hole in the wall. That is the way banking is moving. Banks want to give customers a plastic card so that they can move down the road. The State could have a role here in the State bank. Given what he has said, I think Deputy McDowell would have strong views on the need for a State bank. The State must support An Post in a major way. In regard to social welfare payments, there is a move towards the plastic card rather than the book payment. The plastic card is much more efficient from the point of view of costs. In the event of a complete move to plastic cards, a huge proportion of the population would be ruled out where post offices do not have the facility to use them. The State needs to invest in An Post to ensure that facility is available nationwide. The other ancillary facilities can follow on from the provision of that facility. That bills can be paid in one's local post office would ensure a State connection in every part of rural Ireland.

Generally, I welcome the provisions of the Bill. I hope ACC will find a purchaser to take it over. I welcome also the employee share option scheme which will give employees a shareholding in any future company that takes over ACC . I welcome the fact that the 14.9% stake is in keeping with what has been happening within State companies to date.

Mr. Crawford

For many years the ACC has been an important group so far as farmers are concerned and everything possible should be done to maintain it within the system. Many of us in farming welcomed the idea that the ACC and the TSB were to be linked last year but unfortunately it fell through. I hope this new legislation will provide the structures for any possible future amalgamation. This is more important now than ever given that other banks have amalgamated or have been taken over by outside interests which do not necessarily have the interests of this country at heart. Their main interest is their shareholders. I recall the National Irish Bank which was taken over by the Australian bank, the Ulster Bank has more or less been taken over by the Scottish group and in recent weeks there were rumours that that same group would try to amalgamate with AIB but thankfully that has been scotched. The ACC still has the ordinary grassroots touch in that it will meet and deal with them. Recently I had a case where a young Macra man got a presentation of a cheque drawn on one of the major banks, based in a branch in Dublin. He went to his local bank but it would not cash it unless he lodged it in his account. He went to a branch office of the major bank in Dublin which had issued the cheque but it would not cash it. He was told he would have to go to Dublin to have it cashed. Thankfully he had the ACC Bank around the corner where he also did some business and he was able to have it cashed there without any questions. This is the type of bureaucracy we are up against. It appears that banks do not want the ordinary customer. As Deputy McGrath said, they want to ensure all cash is handled directly through the ATM machine and to do away with personnel on the floor.

The main reason I wanted to contribute to the debate was not because of the legalities of the Bill but because of the situation in which farmers find themselves. Farmers, the industry and the nation face a serious economic decline because of the outbreak of foot and mouth disease, prior to which farmers faced problems due to BSE. Hauliers and those in the tourism and other industries are also under pressure. However, ACC Bank's main business is with the farming sector. The Ministers for Finance and Agriculture, Food and Rural Development and others should ensure that banks take a lenient attitude towards the coming repayment dates. ACC Bank's gale day is 1 May. However, many people cannot sell store cattle or calves or trade in the normal way because animals are locked up due to the foot and mouth disease. Others face different problems.

In the past ACC Bank has been very understanding and helpful but it needs Government support to ensure this continues. Other speakers, as is their right, criticised ACC Bank, however, the bank came through a difficult year last year and is facing a difficult year this year. There is still a need for the bank to go easy if possible and, if necessary, to restructure loans. The Government should play a part in this process if necessary.

Under this Bill ACC Bank is being given the opportunity to attract a larger shareholder and is being encouraged to give shares to employees. This is an important issue because an amalgamation will almost inevitably result in branch closures. An amalgamation of TSB and ACC Bank would have resulted in the closure of one branch in Monaghan. If such closures take place due to a different amalgamation then workers who have given long service to ACC Bank and the community may find themselves in difficulty. I hope these issues will be taken into account.

I welcome the Bill. I hope ACC Bank can be linked to a European agri-based bank. The history of, for example, FBD Insurance, which is linked with a European counterpart, has been very good for the insurance industry and has maintained a close link between the agricultural industry and the insurance company concerned. I hope a similar arrangement emerges in the case of ACC Bank and I welcome the opportunity which this Bill provides in that respect.

Mr. Perry

I am glad of the opportunity to speak on this important Bill. ACC Bank, which is wholly owned by the Government, traces its history back to 1927 when it was originally established as the Agricultural Credit Corporation for the purpose of providing much needed finance for the agricultural sector. The bank has been very effective in this regard.

Over the subsequent 60 years the bank developed expertise as a specialist agricultural bank and became a major player in that market. Since 1988, ACC Bank has become a more broadly-based commercial bank with an emphasis on the provision of retail financial services. In that short space of time the bank has been transformed into a small bank which offers an important personal touch when dealing with customers. We should not lose sight of this important aspect of the bank's services. Banks are becoming larger and some prefer not to have to deal directly with customers. ATM machines give one the impression that banks prefer not to have queues at counters. The personal touch was the hallmark of the success of ACC Bank. This compatibility with its customers worked very well.

In broadening its business focus the bank has successfully concentrated on its chosen niche markets and there has been substantial investment in staff development and marketing. It is important that the staff's pension fund is protected and guaranteed under new ownership. In recent months there was disquiet concerning the pension fund of another major financial institution. ACC Bank's pension fund has been protected under State investment. However, there was a suggestion that another financial institution attempted to use its pension fund for a different purpose. I am not suggesting this will happen with ACC Bank but it is important that the staff's pension fund is secure in the future. The pensions of those who have given a lifetime of service since 1927 and those who have been with the bank for the past 35 to 40 years must be secure. In recent months questions were raised as to how the pension fund of another major financial institution would be used. It is important that ACC Bank's pension fund is secure.

Given the economies of scale between ACC Bank and larger banks, it was inevitable that the bank would be sold. ACC Bank was seen as a farmers bank but it is still under State ownership. The farming sector is facing difficulties. ACC Bank occupied a niche market providing loans for leasing heavy farm machinery such as harvesters and other large investments financed by short-term loans over 36 months. Has the Minister directed the bank to be somewhat lenient towards farmers who are heavily exposed at present? This is a banking decision. However, ACC Bank's success has been built on the agricultural sector even though the bank has diversified since 1988. Farming is at a standstill in many areas. Contractors are not prevented from travelling between farms but have been advised not to do so. Farmers are also holding additional stock which cannot be sold. Businesses, including banks, are devoid of sentiment. Farmers are not asking for hand-outs but the Minister and all financial institutions must take on board the crisis in Louth and throughout the State which has led to cash flow problems.

ACC Bank has been the main bank for farmers since 1927. Significant changes are taking place regarding financial regulation and the arrival of foreign banks. The amalgamation of ACC Bank into a new company will result in branch closures and a reduction in staff.

Due to DIRT liabilities and its involvement with the new Four Seasons hotel, ACC Bank's bad debt provision rose from £700,000 to £3.5 million in 2000. Given these figures it is understandable that the State wishes to get rid of the bank so it will not incur further liabilities. How much does the State expect to earn from the sale of ACC Bank? Will it take a nominal figure as it stands on the books? The sale of the ICC Bank has been concluded and it was a successful institution, providing funds for small businesses at a time when the main banks in the State would not have advanced money to them. Enterprise should always be encouraged. It is easy for someone to borrow £1 million if he or she has £500,000 on deposit, but people who have nothing should also be encouraged. This country should never lose its enterprise culture. We must ensure that banks do not always take safe bets and that a certain amount of risk capital is available. According to an old adage, the large oak grows from a small acorn. We must look after the acorns, not alone in the business sector but also in agriculture, so that those who have nothing today can be successful in future.

From my own experience, I know that both the ICC Bank and the ACC Bank were very supportive of initiatives when other banks were not. I applaud them for that. When businesses are taken over by larger consortia, however, they may have a different emphasis. While we hear much about the Celtic tiger and the economic boom, imaginative banking practices are always required. At present, however, there are no bank managers and local bank branches are linked by computer to regional offices or headquarters. Years ago the town bank manager would approve a loan if one's bank balance was adequate, but that structure has now disappeared entirely. Local managers currently have discretion for granting loans of up to £5,000 but if a larger loan is sought the manger must refer the request to a regional manager in the next largest town.

American financial institutions are obliged by law to invest money in the area where their money is collected. This should also apply to peripheral rural areas in Ireland where banks are reluctant to invest money. Banks should not send all their profits to head office or bigger consortia, or use them for offshore investments. Under American law, if a local bank attracts $100 million in deposits it is obliged to reinvest a proportion of those funds in the area it serves. While financial institutions may seek guaranteed returns in regions of high density, they should be obliged to invest in rural areas where, while the economy of scale is not as large and profitability is not assured, they would get their money back. Unfortunately, however, banks are devoid of sentiment.

As we can now see, there is practically a cartel comprising four or five large insurance companies which have a monopoly. We are clearly approaching a situation where the banks will have a monopoly. It is all being done though prudent management, including cutting costs and levying additional charges. I know of someone whose small cheque was returned by the bank and the retailer was charged £3.50. A cheque for £15 can be worth £7 to the bank. One must ask questions about this. A half hour appointment with the bank manager can be charged to one's account at the rate of £20. Banks are charging £7 for lodging £1,000 to an account. A retail business can be required to pay up to £20 for £1,000 in coins.

In the past, banks made money exclusively through interest but that is no longer the major factor. Banks are making money on every possible charge, including coins, cheques and drafts. It does not surprise me that banks are making profits of £1 million per day. I am surprised that they are not making more, given the charges involved. Twenty five years ago we heard about massive profit taking by the banks, but the consumers are paying for all that in hotels, restaurants and other retail outlets. It is all about net profits, and the additional charges on the service sector are astronomical, yet few people are speaking out on the issue.

Banks are currently vying with each other to make the highest profits, although one does not have to be big to be profitable; a small bank could still be very profitable. Small retailers are trying to provide a service to customers, yet banks are closing down branches in certain towns due to a lack of profitability. Certain banks have discovered that it is neither desirable nor profitable to be located in a given area, so they advise their customers to visit their branch in a larger centre of population. Should financial institutions be obliged by the State to provide a service in rural areas? That is a very important question.

My business must pay the bank 35p to clear a client's cheque, yet we cannot add that charge to our customers because if we did they would not come back. Therefore, a customer's £15 cheque is worth only £14.65 to the retailer. Another charge that is being forced upon retailers is the 15p on check-out bags, which amounts to another tax on business. While it is a separate issue, such bags already cost £40 per thousand, so the new charge will raise the price to £190 per thousand bags. This will place an extra tax of up to £1,000 per week on small companies. In many cases, due to the competitive nature of business it is very hard to pass on such charges to customers.

Retailers' profit margins are being constantly eroded by all these additional charges while the banks cannot lose because they are charging, literally, for everything. That is why I feel that the sale of the ACC Bank is so important. Niche marketing has disappeared and banks are now driven by profitability alone. Everything is being done to increase the bottom line, including the imposition of additional charges on consumers who pay the ultimate price.

The role of the ACC Bank was an important one, but when this sale goes through that niche market will be further eroded. The bank served the agricultural community well but its business diversified due to changing patterns in farming. In future, there will no longer be a farmers' bank dealing solely with the agricultural sector. Such a system was not viable for the ACC Bank which had to adopt alternative measures. Unlike the ICC when it was sold, the ethos of the ACC Bank should involve a certain risk factor. People need such a banking service. It should not be driven by a foreign bank that could be totally obsessed with profitability. We must not end up with four or five banks operating a cartel. One of the main banks has decided to pull out of a very large town due to a lack of profitability. Banks can operate in such a manner because they are involved in so many markets, but it is frightening to see this happening.

The most important person in a bank now is the one in the ledger department which, since computerisation, has made massive profits. The banking system has become almost totally automated and some banks have recorded annual turnovers of £1 billion, which begs a question.

While the changes envisaged in the Bill are welcome, the staff who built up the bank should be protected. To that end, when the new owners acquire the ACC Bank they should make a clear statement on the staff pension fund, which up to now has been secured by the State. The staff have invested heavily in the bank and they would be concerned if that fund was diverted for any other use. The ACC Bank has been one of Ireland's most innovative deposit-taking institutions and it provides a wide range of facilities for small, medium and large investors and for non-residents.

I welcome the new personal savings scheme announced by the Minister because it will encourage people to save money. It is important that when the banks launch products relating to this scheme, they should indicate how those products will operate. The scheme will encourage people to save money, which is a welcome development because there is a high level of spending in the economy. I welcome the fact that the financial institutions will offer a different range of services for this personal savings scheme and that people will obtain up to £50 per month on every £200 saved. This will encourage people to save money for a rainy day. Until now, the rate of interest payable on deposit accounts was unbelievable and people were not encouraged to save money. I hope the new scheme will change that.

To date, ACC Bank has been an important backer for small companies and members of the farming community. Are there prospective buyers for the bank? I imagine, due to the economy of scale, it will be most likely amalgamated with one of the larger State institutions. In light of the changes that have taken place vis-à-vis the TSB and Ulster Bank, I see no difficulty, from the point of view of the Monopolies Act, with the ACC being taken over. However, in the event of a take-over, problems will arise in areas where there are two branches. In such circumstances, the ACC will certainly lose its strong presence in many towns. Obviously a stipulation cannot be placed on the sale of the bank, but we must ensure that emphasis is placed on it retaining its role in assisting the farming community. Apart from the foot and mouth scare, that community is experiencing difficulties at present and will continue to do so for the foreseeable future.

Given the importance of the agri-food industry, it is vital that a major investment, in the form of risk capital, be made by financial institutions. Most commercial loans are paid back over a period of ten or 12 years. However, it takes a considerably higher level of investment and a longer period to develop a business in the agri-sector. It is important that the financial institutions play a role in this regard.

In the current crisis, contractors are being constrained in terms of the activities they can carry out. I appeal to the Minister for Finance to enter direct consultation with the ACC on this matter, particularly in view of the current climate. The farming sector has been completely shut down, marts are not operating and people are being obliged to retain additional stock. These people should be shown leniency, perhaps by means of writing off or reducing interest payments or placing a stay on them.

Mr. Connaughton

I wish to share time with Deputy Boylan.

Acting Chairman (Ms McManus): Is that agreed? Agreed.

Mr. Connaughton

I welcome the opportunity to contribute to the debate on the ACC. I am old enough to recall the importance of the bank to the agricultural community and it retains that position to this day. As in the debate on the ICC Bill, I am obliged to state that there is a particular ethos which obtains in the ACC and this must be retained, in so far as is possible, in any future sale. We must except the economic realities that exist today and in the topsy turvy world of banking, the ACC is not a major player. It is, however, a strategic player and it is on that fact that my contribution will be based.

I do not know whether I was right or wrong but in the early 1990s I was never sure whether the famous so-called third banking option between the ICC, the TSB, ACC and An Post which was then proposed was realistic. At that time, I believed the proposed new institution would offer real competition to the two major banking operations. Irrespective of what we are told, however, I continue to believe that real competition does not exist. I will provide examples to support my argument later.

We all know what has happened to the ICC and the TSB in the interim and I assume that in the fullness of time the ACC will attract a partner. I do not believe this will happen in the current year, particularly as the bank's balance sheet will be far from good. There are a number of reasons for this, but the one which stands out – I will mention it only in passing – is that the bank was obliged to make repayments in respect of DIRT. Like other banks, the ACC did not cover itself in glory in this area. I was never sure of the cause of this. However, I am familiar with a number of branch officials who, it appears, were pressurised into doing something they should not have done. Other Members of the House spent a great deal of time trying to discover whether those officials were acting on foot of a diktat issued by top level management. Suffice to say, however, that the matter to which I refer is behind us.

The period to which I refer was not good for the bank. Until ten or 15 years ago, the ACC was, for thousands of farming families, the only sym pathetic and understanding institution in banking circles. Since then, everyone has got in on the act. As Deputy McDowell stated, there should be no rush in disposing of the bank. Given the ferociously competitive atmosphere abroad at present, the bank will do better if the sale is delayed somewhat because it will have time to refocus its efforts. In that context, it is obvious from its advertising campaigns that the bank is trying to encourage members of other sectors of the community to place their business with it.

I stated earlier that I do not believe real competition exists in the banking sector. For many years, members of the banking fraternity have stated that their institution offers a real alternative to its competitors. It is significant that when one of the major banks – I refer here to AIB and Bank of Ireland and I am in possession of information supporting my argument – decides to close a branch in a small rural area, it is accommodated by its competitor. For example, if one of them has a long established and successful branch in an area and the other decides to close its operation there, they usually reach a quid pro quo agreement in respect of their branches in another area. This leads me to believe there is no real competition. The banks are aware that there is a certain limit to the business that can be attracted throughout the country. They are in a favoured position, but I accept they run their businesses extremely well.

I am not sure, but I assume the ACC will be purchased by an outside interest. In that context, the credit unions offer the only real competition to the banks. The credit unions attract customers with whom banks would not previously deal. The ACC was the only organisation with a sympathetic ear for farmers, big or small, particularly in bad times.

From a State point of view, it is best not to just get rid of the ACC as it has certain strengths as well as weaknesses. It has good staff who are tuned in to the world of agriculture and the future needs of farmers. It has bright young graduates and good branch managers. One hopes that reservoir of advice, knowledge and experience will be available to the thousands of customers who want to deal with ACC whatever link it forges or no matter what group takes the corporation over.

The ACC is well located in towns and villages. We know that some branches are likely to close but it is important that the organisation remains a nationwide banking service, especially as negotiations are likely with potentials partners for the ACC. Some regions of ACC activity could be wiped out unless this is properly handled and we would be much worse off if that happened.

I hope the management will refocus. It should be able to attract business from other walks of life – from small businesses and the industrial sector. This is like a ball that has to be jumped for by all involved. One hopes that the management has the expertise to do what is necessary, and that it has a desire to operate at new levels. The corporation's future depends on how well it performs. If it were to be taken over now, it would have very poor bargaining power. If an organisation does not make money in this environment it is difficult to get potential investors excited about it. ACC has an opportunity to put its house in order and I hope it will do that. I find nothing wrong with the Bill in this regard.

I hope that the ACC widens its focus over the next two years. However, last year's DIRT revelations had a huge impact on morale in the organisation. The corporation has another opportunity to ensure that it has some clout when the sale takes place. The Minister for Finance wants to see the State get a good return for the sale of any State asset. In view of that, there should be no hurry to sell. ACC management should be given the opportunity to help the corporation to shape up.

ACC has performed poorly before for other reasons. I have been a customer of ACC, in common with most farmers, and always saw it as fair and reasonable. Its overriding characteristic was that the corporation had managers who understood what farming was about. Given the attention focused on farming due to the foot and mouth crisis, it is clear that the agriculture industry is still very important despite the number of people leaving the land. It is accepted as a core industry and will remain as such. Banking is vital to farming and the ACC can stand shoulder to shoulder with anyone due to the assistance it has given to the industry. However, we must accept that the corporation should widen its focus.

I hope the Bill goes well. I have a grá for the ACC and hope what is being undertaken in this Bill is correct. What the Minister is doing today has to be done. I wish the ACC well and hope that its employees are well looked after, whatever deal is done.

Mr. Boylan

I thank Deputy Connaughton for sharing time with me. I felt it was important that I make a contribution to this debate. The sale of the ACC will come as a shock to many farming and banking friends of the corporation, particularly in my own county where we had an excellent branch. I want to acknowledge the role of that branch in the development of farming in my county and in the constituency of Cavan-Monaghan.

The Agricultural Credit Corporation was established in 1927 and has played a major role in agricultural development nationwide. It was seen as the farmer's credit union. It was a friendly bank where farmers dealt with those who could understand and meet their needs. Many felt that this was an institution that would always be there and it is a shock to find that it is in serious financial trouble.

Obviously some at the top of the corporation got seriously out of their depth and went into businesses they had no knowledge of. The national press has reported on the example of the Four Seasons Hotel deal. That project, backed by ACC, was budgeted for £41 million but is now in liquidation following a £71 million overrun. The company also paid £17.9 million to the Revenue Commissioners in relation to DIRT. It is not surprising that there are serious problems with the corporation and that it is anxious for the sale to go through in a hurry.

This was not brought about by those who supported the ACC. The customers paid their dues, they borrowed from and repaid the corporation and had respect for it. The present situation opens up the entire vista of Irish banking. We needed to know what was going on and what decisions managers were taking. It is clear that eyes were taken off the ball. Ordinary customers had neither a say in, nor knowledge of, what was happening. A customer should have a return from a bank's operations over the previous 12 months. They should have information on the dealings of that bank – its loans, its borrowings and with whom it is dealing. If it is moving into new or risky areas, customers should know. It is clear that the ACC took serious risks.

I am saddened that the ACC is for sale, and for sale in a hurry. Questions need to be answered and those who can answer them should appear before this House. The ordinary creditors are entitled to answers and it is sad that these matters should arise. The ACC provided a service in rural towns—

Acting Chairman

As it is now 1.30 p.m., I ask the Deputy to adjourn the debate.

Mr. Boylan

I was only getting into the swing of it.

Acting Chairman

The debate will resume at 4.15 p.m.

Debate adjourned.

Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.