I move:
That Dáil Éireann approves the disposal of the shares of the Minister for Finance in ACC Bank plc to Rabobank Nederland, pursuant to section 5(2) of the ACC Bank Act, 2001.
At the end of January this year the Minister for Finance mandated the board of ACC Bank plc to prepare the bank for sale and to pursue all options for a change of ownership by the end of this year. As part of this exercise, the board launched a sale process last February. This process has culminated in a deal under which the Exchequer will receive 140.4 million from Rabobank in respect of the 85.1% of shares that will be held by the Minister. The Exchequer will also receive a further 12.2 million from the ESOT in respect of the 9.9% stake in ACC that it is purchasing bringing total receipts to the Exchequer to almost 153 million.
This sale process has been managed by the board of ACC Bank, which recommended to the Minister for Finance on 18 October last that the bank should enter into negotiations with Rabobank on the basis of its firm bid valuing the bank at 165 million. The Minister accepted this recommendation and contract negotiations were concluded on 4 December and the board recommended the terms of the contract to the Minister. An information memorandum containing the main terms of the deal has been circulated to all Members.
Under section 5 (2) of the ACC Bank Act, 2001, the Minister is required to obtain a motion of approval from the House prior to disposing of any shares in ACC Bank other than to staff in connection with an employee share ownership trust. Before outlining the terms of the sale, I pay tribute to the role that ACC Bank, originally established as the Agricultural Credit Corporation, played in supporting the development of Irish agriculture since 1927. Until 1988 the Agricultural Credit Corporation was confined by legislation to providing credit for the agricultural industry. The Agricultural Credit Act, 1988, allowed the corporation to deploy up to 25% of its risk assets outside agriculture and in 1992 the legislation was amended to allow ACC Bank, as it was renamed, to become a fully-fledged bank. The bank has grown considerably over the years. It had a slow start and total lending between 1928 and 1988 amounted to only £7.5 million. The outstanding lending on the balance sheet now amounts to over 2.3 billion or £1.8 billion. It should also be pointed out that the bank is still closely involved in the agricultural sector even though it has expanded its portfolio of products and services over the last ten years. Approximately 20% of its income is derived from lending to the agricultural sector.
As Deputies are aware, the Government made a decision in principle in mid-1998 in favour of disposing of the State's interest in ACC Bank. Following this decision the Minister subsequently accepted a proposal from the board of ACC Bank and the trustees of TSB Bank, with the backing of the staff of both banks, that they should be merged and floated. After a great deal of work by all the parties involved, the Minister reluctantly accepted the recommendation of the board of ACC Bank and the trustees of TSB Bank in January 2000 that the project be abandoned. The trustees of TSB Bank subsequently carried out a sale process in 2000 which culminated in the successful sale of the bank to Irish Life and Permanent plc. In relation to ACC Bank, the Minister asked the board to review all options for the future and reiterated his view that the current status quo was not an option. As I have already said, the Minister mandated the board in January this year to pursue a change in ownership by the end of this year. This process has concluded with the successful sale of the bank to Rabobank Nederland.
On 4 December, the board recommended that the Minister accept an offer for ACC Bank which values the bank at 165 million. The Minister's corporate advisers, Merrion Corporate Finance, examined the offer and the board's recommendation and have advised the Minister that the offer represents fair value for the bank and should be accepted. Merrion Corporate Finance and A & L Goodbody, the Minister's legal advisers, have also examined the sale process as outlined to them by the board of ACC Bank and its advisers, NCB Corporate Finance and Matheson Ormsby Prentice, and concluded that the sale process has been carried out in a fair, open and transparent manner.
On that basis, the Minister accepted the offer from Rabobank subject to Dáil Éireann passing this motion of approval for the disposal of his shares. I will now outline the other main terms of the deal, which are set out in further detail in the information memorandum distributed to Deputies last Tuesday. Rabobank sought an indemnity in respect of any litigation against ACC, such as that arising from ACC's involvement in the syndicated loan for the Four Seasons Hotel and an indemnity has been given in certain strictly defined circumstances. I cannot disclose the nature and scope of this indemnity for reasons of legal and commercial confidentiality. Any such disclosure at this stage could affect the conduct of litigation that falls within the scope of the indemnity and be potentially damaging to the interests of the Exchequer and, by extension, taxpayers. The provision of this indemnity is an appropriate solution to issues which would otherwise have been a major obstacle to the sale of the bank. Taking into account all the relevant factors, the Minister has made the commercial judgment that the provision of an indemnity is appropriate.
Rabobank has stated that it is their intention not to create compulsory redundancies in ACC Bank as a result of this transaction. In connection with the sale process, Rabobank has also given a specific commitment to staff representatives that there will be no compulsory redundancies in the 18 months following completion of the sale.
Rabobank's financial strength and standing is a significantly positive aspect of the offer. Given the structure of funding of ACC Bank's deposits and borrowings, it is important that any purchaser should be of sufficient financial standing and strength to secure the current and future funding of the bank. I am glad that Rabobank has such a standing.
Deputies will be aware that over the years various State guarantees have been given in relation to deposits placed with ACC Bank. For some time there has been a policy in place of limiting and reducing the level of guarantees provided. The level of guarantees will be further reduced as facilities mature and as alternative facilities are made available. Meanwhile Rabobank is providing a counter-indemnity in respect of the outstanding funds that are State guaranteed, currently just under 600 million. Given the continuing, though reducing, guarantee which the State will be providing on some of ACC Bank's funding pending maturity, it is important that the party giving the State a counter-indemnity covering such guarantees is of appropriate quality and strength. Again, Rabobank provides such financial strengths.
In line with the sale of other semi-State companies, an employee share ownership trust will be established for the benefit of staff. The terms of the ESOT were negotiated between the management and staff representatives of ACC and subsequently overwhelmingly approved by the staff in a ballot. In return for entering into the transformation agreement, the Minister will transfer 5% of the shares in ACC to the ESOT. The transformation agreement provides that the staff will co-operate with the change of ownership process. Included in the arrangements to which the staff are committed under this deal is the voluntary separation scheme, which has already commenced. The board's intention under this scheme is that staff numbers can, by agreement, be reduced by up to 200 from the staff levels at the start of 2000. This is a significant element in the transformation undertaken by the bank and its staff.
Another element in the ESOT will be the purchase of 9.9% of the shares in ACC for 12.2 million funded through borrowings and the bank buying out part of the staff's bonus scheme. The total ESOT shareholding is to be sold to Rabobank in return for a Rabobank bond. The bond will be held by the ESOT in the way that shares would otherwise have been held. This is because the co-operative ownership structure of Rabobank does not allow for the ESOT to hold shares. The Minister will be proposing the necessary legislative amendments to the ESOP legislation in the Finance Bill to allow the ACC Bank ESOT to hold and distribute the Rabobank bond from within the ESOT. Based on the estimated staff numbers, the ESOT will be worth on average about 50,000 to each staff member. The ESOT's borrowings will be repaid partly through a 5% profit sharing arrangement subject to a cumulative limit of 6.35 million and partly from the interest income on the bond.
Regarding the strategy the purchaser will follow with ACC Bank, Rabobank Nederland is, as I have already said, a co-operative entity that grew from a rural base in the Netherlands. It is the only non-state guaranteed bank with the highest credit ratings from all the major rating agencies. It is a very large organisation, with assets of more than 378 billion and more than 55,000 employees in 36 countries. In the Netherlands, it controls 40% of the savings market, 85% of the agricultural credit market, 25% of retail mortgages and 40% of lending to small and medium sized enterprises. It operates in Ireland through three subsidiaries in the IFSC.
Rabobank's acquisition of ACC is part of its strategy of developing rural-based banking in developed countries with strong agricultural sectors, a strategy which has been pursued in Australia and New Zealand. Although Rabobank intends to operate ACC Bank on a stand-alone basis, it can be expected that it will provide support, expertise, new products and technology to its new subsidiary, as appropriate. It is hard to think of a more suitable parent company for ACC Bank. Many Deputies and Senators recognised the need for ACC to move on during the debate on the ACC Bank Act, 2001. Some were concerned, however, that the character of the bank and its rural branch network would change as a result of its sale. I am pleased ACC is to be bought by a bank with rural roots and which recognises and will develop the strengths of ACC. The bank will also pursue its current strategy of providing banking services to the SME sector and to personal customers.
The offer is favourable and fair. The purchase of ACC by Rabobank Nederland has advantages for the banks and for staff and customers. I am certain it will increase competition in the Irish banking sector. I thank the board of ACC, under the chairmanship of Padraic O'Connor, and the employees who have contributed to transformation of the bank and the successful completion of the sale process. I am pleased the interests of ACC's staff, the new owners and the State, as the former shareholder, coincide in the passage of this company into the private sector. The sale of ACC will bring the State's involvement as an owner in the banking industry to an end. The sale of ICC Bank to Bank of Scotland has improved competition in the SME lending market, while the sale of TSB Bank to Irish Life and Permanent has added to competitiveness in the retail financial market.
As I have outlined, the sale of ACC Bank to Rabobank is an improvement on the current position. The manner in which the State's interest in banking has been disposed of will enhance competition while providing opportunities for staff and strong support for customers. I do not doubt that in years to come, those who look back on this process will conclude that it was not only wise from the point of view of the banks concerned, but also that it was done in a manner which was in the best interests of the State and the banking market. I recommend the motion to the House.
