On behalf of the joint committee, I welcome the representatives of the IBOA — Finance Union who are here to discuss issues surrounding the proposed loss of more than 2,100 jobs and the closure of branches by the Bank of Ireland Group. The delegation is led by Mr. Larry Broderick, general secretary, IBOA; Mr. Marty Whelan, communications manager, IBOA; Mr. Ciaran Mahon, Bank of Ireland officer; and Ms Eleanor Dunne, Ms Bernie O'Reilly and Ms Margaret Power of the Bank of Ireland executive committee. Before we begin, I remind visitors that the comments of members are protected by parliamentary privilege but those of visitors are not. I also remind committee members that they should not comment on, criticise or make charges against a person outside the committee or the Houses. We will commence with a presentation by Mr. Broderick which will be followed by an open discussion.
Irish Bank Officials’ Association: Presentation.
Mr. Larry Broderick
I thank the Chairman and members of the joint committee for inviting the IBOA — Finance Union, to appear before the committee. The IBOA — Finance Union represents staff working in the financial services industry in the Republic of Ireland, Northern Ireland and Great Britain. It represents in excess of 20,000 members in the three jurisdictions, of which 8,000 are employed by the Bank of Ireland Group and the subject of the cost reduction programme.
In section 2 of our report we discuss the importance of the role of financial services in the economy. The Irish banking industry contributes 4.6% of gross national product and employs in excess of 40,000 staff. It is important to note that the financial services sector in Ireland is highly profitable, particularly when compared to that in many other countries. It has been subject to a number of scandals in recent years which have resulted in the Government introducing an increased legislative framework to oversee and enforce greater compliance and protection of customer interests.
Irish domestic banks are facing competition, arising from foreign banks acquiring Irish financial institutions. The two major banks, Allied Irish Bank Group and Bank of Ireland, have limited opportunities for organic growth due to their dominant position in the marketplace. Our members have played a key role in the growth and success of the banking industry and we are seeking to ensure change is brought about with the co-operation of staff and in the interests of customers as well as the banks.
In recent years we have been highly critical of developments in the Irish banking industry, particularly evident in this case by the Bank of Ireland Group's cost reduction programme which appears to concentrate on the need to maximise short-term shareholder value at the expense of staff, customers and, ultimately, we believe, the bank. For the benefit of members, it is important to give some facts about the group.
The Bank of Ireland was established in 1783 and is viewed by many as the largest bank group in the Republic of Ireland. Its total assets in September 2004 were more than €80 billion. It employs 18,000 staff, primarily in Ireland and Great Britain. Its share of the market in the Republic of Ireland is approximately 38% of the personal market and 37% of the business market. In its trading statement issued a number of weeks ago it identified a profit figure of €1.3 billion. In essence, it has a strong capital base with a low risk profile. It is important that the joint committee understands this in the context of the change programme.
The Bank of Ireland Group has experienced continuous profit growth in the past 14 years. Pre-tax profits in 2004 were €1.2 billion, which represents 8% growth on the figure for 2000. The dividend payment to shareholders increased by 12% for the six month period ending 30 September 2004. Since 2000 there has been a 72% increase, which represents a very good performance. Operating profit per employee was €70,000 compared to €56,000 in 2000. Operating income per employee was €169,000 in 2004 compared to €131,000 in 2000.
Historically, Bank of Ireland Group has acknowledged the competitive edge of its staff. In the 2004 annual report Mr. Lawrence Crowley, governor of the Bank of Ireland, refers to employees as follows:
Our people have always been a key differentiating factor. For Bank of Ireland have an advantage that cannot be replicated by our customers. Recognising the value of this advantage we have set about enhancing it further. I want to record the Court's thanks to all our employees for their contribution to our performance.
The previous chief executive stated, "We have a robust strategy, a quality management team of proven achievement and customer focussed staff that are a real differentiating factor." I have included these quotations in our submission because it is important to place the current proposals in context.
It is legitimate to question the union's view of change and how it has responded to it in the past. The IBOA — Finance Union has no principled objection to change and has co-operated with major change in the Bank of Ireland in the past 20 years. Since 2000 the Bank of Ireland Group has engaged in a major change programme through its group transformation programmes resulting in the following: the departure of more than 1,200 staff through agreed voluntary redundancies and early retirement; the closure of more than 40 branches; the transformation of many of the bank's main areas such as retail, business, corporate and treasury; the centralisation of services; the sale of bank assets: and major ongoing savings since March 2001.
It is important to note that one of the reasons for the launch of the group transformation programme was the advent of increased competition and the need to reduce the cost-income ratio. The cost-income ratio in 2001 was 54% and the objective was to reduce it to 50% within three years. The then chief executive, Mr. Maurice Keane, said, "The Group will achieve in full the Cost reductions targeted in the Programme." In spite of the loss of more than 1,200 experienced staff and the pressure this has placed on staff to service the customer and the closure of many branches, the bank obviously failed in its core objective and is entering another cost cutting exercise under the same guise, using the same arguments to justify its actions.
Apart from the bank's narrow focus on cost-cutting, it has also announced that it wishes to outsource a number of areas and has subsequently done so, most controversially the IT facility to Hewlett Packard. The union had misgivings about outsourcing but played a role to ensure it has been successful and resulted in a smooth transition and protection of members' jobs.
The philosophy of the IBOA — Finance Union is that change, if it has to take place, must be justified, must be done through negotiation and agreement; and that the savings that ensue from change should be shared with staff and customers. Unfortunately, the experience of members of the IBOA in the recent past is that the staff have co-operated with ongoing change but the Bank of Ireland Group has failed to recognise the staff contribution. Customers have not benefited either. It should be noted that the Bank of Ireland Group failed to implement the 4% profit sharing agreement, recommended by an independent third party, for staff in recognition of their contribution to change.
The reason the IBOA — Finance Union has come before the joint committee is the Bank of Ireland Group's latest cost reduction plan in 2005. On 22 March the chief executive, Mr. Brian Goggin, announced as part of the bank's trading statement to the markets that it was engaging in a new business model, primarily aimed at reducing the bank's cost-income ratio. This would involve the following: taking 2,100 jobs out of the group; seeking redundancies through voluntary and, if necessary, compulsory means; outsourcing work to third parties; consolidating businesses; closing branches; transfer or relocating staff; bringing about divisional cost reductions and implementing 60% of the cost savings and staff reductions within 12 months and completing the programme in three years. The key messages delivered by bank management were this would impact directly or indirectly on all staff; that it would entail major change in the Bank of Ireland Group; that it was being done to offset competition and that it was inevitable.
The premise is based on the attitude to the cost-income ratio. The union argues that this is a fallacy. The cost-income or efficiency ratio is one of the standard benchmarks of a bank's efficiency. However, it is also widely recognised to be unreliable and often inaccurate of actual bank efficiency. A recent analysis of British banks shows little correlation between bank profitability and efficiency as measured by the cost-income ratio.
The value of such a crude methodology is dependent on the mix of borrowing, lending and other activities. Comparisons of banks at a group or consolidated level are of limited value and may be harmful if false conclusions are drawn about the relative efficiency of the institutions compared. One prominent commentator and international expert on banking, Professor Ray Kinsella, UCD Business School, recently described it as follows:
Cost-income ratio is a very imperfect proxy for efficiency and competitiveness in banking. It is not something that a strategy of any substance should be built around.
It should be noted that some of the most profitable banks in the world, including ABN, Barclays, Crédit Agricole, Paribas Santander and UBS Swiss, have cost-income ratios in excess of 50%. It is our contention that attempting to use the cost-income ratio argument as a strategy for growing the business is meaningless unless one makes direct comparisons with the peer group.
One must look at this aggressive plan in the context of what other banks in Ireland are doing. The Bank of Ireland Group plan must be viewed against the following developments in the industry. Foreign banks are entering the Irish market to grow the business, open new outlets, increase staff numbers and invest in Irish jobs and customers.
All of the Bank of Ireland Group's major competitors in Ireland have committed themselves to a strategy of income growth and retention of branches rather than one of merely cost-cutting. In the past year we have seen Danske Bank take over National Irish Bank and Northern Bank in the North. RBS has acquired Ulster Bank and First Active while HBOS, Bank of Scotland Ireland, has announced expansion programmes with forecasts of increased employment, improved customer service and increased profit. Other banks are committed to a partnership and co-operative approach to change with the IBOA, based on negotiations and agreement; to no compulsory redundancies, recognising the contribution of staff and customers; and sharing the benefits with staff and customers.
The IBOA — Finance Union's response to the Bank of Ireland Group is that our members are obviously shocked and dismayed, particularly in the light of the group's record profit figure this year. We strongly challenge the business case as proposed and believe everybody who has an interest in banking in Ireland needs to do the same. We hold that to focus a strategy primarily on the cost-income ratio is a serious flaw. It will produce short-term gains but at what cost to communities, staff and the future reputation of the Irish banking industry? The Bank of Ireland Group's strategy is to value staff but it now fails to recognise the economic value staff have given to the group historically.
Since the announcement our offices have been inundated with calls from shocked staff and customers who could not believe the Bank of Ireland Group was doing this. Already the IBOA has organised over 30 meetings around the country, at which staff have turned up in unprecedented numbers to voice their anger and demand that the bank reconsider. Almost one month after it announced its plans it should be noted that, to date, no detailed information, setting out the impact this will have on the areas of the business, has been given to the IBOA or staff to justify the announcement. Staff are concerned by the lack of information and clarity on the group's plans. This has added to their fears about their future careers. Is it not interesting that the Bank of Ireland Group was very quick to go to the market one month ago and announce this radical plan, yet one month later the detail has not been shared with staff?
We question the approach taken by the bank. Staff are waiting in trepidation to be approached by management locally and told they no longer have a job. By any standard, this is an appalling and unacceptable way of treating loyal and hard-working staff. It should be noted that we have a great deal of support from politicians, social partners — especially ICTU, church and community leaders, opinion formers and staff in other banks who have given our members hope on our challenge. It is not that we are against change, but that we object to a draconian plan. Of especial help is the support and good wishes our members receive from customers of the bank who are in many cases as infuriated as staff and who need to be reassured, particularly about the removal of services by a very profitable institution.
We have set out a number of criteria that must be considered reasonable in any approach to change. We have identified that there should be full negotiation and agreement. Historically, Bank of Ireland has stated that it employs a methodology based on staff engagement, which is world class. In that context, is it not interesting that staff and their representative body have had no input into the proposed plans? Good management practice dictates that where change is required, staff should be involved and consulted fully in a timely manner. This is not to say that such plans should be concocted on the seventh floor at Baggot Street or in any bank's headquarters, but that if a business plan is justified, it should be shared among equal partners with a common interest in the ownership of a great organisation and the building of a vision for its future.
Bank of Ireland's announcement of 2,100 job cuts flies in the face of EU best practice on workplace information and the rights of employees. A leading Irish bank that sets a standard in the economy has clearly stated that it is right to slash jobs in a draconian manner when an organisation is at the height of its profitability. It is not in keeping with the image Irish banking should present to the world. We recognise that by its very nature, change will happen. It is a constant in our industry with which we deal on a daily basis. If change is to be successful, however, it must be implemented with the co-operation and agreement of staff. We are prepared to engage in a process of negotiation and have agreed an independent chair to help with any talks. Full information and engagement is required as is an acknowledgement that 2,100 job losses is not the only solution. It is one we resist completely.
We insist that there is no justification for compulsory redundancies. I am pleased to head a trade union that has played a significant role in the success of the economy under successive general secretaries. Never in its history has the IBOA been faced with a scenario of compulsory redundancies. They are not justified. Bank of Ireland has a responsibility to articulate clearly that if change must result in redundancies, they must be carried out on a voluntary basis. If the bank wants to save €120 million per annum in keeping with its stated objective, the benefits should be shared with staff and customers. I have yet to hear the rationalisation for the plan or of the tremendous benefits that will accrue to customers. The bank has been quick to make changes at the expense of staff and customers in the past and to pocket the savings that have resulted. Staff and customers should benefit on this occasion from proposed changes.
If any international company in Ireland were to announce 2,100 job losses as part of a cost-cutting, there would be a national outcry with calls for IDA investment and the establishment of a special task force. It is interesting that, apart from the publicity that has ensued, there has been no evidence that anyone other than committee members and those with a vested interest cares about Bank of Ireland's announcement. Bank of Ireland has obligations not just to institutional investors and shareholders, but to its staff, customers and the wider community in which it operates and on the back of which it makes its profits. Financial services make a significant contribution to the well-being of the national economy. The cost-cutting exercise and job losses proposed by Bank of Ireland will have a negative economic impact, make a mockery of social partnership and breach the terms of Sustaining Progress.
Any programme for change in a business as profitable Bank of Ireland's cannot morally or economically justify compulsory redundancies. The bank's approach has been morally reprehensible. Any benefits accruing from the programme should be shared with staff and customers. Staff regard the bank's plan as an expression of corporate greed at its most vulgar. Bank of Ireland is extremely profitable and efficient and we wish to support and grow with it. It does not require cost-cutting mechanisms that may cause medium or long-term problems. We are not against change, but if it must occur, it must be on the basis of meaningful negotiation and agreement.
I welcome the IBOA delegation and thank it for a very cogent presentation. We are all disappointed to hear the bank has not yet begun to engage meaningfully with workers, especially as it has been three weeks since it announced its plan. As Mr. Broderick said, it would be expected that some consultation with staff should take place in advance of the announcement of any such plan. I was most struck reading the Bank of Ireland statement and interviews with the chief executive that there was not one mention of customers or the way in which they would benefit from the proposed transition. We have learned to live with restructuring in every business sector, but it must take place for a purpose.
I share the view expressed by the IBOA and Professor Ray Kinsella that the obsession with cost-income ratio is not meaningful. The key issues in the banking sector from the perspective of the committee are that we have seen over the past while that it is one of the most profitable sectors — as JP Morgan reports, it is 2.8 times more profitable than its European counterparts — it has not passed on interest rate cuts to retail users when cuts have occurred in wholesale markets and we have higher interest rates to borrowers and lower interest rates to depositors. The problem in the banking sector is rooted in the fact that it is extraordinarily concentrated and is dominated excessively by two major players. The committee and public policymakers must consider ways in which we can make the banking structure more competitive to the benefit of customers and, in the long term, create the conditions necessary for business expansion.
I have seen a dramatic change in the way banking is done in recent years. There is far less discretion given to the person one tends to meet at the counter than there used to be and services have become far more automated. Electronic transfer has cut out significant swathes of traditional banking activity. I would like Mr. Broderick and the IBOA to explain to what extent Bank of Ireland's proposals are driven by a real need for change. Some of its proposals strike one intuitively as being necessary, such as the consolidation of 22 call centres into four centres of excellence. The bank proposes to continue a trend to consolidate decision-making on credit provision. It appears to contend that the modern model is more controlled and allows for less discretion down the line thereby putting a squeeze on traditional activities.
As the JP Morgan report demonstrates, Ireland is not cost competitive in banking. While Irish banks make 2.8 times more profit per customer than their European counterparts, costs per customer were reported to be 1.7 times higher here. As our costs are approximately 73% higher, there appears on paper to be an issue to address. With new market entrants, banking will see in the long term a squeeze on costs due to competition as well as a squeeze on profits. We cannot just rail against restructuring, we have to face up to the fact that there is a continued need for the banking sector to be competitive. If it has been highly concentrated, perhaps we have been insulated from that competition and now it is on its way.
The other thing that struck me is that it may be a bit unfair to say Danske Bank and these other new entrants are saying they will expand their branch networks and their employment. They cannot enter the market unless they expand their branch network because branch network has been the key. If one does not have a deposit base, one cannot compete in many of the traditional banking areas. I do not know whether that is really a fair comparison.
We need more competition from a public policy point of view. We need a most cost-effective cost base and we need much higher levels of customer service, customer quality and customer care than we have seen. We have seen many scandals. From a public policy point of view we need to develop an acceptable model of restructuring.
What, in particular, does Mr. Broderick see as being wrong with some of Bank of Ireland's proposals, leaving aside that 11% of staff are affected? What is wrong with what the bank is doing? Is it wrong to restructure call centres or some of the other things that have been proposed? At the end of the day we want good quality employment in a highly competitive sector rather than good quality employment in a highly protected, concentrated sector.
We have to try and do two things at the one time. Part of it will inevitably involve restructuring some of the traditional strong players in the market as others enter. That is inevitable. Does Bank of Ireland not recognise the inevitable pressure that is on the way and is it not trying to reorganise itself in advance? In that sense is it to be commended for trying to prepare itself for competition? Other issues are coming into play on which I would like Mr. Broderick to comment. We are a bit out of line on costs. We have a highly concentrated sector and we want to see a shake-up.
Mr. Broderick
I thank Deputy Bruton. From the outset I reassure the Deputy and the committee that we are not against change. Change is a constant in the industry. The criticism today is not that Bank of Ireland wants to change — we support the change — it is how it is doing it.
We have argued for the past five years that there is no public policy on banking in Ireland. It is a disgrace that politicians and the key players like ourselves in the industry have not developed a strategy, in recognition of the need for greater competition and what banks must do to respond. We have continually asked for a forum on banking to develop a vision for the future. That public policy debate must take place. We would have a major contribution to make to that because we recognise that we cannot stand still.
There is a need to have a discussion about banking policy but the banks must come to the table to take part in it. We must be mindful of the restrictions put in place by the European Commission in terms of competitiveness. We must also address the future direction of banking and how we can look after and retain quality jobs in a changing environment. We are not against the change and we are not focused on the cost-income ratio but we are disappointed that this change appears to be driven solely with a view to cost-income ratios being the main objective.
Deputy Bruton asked what were our main problems with the proposals. If we knew the proposals I might be able to tell him. Three and a half weeks after the announcement, my biggest dilemma is that nobody appears to know the specifics of these proposals. We need to have a debate on that. If the bank wants to discuss reorganisation, that can easily be done. We have difficulty with the fact that the bank's approach is to suggest that staff should be made compulsorily redundant. We have difficulty with the fact that it wants to outsource some of the customer service activities that historically have been well done by bank officials, with all the difficulties that would imply.
We have had meetings with the bank. It is not a case of not having met in the intervening three and a half weeks, but we do not have any detailed, specific information which would allow us to discuss a business plan.
If an organisation like Bank of Ireland, or any other employer, wants to engage in a major plan for the future, staff have a right to contribute to that. It should not be announced to the world as a fait accompli, nor should it be announced without all stakeholders knowing the details of it. The reasonable position we are adopting is that any plan that would be of such an extraordinary nature should be discussed. Public policy issues should concentrate on this also, as part of the plan includes further branch closure.
On the final point Deputy Bruton raised in regard to our view of technology, ten years ago we were told the introduction of ATMs and call centres would improve service to customers and that it would deal with the issue of compliance, sort out ethics in banking and generally solve our problems. The irony is that the industry is changing because these things have not necessarily been the success they were expected to be.
If there is need for consolidation, we will not be found wanting. We are not naive. The current emphasis in terms of the focus of competitors is that income growth is about trying to enthuse customers to bank with them and that can be labour intensive. I take the point that we should not just be blinded by profit per employee but equally we should not be blinded by the cost-income ratio.
Deputy Bruton suggested that maybe we were a bit unfair to use the examples of Danske Bank and Royal Bank of Scotland, but that has to be put in context. Danske Bank was previously National Irish Bank, which was owned by the National Australia Bank group. Because Danske Bank acquired National Irish Bank; it needs to carry out a tremendous cost reduction exercise. Danske Bank has bought National Irish Bank and sees the opportunity for organic growth and investment in technology to grow the business. I do not believe that requires Bank of Ireland to cut the cost in its operation. It can improve its service, invest and be more efficient in technology. There would not be any need to cut costs.
Equally, the Royal Bank of Scotland owns Ulster Bank. In acquiring Ulster Bank and subsequently acquiring First Active, it is competing with Bank of Ireland and its strategy is equally organic growth within Ireland. It is not about contraction.
The final comparator is Bank of Scotland. Everyone at the committee welcomed the arrival of Bank of Scotland and what it did to the marketplace. We have seen its initiative in the recent past in acquiring ESB outlets to expand its business. The Irish banking sector has been closing branches for the past ten years. The model of opening retail outlets to customers is not new. This is where we challenge——
There is a difference between an incumbent closing branches and a new entrant opening branches. One has to create a spread. As competition emerges and there is an effort to drive down the higher wage cost we have in Irish banking compared to elsewhere, is it not inevitable that restructuring will take place?
Mr. Broderick has not really responded. I accept that Bank of Ireland has not negotiated or consulted on its proposed change, which strikes me as bad industrial relations practice, but from a long-term point of view will the direction in which it is going not inevitably be an adaptation to new entrants driving hard to expand into a marketplace that has become a little bit high-cost?
Mr. Broderick
I disagree with Deputy Bruton. It is not just bad industrial relations practice, it is a bad decision to have a business plan and not sit down and discuss it with staff. If we are talking about the future direction of Bank of Ireland, as stakeholders we all have a responsibility to have an input in regard to that plan.
On the question of whether AIB and Bank of Ireland need to respond to the growth of Ulster Bank, First Active and National Irish Bank by closing branches because overseas companies own them, I do not necessarily accept that but I am not naive enough to suggest that nothing should change. That is part of the debate. We are talking about the two biggest banks in Ireland with a dominant share of the marketplace, and we must have that discussion with them in terms of how they will respond to a more competitive marketplace. I recognise that there will be change.
The theme of what we are saying today is that we accept there is a need for change, but that should not be solely driven by cost-income ratios. I do not believe there is a justification for that but I accept there is a need for change. Where we would differ is when it comes to the minutiae of change, if it should be of this size or this nature and if it will give customers better value, which I doubt. Ultimately this plan will result in customers leaving Bank of Ireland and going to other banks, which will not be in Bank of Ireland's interest in the long term.
I too welcome the members of the IBOA and thank them for the presentation. I would like them to expand on a couple of points in terms of the presentation.
In recent years evidence of delinquency has accumulated with regard to quite a number of banks. There were revelations only this week as regards Bank of Ireland and customers being charged for insurance policies that were associated with loans. Specifically, however, Mr. Broderick in his presentation talked about 2,100 job cuts and said that 60% of the cost savings and staff reductions should happen within the first 12 months. We are basically talking about 1,200 employees going within 12 months. In the presentation he said that would affect all areas of the bank's activity. At this stage does Mr. Broderick have any sense of where those job cuts will fall? In particular, do they have regional or geographical implications?
Bank of Ireland, like other banks, for instance, has fled from the working class areas of towns and cities. It has dropped branches in many of the different working class areas on the north side of Dublin. It has also fled from many rural locations, particularly areas that it considers to be remote. However, 1,200 is a large number of staff to take out. Since members of the committee represent constituencies right around the country, it would be interesting to learn of the impact of this on the availability of banking services.
As regards the reference to outsourcing some of the activities, we are aware of what happened with Hewlett Packard. Does Mr. Broderick know whether the outsourcing is likely to be within Ireland or will it be targeted at India or some other distant location? Has the IBOA, as yet, any feeling for what is likely to happen? The committee would be interested to hear about this. There appears to be a principle, if there is a capacity for quality jobs in Ireland, for companies to stay in Ireland. As a social partner, corporate citizen or whatever banks call themselves nowadays, Bank of Ireland might have some regard for Irish citizens given that the majority of its customers are Irish.
Are there any gender implications as regards the 2,100 redundancies? It seems the Bank of Ireland, as with AIB over the past decade or so, has brought in early retirement for many people in the middle management grades, while introducing extra staff, many of them women, who work on a part-time job share basis. If one phones an inquiry line, for instance, one is not likely to get the same person twice, even where people try to be very helpful. Does the IBOA have any sense of what is likely to happen in this regard?
Many people who do business with banks, particularly small businesses, who end up queuing to make lodgments or routine transactions, find it takes a great deal of time. In an environment that needs to encourage small business and efficiency, bank charges are not cheap, particularly for small enterprises. The repercussions of what is being proposed for small businesses whose proprietors must on occasion visit their local banks to make lodgments or make particular queries, could be deplorable. It is somewhat like the screens at Dublin Airport, where one has to go around in a loop, joining a queue and being held back by the tape. Customers will be deeply disappointed if that is the scenario proposed by the bank, despite the high charges.
Does Mr. Broderick believe the bank is on a crash diet in anticipation of being sold off? Is this the equivalent of the Atkins diet for the Bank of Ireland, with the employees being the meat that is eaten? Is the bank preparing to sell itself or to effect a merger with some overseas group? As Mr. Broderick said, and we would all agree, banking is very important in Ireland as a services sector and employer. The country has invested a great deal of money in education to provide the banking system with well-qualified people who can work in the financial sector at all levels. I would be disappointed if the bank is on a slim down mission with no thought about the consequences for the economy in general.
On the impact on the bank's balance sheet, debt ratios and so on as regards off-loading pension liabilities for the 2,100 staff redundancies required, is that also a feature of basically attempting to dump responsibilities off the main balance sheet? Mr. Broderick mentioned that the IBOA had acquired the services of someone to chair a forum? Is it possible to share that information with the committee and to give an indication of what the time basis is likely to be? I know that some 60% of the staff are to go within 12 months, but we would like a sense of the overall timescale and how the programme is to be implemented.
Mr. Broderick
I thank Deputy Burton. There is a good deal there. On the last point, we have agreed that Mr. Kieran Mulvey, the chief executive of the Labour Relations Commission will chair the negotiations between the parties. As regards the timescale, the union emphasises that those discussions should make some significant progress by May, at least, because it is not acceptable that these matters should be left hanging. We need to have some commitments in that regard. Both the IBOA and the bank are committed to that time period.
The Deputy mentioned two points, which I will probably take together. One was on to the rationale surrounding the pension liabilities question, as well as consolidation with a view to possibly preparing the ground for an acquisition. My reply is similar to what I said to Deputy Bruton. This is the debate that needs to take place. The bank has a responsibility to have this discussion, not alone to its shareholders, but also its staff and its customers. What is the business rationale for this? Will it result in better customer service? Will it create the type of synergies from which customers and staff can benefit? Will it give the bank better opportunities to offset competition? To be quite honest, I do not know any of the answers to these questions. As with members of the committee, I have just seen the media statement and press headlines, which focus on costs being taken out of the organisation. The initiative is being driven by a strategy of cost reduction. The questions the Deputies have identified are fundamental to the discussion that needs to take place with Bank of Ireland. If any change programme such as this is to succeed, these are the types of questions that must be answered. Our members are cynical and morale is very low at the moment. There is a view that perhaps there is another agenda. In fairness to the bank, I must give it the opportunity to explain its proposals. However, it is a sad reflection that in the three weeks since the announcement, and given the tight deadlines, no discussions have taken place.
The bank indicated it will look to outsourcing some of its activities. However, it has not yet come up with any specific details. From our experience of outsourcing to Hewlett Packard, it takes a long time to set up. Heads of agreement between the bank and the outsource parent company must first be established. There is no guarantee that staff will transfer with those jobs affected. Questions concerning acquired rights issues also arise. We are concerned about what confidential information will be dealt with by the third parties involved. We are at a loss, other than the experience of outsourcing to Hewlett Packard. Ultimately, we were able to secure certain conditions, but only after difficult negotiations.
When Mr. Broderick refers to confidential information and third parties, is he referring to confidentiality of customers' information?
Mr. Broderick
Yes. Bank officials pride themselves on our code of confidentiality. We have reservations about third party involvement in some elements of the banking business. No disrespect is intended to those involved in the outsourcing companies, but these are multinational companies providing an outsource facility which is not traditional banking facilities. We have concerns about this area as we have not yet been given any details.
The bank has clearly indicated there will be branch closures. These will impact on suburban banking and other areas. These must be seen against the 40 or more closures in the past three years. The majority of bank officials are fully transferable. The focus of the proposals is at branches, head offices and contact centres. Staff at contact centres do valuable work, usually shift work with impersonal hours. They are predominantly female and are concerned these facilities are being singled out. As a consequence of this, there is the social implication that it will have a greater impact on women. Senior levels in banking are predominately held by men while the majority of IBOA's members are female, doing equally valuable work, but not as valued.
Will Mr. Broderick expand on this?
Mr. Broderick
Up to 70% of our members are female, they work predominately in branch banking, head office areas and contact centres. Many of them are shift working impersonal hours. Many married women with children work in these sectors to facilitate their social needs. Consolidating a contact centre, which on paper looks smart, will have more of a significant impact on these workers than on those in traditional bank branching, lending or senior management areas. Gender issues, we sense, could be involved but we do not have detailed information.
This is what is most disappointing about the bank's plans. When Aer Lingus had its back to the wall, at least its management came out with a business plan that was debated and discussed within the company. In this case, the plan to reduce jobs was launched, yet there still has been no in-depth analysis of it.
I too welcome the IBOA representatives and compliment them on their comprehensive submission. Even though there are no proposals from the bank, the IBOA submission gives some details of the drastic proposals, nine of which, if implemented, will have serious consequences on the staffing side and for small towns and rural areas. What is not clear is where these closures and cutbacks will take place. As a representative of the rural constituency, Longford-Roscommon, I know the difficulties caused by particular cutbacks. If there are to be more cutbacks, the BMW region will be affected. These areas, as well as some suburbs, have been stripped of banking facilities in the past.
The committee has dealt with a series of situations that have been the worst type of publicity for financial institutions. In all cases, the people who lost out were the customers. While the Central Bank was a watchdog, it really had no interest in the ordinary person. Its was a prudential role to protect the financial institutions and ensure their viability; it did not matter what happened to the public. After many exposures at this committee and other fora, there now seems to be some concentration on the customer.
The IBOA's suggestion regarding the IDA will not go down well with the taxpayer. The taxpayer would feel he or she is further subsidising the financial institutions.
I am concerned that, apart from the employment issue, a large financial institution is not in consultation with the various parties on these proposals although they have been in the public domain since 23 March. These proposals are as important to the employees as to the bank. Detailed and comprehensive negotiations should have been held by now.
The submission states "last year the Bank of Ireland failed to implement the 4% profit share allowed by an independent third party for staff in recognition of their contribution to change". It also states: "The cost-cutting and job losses proposed by the Bank of Ireland will have a negative impact on our economy and makes a mockery of social partnership and breaches the terms of Sustaining Progress." These are matters the representatives will take up, if they have not already done so, with the relevant independent statutory bodies set up to deal with such issues. It appears to be an inappropriate action by a large employer which is party to Sustaining Progress and social partnership that there should be a breach, as it was described.
How do the representatives envisage 2,100 staff being laid off on a national basis? What are the implications of this? This is a large number of people. How many branches are involved? How many will offer a reduced level of service or be closed altogether? It would be useful for the joint committee if Mr. Broderick outlined what he believes the implications will be for the future availability of banking services. We will have to invite representatives of the Bank of Ireland to come before the committee to explain their intentions and how their proposals will impinge on this country.
People welcome new operators in the banking sector. I welcome them. However, we must also be conscious that the existing commercial banks have enjoyed enormous profits — some would consider them almost immoral — in recent years. As a result, ordinary bank customers feel aggrieved that they must pay the existing bank charges. Communities will become part of this campaign if they find out that, as I suspect, banking facilities will be lost in certain towns.
This country has experienced a reduction in social facilities and opportunities with the closure of post offices, Garda stations, creameries and so forth. There has been a radical reduction in the facilities and services available to the public. It is now occurring in a new area. The Bank of Ireland has approximately 18,000 staff and now proposes to get rid of 10% of them. That must have implications for its branches.
What is the intent of the statement by the Bank of Ireland? On the one hand, it proposes to remove 2,100 staff but in an earlier statement it proposed to employ 500 extra staff. What is the logic of this? Is the bank referring to different staff or independent contract personnel?
Mr. Broderick
Deputy Finneran covered a number of points. There is an analogy with the IDA. If 2,100 jobs were to go in a foreign company in Ireland, there would be a public outcry. The fact that Bank of Ireland is so big means there is not the outcry one would expect. If most of the jobs were in Roscommon, the Taoiseach or the Tánaiste would establish a special task force to retain them. This is massive in scale. It is probably bigger than any other change programme implemented in Ireland. People must realise this. It is not a small strategic change but a significant one.
The Deputy asked about the branch closure policy. Our union has argued consistently that there should be justification for branch closures. I welcome the Deputy's comments about IFSRA which is preparing a paper which will examine the rationale for branch closures, the need for adequate notice and the need for community groups to have an input. That is welcome. We have been critical that banks and branches have been profitable but branches have been closed for all types of reasons. The reason we have heard previously is to move decision-making away from local people and centralise it. This does not necessarily have the benefits of economies of scale or improved customer service that one would expect.
On this occasion we believe there will be more branch closures. We do not know how many in terms of scale or what the impact will be. We will challenge these closures. There have been too many in the past. There is a role for branches in providing facilities, particularly in rural areas and some suburban areas. These areas need that facility. There is huge emphasis on electronic banking but people do not necessarily want it. There must be other facilities available to customers.
With regard to Sustaining Progress and social partnership, our criticism is of the bank's blatant statement that there could be compulsory redundancies. It has not stated, as one would havetraditionally expected from a profitable organisation, that the cost reduction programme will be implemented on a voluntary basis, whereby people who wish to leave the bank will be facilitated in doing so. However, it has stated clearly and arrogantly that it will not rule out compulsory redundancies. That is a kick in the face to social partnership and outside the terms of Sustaining Progress. We will make these points forcefully in the negotiations.
It is not a case that the bank has not met us because it has. The argument and debate we have with it is that everybody, particularly shareholders, staff and customers, has the right to know what vision the Bank of Ireland has for the future. As Deputy Bruton said, if this will solve all the ills of Bank of Ireland, the bank should be quick to show us how it will do so and how it will build in protections. However, there does not appear to be any business rationale for this other than focusing on reducing costs. The problem is that in a short period, when the next profits are announced, they might not be good enough and the simple answer will be to cut costs out of the system again, without examining what the plan should be and what impact it would have. This will impact on customers and staff, although I cannot give specifics.
We have anticipated that the bigger banks might consider some change programme but, despite our expertise, 2,100 is an inordinate number of jobs and it is difficult to visualise how they can be cut. Given that I represent the trade union, I am loath to suggest to the Bank of Ireland how it could be done. I do not believe it can. That is part of the challenge we face. I agree that this will have an impact.
Will Mr. Broderick comment on the 500 jobs the Bank of Ireland stated it would create?
Mr. Broderick
I am at a loss. What appears to be happening is that the bank is acknowledging that it cut back too much in the retail network and that it needs to recruit staff for that network. At the same time, it states it will reduce numbers by 2,100 in the organisation. We recently called on it to put an embargo on it because it does not make sense. A double message is being given to the effect that the bank is keen to support the frontline staff but not the back office staff. It forgets that most of the back office staff spent most of their lives in the front office. There appears to be an extraordinary paradox in that approach and we have suggested an embargo until the issue is debated. This is the conflict of messages we are facing which is causing frustration for everybody.
I thank the representatives of the IBOA for their clear and balanced presentation. A number of points should be highlighted. The representatives have had a number of meetings in recent weeks. Without breaching confidentiality, what happened at those meetings?
What bothers me about this is that it was announced recently that Ireland had the best record in Europe in terms of the number of days lost through industrial action. That record has been hard won. Deputy O'Keeffe will not wish to hear this but it has been hard won through the partnership process engaged in by the trade union movement. In doing that, it has been important to convince members on the ground. At the end of this year, Mr. Broderick will be part of a team negotiating a new national agreement. The next step is to go back and talk to members. We have to talk to members about the importance of things like partnership. The management at Bank of Ireland will talk about the importance of good industrial relations, the importance of stability in the economy and the importance of people taking a balanced view. On the other hand, they will ride roughshod through all the agreements and models of partnership. This is appalling. This issue threatens the whole economy. I cannot see IBOA members in Bank of Ireland buying into industrial peace in the light of this. That is why the Government needs to get involved. I hope the IBOA will make the issue clear at Government level and I believe this committee should also do so.
If I was in the position of the IBOA, I would hold myself back from teaching this bank's management a lesson. A week after its announcement, the bank issued a statement about recruitment in Irish industry, expressing concern in certain areas. It had a total disregard to what was going on in the bank itself. It was as if it never happened. There is an unpolitical view taken of the financial services industry. Deputy Finneran quite rightly expressed the fear that because the 2,000 job cuts are to be spread over the country, we may not see it. However, how could we cope with Deputy O'Keeffe if 2,000 farmers went out of business? Would we able to tie him down? I hope he recognises what is involved here. This industry has also been here for the past 200 years. I expect a certain element of sympathy from the Deputy for the bank officials. I do not know how many bankers there are in Mitchelstown, but he might keep it in mind.
I am more right than the Senator.
When ordinary people walk into the bank, they should look over the counter at the workers, who may soon be sacked. These are real people and are not just statistics. I would like to be reassured by the IBOA that they are putting the boot in hard. This must continue until bank management can hear the message. I compliment the IBOA members for taking the correct route. They are not standing outside the gate. They are in here arguing their case and that is the kind of partnership we need to see happening all the time. I hope this committee, with the possible exception of the right-wing Deputy O'Keeffe, could join in supporting the IBOA.
Mr. Broderick
I thank Senator O'Toole for his helpful support. He asked what we have been doing for the past three and a half weeks in solely talking about process and not even debating the justification for the plan. His comments on social partnership are correct. It is fair to state that until two years ago, this union voted in favour of social partnership. However, there is a culture in the banking industry that has caused many problems for our members. Incidents like this have made it very difficult for us to take a supportive line. The executive is still fully behind the social partnership route and that is why we are here looking for support. We want to have decent, constructive discussions, with a view to reaching agreement on change, but not change of this draconian nature.
I welcome the IBOA here, as well as Mr. Marty Whelan, who is a great friend of mine, even though we may not hold the same views. Whether I am right, left or centre, we have to face reality. Mr. Broderick stated that Irish banks are facing increasing competition from foreign banks and financial institutions. However, our domestic banks, AIB and Bank of Ireland, have made a major contribution to our economy during the difficult years when employment rates were at 20%. Those banks invested heavily in the country and were it not for their efforts, we would have a very different economy today. We now have 2 million people in the workforce, whereas we only had about 800,000 people working in the 1980s.
Profit is very important. It is what contributes to the wage packet. The profit is not related to what the banks need to reinvest the following financial year. A profit based on turnover is often only in keeping with inflation and what it costs to run an operation. I am not an expert in that field, but many, including members of the IBOA have welcomed the influx of foreign banks and financial institutions. Those banks were not around in the 1980s and early 1990s, when employment was scarce. Branch closures will become a fact of life because many of the institutions that are coming in here have no branch network. They work from an office. We get a massive service from our two domestic banks and they have served this country very well.
I take issue with Mr. Broderick. He is a trade unionist and he has the old fashioned——
The Deputy is not a bad trade unionist himself when he flies his IFA colours regularly.
I wish to continue. It is old fashioned to go down the route taken by the IBOA.
They should come in on tractors.
We have to be progressive. I come from a town that lost 1,100 jobs and I felt very sad for many of those people. They did not get great support except from me and a few other people. In a town of 3,500 people, 1,100 lost their jobs, even though they were members of SIPTU and MANDATE. In this case, 2,000 people are losing their jobs on a national basis, which is a different situation altogether.
There is too much regulation in the banking industry here. We are the most regulated country in the world. We have had a great number of Bills in the past seven or eight years which have over-regulated the industry. There will be a general election in Britain in one month——
Which Government brought in these regulations?
Did the Deputy vote for all these Bills?
I take the party Whip, which Deputy Burton also takes. I understand that one of the banks has invested more than 50% of its funds in the mortgage sector and in the building sector. That is a massive investment and we must recognise it. We have to modernise to compete. One of our banks made more profit abroad last year than it did in the Irish domestic market. I am open to contradiction on that, but I believe I am correct. The banks are also employing 40,000 people, which is impressive.
The major investors in our banks and in the stock market are the pension funds. If our banking institutions take the wrong direction, many people will have a different attitude to pension funds. That stock market investment in the private sector is making a significant contribution to working people, be they blue collar or white collar workers. We cannot lose sight of those issues. If we do not stop knocking the two domestic banks which have been here since 1783, we will finish up being controlled from outside. Something like that happened in New Zealand and there is now no national banking system there. This committee has looked at regulation and de-regulation that has taken place around the world.
Mr. Broderick has a vested interest. He is an official in a good job, just like me. Mr. Broderick should protect his members in a different way and should not have such a negative approach. We have to look at it in a different way.
Mr. Broderick
I am extremely disappointed that, despite the cogent presentation, it was not understood. I will try to recap on four or five points to help the Deputy to understand.
Let us be clear that IBOA members work in AIB and the Bank of Ireland. They have contributed to the success of the banking industry which they believe is important to the economy. We are challenging the cost-reduction plan which refers to the taking of 2,100 jobs out of the industry without a justified business plan. I have no vested interest in this matter, other than the fact that I represent thousands of people, many of whom probably vote for the Deputy. I would have expected a little more sympathy in recognition of the reality, that is, that we are not against a changing banking sector but against a plan that other competitors, including AIB, do not believe is appropriate to slash costs at the expense of staff.
To be fair, there are a number of areas of agreement between us. The reason there is regulation in the Irish banking industry is there have been significant problems within it during the years. As I accept that we can have an over-regulated banking environment, we need to strike a balance. However, the joint committee has dealt with many issues which have called for regulation of the banking industry. IFSRA must be commended for having exercised its role in a constructive and positive way in the interests of the customer. As staff — I presume this also applies to the banking industry and its customers — we want an industry that is profitable, ethical, compliant and fair to staff and customers.
Perhaps we went through the presentation far too quickly for the Deputy's benefit but our challenge today is not against a profitable, supportive industry but in favour of one that strike a balance. As regards the Bank of Ireland's plan, we are not against change but change for the sake of it, that has no basis in a business plan and that focuses solely on costs.
I welcome the support given by the Deputy. No doubt we can discuss the matter afterwards in a more constructive way.
When there was no regulation, we did not have the same problems in the banking sector.
We were being ripped off left, right and centre and never knew anything about it.
The Senator has no evidence for saying that.
Just every bit we have received in the last period of time. In the last month two errors have been made by the bank in question; there was overcharging for insurance cover and a doubling of other charges.
The more regulation, the greater the corruption.
I may be able to offer something that could be agreed. Those involved in the management structure of the bank, including the board of directors and the court of directors, have facilitated tax evasion on DIRT and the overcharging of customers on a significant number of issues. The last time we raised issues concerning the Bank of Ireland, they identified pornography as a suitable vehicle for investment by the bank. Perhaps they will be the first to seek voluntary redundancy packages. Perhaps the Deputy would agree with me.
Unlike the Deputy, I do not exaggerate.
At this stage we have had a good presentation and question and answer session. I would like to put one brief, final question. If some of the jobs are outsourced, given past experience, will the persons concerned continue to be members of Mr. Broderick's trade union?
Mr. Broderick
Yes.
That is the point I am coming to. Wherever the jobs are outsourced — be it to Hewlett Packard or elsewhere — is it possible that, with the passage of time, some of them will be done by people who have never been involved in the Bank of Ireland in the first place?
Mr. Broderick
Yes.
Ultimately, will they be done outside the traditional financial services sector? Will Mr. Broderick discuss this point because it was not dealt with in detail?
Mr. Broderick
To some extent, the experience of outsourcing in Ireland has been different from that elsewhere across Europe. In our experience, it has worked reasonably effectively. Where jobs have been outsourced to a third party, we have retained membership and had a good relationship with the employers concerned. Ultimately, over time, through attrition and with people moving on, the jobs will go to third parties who have had no direct relationship with either ourselves or the banks. This brings us back to the general concerns I have. There are jobs within the banking sector that could be outsourced but there are others concerning confidential customer information in respect of which I would have a concern about the concept of outsourcing in terms of the long-term interests of the customer. In our experience to date, it has been successful but the point the Chairman has raised is valid as regards future knock-on effects.
Having heard from the IBOA, it has been suggested the joint committee should invite representatives of the Bank of Ireland to appear before it. We did not invite the IBOA as such; the association contacted us and we agreed to meet its representatives. I propose that we write to the Bank of Ireland asking whether it wants to avail of the opportunity to appear before the committee. If it does not want to do so, it does not have to. I would not like to formally invite its representatives in case they decline the invitation. That in some way could be interpreted as a refusal to come here. It is up to them to decide. We did not send for the IBOA; its representatives are here at their own request and by agreement. I will make an offer to the Bank of Ireland that if its representatives wish to appear before the committee, we will be happy to meet them but it is their call.
As there is no other business on today's agenda, the joint committee stands adjourned until Wednesday, 27 April 2005.
The joint committee adjourned at 4.35 p.m. until 27 April 2005.