I must say I am somewhat unhappy about this Bill, and have been so since I first saw it (1) because the reasons given for the Government's support to this merger are so unconvincing; (2) because the structure of Irish banking that emerges from this transaction appears somewhat unbalanced; and (3) because this take-over has been carried out without the shareholders concerned knowing the value of what they are selling. The Minister has said that the take-over originates from a feeling on the part of the National Bank that its position, bridging the two countries, was becoming unsatisfactory, that it was obliged to maintain liquidity ratios laid down by the British authorities which are not necessarily appropriate to its business in this country and from a feeling that the banking business within this State should more directly be under Irish control. Because of this, the Dublin and London Boards of the National Bank have for some time been exploring ways and means of bringing about a division of the bank so that separate organisations for the two sections could be formed.
That seems eminently reasonable. One would expect it to be followed by the steps the Board of the bank thought of taking with a view to securing the necessary division of the bank but, instead, there follows the quite irrelevant statement by the Minister:
The arrangements provide for the purchase by the Bank of Ireland of all the share capital of the new Irish company...
This is a complete non sequitur. I can see good reasons for dividing the National Bank—and there are many ways in which it could be done—but that it could divide itself up suggests a poverty of imagination which I do not feel does credit to the intelligence of the directors of the National Bank.
The Minister gave four reasons for Government support for this measure, the first being that it involves a transfer of control of a significant part of Irish banking business from Britain to this country. The transfer of control of the Irish section of the National Bank could be achieved in a number of ways. It could be achieved—and this was done in relation to a large company not long ago—by transferring the head offices of the company to this country. There may be complications and difficulties about this but it is not impossible. When two-thirds of the shareholders are Irish, the company could become an Irish one. There may be difficulties of which I am not aware, but it is a theoretical possibility. There is the possibility of establishing a wholly-owned subsidiary. These the Minister dismisses on the grounds of not being statutory and of still having London control. I am not quite clear what kind of control the Minister is worrying about.
There is one detailed reference to the unsatisfactory character of the present situation, the liquidity ratios. If the bank cannot be divided up in this way, then the transfer of liquidity ratios in the two countries could be solved without difficulty. The Dublin Board of the National Bank has, subject to that difficulty, been able to run the affairs of the National Bank in Ireland in the interests of this country without any difficulty over the years, even though there has been control in London. A sub-division of the bank, therefore, would have got over this difficulty about liquidity ratios and the theoretical control in London and if their shareholders are Irish and their Dublin Board has shown itself well able to look after the interests of this country as far as the affairs of the National Bank are concerned, that could have been achieved.
It is not clear that it is necessary to sell the Irish half of the bank to somebody to secure this objective. The bank could have sold the Irish section of the bank to its own shareholders in some form. This type of transaction has been carried out before when companies are divided. It could simply have divided the bank into two sections. Many methods could have been adopted. The implied suggestion that the only way the National Bank could be divided was by selling the great majority of the bank to somebody else is extremely naive and unconvincing. I do not think the Minister can expect us to take it at its face value.
The Minister said, in the second place, that it would facilitate the implementation of a credit policy. This would have been achieved if the National Bank divided itself up and sold the Irish business to its Irish shareholders and taken action of that kind. In order to achieve the implementation of a credit policy here, it is in no way necessary to sell Irish business to another Irish bank.
The third reason given must surely be tongue in cheek, in view of what the Minister said subsequently. He said:
"The proposals should also help in the rationalisation of Irish banking and lead to a more economic and efficient service for the community".
That is a very fine concept. A very good case for the rationalisation of Irish banking was made in 1958 by the Secretary of the Minister's Department as we can see at paragraph 15 (3), Chapter 3, of Economic Development, 1958, when he said:
While a 30 per cent ratio is a minimum with banking organised as at present, there may be some scope for lowering the ratio and freeing additional resources for domestic development by the strengthening of banking organisation through bank amalgamations.
He went on to say "amalgamations should be followed by rationalisations as they would tend in any event towards lowering bank lending rates as a result of the elimination of redundant branches and the reduction of overhead costs generally". That policy was advocated by the Secretary of the Minister's Department in paragraph 15 (3) of Chapter III of Economic Development in 1958. It is an eminently logical policy. There may be certain objections to it but it makes sense. This particular banking amalgamation that is taking place is one which, according to the Minister in the Dáil debate in columns 181 and 182, involves complete security of employment for existing employees, no redundancy for anyone, and much greater opportunities for promotion, and he assured the Dáil that there was an intention to maintain existing branches of each one of them.
If that is rationalisation it is a new meaning of the word which I have never come across before and directly contrary to the complete rationalisation suggestion in the economic development document. It is, in fact, almost derationalisation. That this is the settled policy of Irish banks in regard to amalgamation is already evidenced by past experience. The Bank of Ireland took over, eight years ago, the Hibernian Bank. There was no question there of rationalisation. Far from closing branches anywhere, even where there were two beside each other, the policy adopted by the Bank of Ireland was, rather astonishingly, to expand the Hibernian Bank more rapidly than the Bank of Ireland. They opened more branches of the Hibernian Bank than they did of the Bank of Ireland. The reason suggested for that has been that it was thought necessary to preserve the morale of the staff of the Hibernian Bank and to assure them that the Bank of Ireland would have no effect on the expansion of their bank. The Bank of Ireland's concentration on the expansion of the Hibernian Bank is positive derationalisation.
No doubt the same policy will be adopted here. There may be good reasons for this, among them to provide security for the staffs, but for the Minister to talk about this as rationalisation and increased efficiency carries no conviction whatsoever. Unless he is in a position to tell us that there is some other secret form of rationalisation going to take place other than the ones he has specifically excluded we do not need to take this very seriously.
This whole problem of overbanking here is a serious one, as Mr. Whitaker pointed out. You can justify a competitive banking system if there is competition, but there is of course no competition in lending rates—even less than in Britain where there is some competition and some advantages of the competitive system. I am not aware of anybody who secures a better rate from one Irish bank than from another. The operation of the cartel is maintained to a perfect degree. Therefore, you do not have in practice competition, but you do have a duplication of branches on a very extensive scale because of the fact that, owing to the lack of competition in advance rates, profits can be maintained at such a level that it leads to an excessive expansion of bank premises. This is a common economic principle applied also to airlines in their competitive services across the Atlantic where they agree to fix rates and there is no control over capacity. They put on more and more services until the load factor falls to an uneconomic level. You have here, too, the essentially undesirable feature of fixed rates and no control over capacity. I wonder what are the circumstances in which it was thought desirable that competition, which in other areas is governed by the Fair Trade Commission, should not apply at all in this area in view of the evident disadvantages of lack of competition in banking to which the Secretary of the Minister's Department has drawn attention.
You can have a case for competition between independent banking groups perhaps even with fixed interest rates, because it gives people a choice of banks. Even if you do not have competitive rates there is some case for having a number of different banks, giving people a choice. But there is no case for a system in which you eliminate choice of banks effectively by permitting amalgamation of a number into one but get no rationalisation out of it and you still have a system of fixed advanced rates. You have the elimination of choice of North of Ireland bank customers, who have now to turn over to a bank with which a number of them, for perhaps very good reasons, did not want to do business previously. They are given no choice in the matter. There are many benefits by way of rationalisation, but the Minister assured us that there was no thought of any form of economic rationalisation or applying a certain type of economies even though he used the word "rationalisation" in his opening remarks.
The only good reason I could find, and one which naturally would appeal to the Minister, for what is being done is that the profits could be taxed here. This seems to be the real reason for the Government's support, on a short term basis without any thought of a Government banking policy, which they do not seem to have. As far as I can estimate it, what the Minister can get in taxation in this year might exceed £1 million, and one can understand the Minister, particularly on the eve of the Ides of March, licking his lips at the prospect of an extra million pounds. But it is not essential for the Irish section of the National Bank to be sold to another bank in order that the Minister could get his hands on this million pounds. There are other ways in which this could have been done.
The Minister's arguments are, therefor, very unconvincing. There may be good arguments for this—I do not rule that out. I am only probing at this stage, but it seems extraordinary that the Minister should put forward such weak arguments. If there are good ones we should like to hear them. The one thing running through all this matter is that the Government has no policy about banking. It seems to have faced this situation as it happened and said "there is a million quid coming in this, so this is our policy". Surely the Government ought to have a policy on banking. It could believe in the rationalisation of the banking system as recommended by the Secretary of the Department eight years ago, or, alternatively, could take the view that this would be undesirable and that the present system should be preserved, or that some limited rationalisation should take place. What is the Government's view on the position of banking in Ireland? We have no statement of policy on this other than the purely ad hoc statement that it welcomes these developments for reasons most of which seem very unconvincing.
If rationalisation is needed and if that were the Government's policy, which does not appear from the Minister's statement, is this, in fact, the best possible rationalisation? Looking at the structure of Irish banking, one might well wonder about that. This measure will put four banks together into one group and as far as I calculate it they will represent 42 per cent of Irish banking taking account of the English business of the National Bank which is being hived off and which will not remain a part of our banking structure as hitherto. Twenty-four per cent of banking will be in the hands of two northern banks each of which in turn is owned by English banks. Therefore, all that remains against this massive group will be three smaller banks between them accounting for 34 per cent—the remaining independent Irish banks. Is this the best possible structure for banking in Ireland—a quarter controlled from outside either from the north or from England, 42 per cent controlled by one massive group, and the remaining 34 per cent divided between three banks, the largest of which is quite a substantial bank? I would have thought that if the Government had a policy on banking, which it never had, it might have considered that the proper policy would be to have fewer banks but to have a number of strong banking groups competing with each other to provide some competition. We do not need nine banks. We could do with fewer, but we would need at least three strong groups in the Republic, led by the Bank of Ireland, the National Bank and the Munster and Leinster Bank. The possibility of that reasonably rational structure of three banks about the same size with some others already taken over by the Bank of Ireland and one or two others which may well be taken over would give you three groups in a rationally strong structure and maintain some element of competition. But in the absence of any Government policy something different has happened and appears to be welcomed by the Government without much thought as to whether it is the best method, but simply because of the million pounds extra taxation they hope to get.
I should like to turn from that to another matter—whether, in fact, this transaction is fair to the shareholders who are being bought out. We have been told that a firm of accountants have examined the business and reported that the price is a fair price. We do not know on what basis they worked. We do not know whether they were primarily concerned with the exact value or with the returns achieved. The shareholders do not know. They have been told that a firm of accountants think this is a good price, without knowing what approach was adopted in relation to the calculation.
It may be that the figure of £16.2 million paid to the National Bank as a whole by the two purchasing banks represents a fair value of the assets and the actual break-up value of the bank. This is possible. A recent study of the value of the banks in Ireland and their assets was made on behalf of a firm of Irish stockbrokers with whom I am associated. They worked on the assumption that the premises of the bank were worth about 2½ times the value of the balance sheets. That assumption seems now to have been over-conservative in the light of the Minister's figures.
He told us that the Irish premises of the National Bank are worth £3½ million, whereas the total value of all premises in Ireland and Britain is £1.9 million on the balance sheet. If you apply the 2½ times formula, that would give £4½ million for the whole of the premises of the National Bank in both countries. We know that the Irish premises are worth £3½ million and that leaves only £1 million in respect of the premises in England. This seems very low indeed. In other words, this would be an independent, approximate assessment of the assets of the National Bank, which works out at £16.2 million. Of course, this is an unduly conservative figure for the value of the premises. However, £16.2 million may not be very far out in relation to the value of the assets.
There is another way of looking at banks or comprehensive businesses, that is, to consider the earnings. Banks have naturally a monopoly. The fact that no Irish bank has been started in the last century, virtually not since the Munster and Leinster Bank took over the Munster Bank, when it went into liquidation in 1885, shows the strength of that business and that monopoly. That strength is maintained by the banks who have not encouraged competition from outside. This enables the banks to earn a relatively high return on their capital. We do not know what they earn because the Government, in their wisdom, permit the banks to disclose neither their assets nor their profits. It is rather difficult to assess the returns when you have not got either of those two facts.
We have, however, something to go on and we can make some rough assessment as to what the profits of the National Bank might be. Their published profits last year were £456,000, after tax. While I have not got the exact tax rate applicable today, it is suggested that before tax, the disclosed profits would be from £850,000 to £900,000. We know that banks' profits, as disclosed, are only a portion of their total profits. It is believed in various circles in England that the profits of the National Bank have been under-disclosed to a much greater extent than most other commercial banks. Several estimates have been made in Britain suggesting that the true profits may be 2.9 times the disclosed profits. The study carried out here on the Irish banking system, to which I have already referred, arrived, independently, at a figure of 2.85 times. If those two independent assessments, which seem to arrive at nearly the same figure, are correct, it would mean that the true profits, before tax, would be £2½ million to £2¾ million last year. That is a pretty good return on £16.2 million. It is between 15 per cent and 16½ per cent.
Of course, we do not know if those figures are correct. They are private assessments made in the absence of any published information. The shareholders do not know what the true profits are and, therefore, they are not in a position to evaluate the price offered. This is an unfortunate feature of this transaction. The two parties who decided ultimately to take this action were the directors of the Bank of Ireland, not the shareholders, who were involved only very indirectly by agreeing to provide additional capital which was then used by the Bank of Ireland, and ultimately the shareholders of the National Bank. The directors of the Bank of Ireland decided to buy and the shareholders of the National Bank are being asked to sell. The directors of the Bank of Ireland have a very good idea of the value of what they are buying. They are bankers. They know just how their own true accounts relate to the published accounts. They know, not only their own figures but those of two others, the National City Bank and the Hibernian Bank. They could make an expert evaluation of the true profits and the true assets of the bank.
In fact, they would know what they were doing but the other party to the transaction, the shareholders of the National Bank, have no information on and no estimate of what it is worth. They are told, on the word of a firm of accountants, that it a fair price. There could be several different views as to what is a fair price. One does not always take somebody else's word of what is a fair price. One likes to have some knowledge of it.
It seems most unfortunate that this kind of situation can exist. There may be many shareholders of the National Bank who believe that the true profits and assets of their bank are incorrect and under-estimate them. While it is believed in financial circles in London that the real profits are about 2.9 times the disclosed profits, that is not a view held by everybody, although it is held by expert stockbrokers. There may be shareholders who think that if the profits are twice as big as disclosed, that would be the size of it. Yet, not knowing what the profits and assets are, those people have been asked on faith to accept a price for their property.
This seems to be wrong. It is the function of the State to protect shareholders against this kind of situation. The State does this in other areas outside banking by taking many stringent precautions to ensure that full and true disclosures are made. In banking, the State connives at the failure of the banks to give any information on the true value of the assets or the true profits. This system is one that has been open to much criticism in the past. The minority report of the Jenkinson Committee in Britain recommended that it should be changed. I know it is a view of banking directors in this city that it serves no useful purpose and is no longer necessary. The directors of the bank who are buying know the true value of what they are taking over but the people who are selling have not the true value of the property they are selling.
It seems to me that this whole question of disclosures by banks needs to be looked at again. I raised this matter last July on the debate on the Finance Act and pointed out that there can be no ground for not disclosing the assets of the banks. I was inclined to the view then that there may have been a case for not disclosing the full hidden assets of the banks. The case has always been made that if the depositors and the shareholders knew what the hidden assets were, they might find them declared when values were falling and their confidence would be shaken. That may have been valid a century ago but it is not true today when banks are in a strong position. I am inclined to the view that the arguments for not disclosing the hidden assets are not substantial now and I believe that in present circumstances, they should be disclosed.
But there is no case whatever for not disclosing the true profit position. I fail to understand how any depositor in a bank could have his confidence in the security of his money shaken by knowing that the bank's profits were twice as big as he thought they were. He certainly could not feel his money was insecure by knowing that the profits were larger. There is no case for the non-disclosure of profits. The continued failure of the Government to introduce amending legislation has left the shareholders of the National Bank open to a take-over bid of a kind which they are not in a position to evaluate. They cannot know. This is part of a general pattern of lack of information about banking. The statements of bank chairmen, including that of the National Bank, have not been anything like as informative as they should be. The chairmen take a lot of time to discuss the national economy, on which their views and opinions may be of value, but one feels that it would be much better for their shareholders if they spent at least some of the time talking about banking. Moreover, when they do refer to banking, the type of information they give is by no means accurate. I should like to quote a comment by the chairman of one bank in 1963 as to how that bank was doing and to compare it with the actual truth as a shareholder could find out but only by obtaining the reports of all the other banks and comparing them. This chairman said:
Resources increased during the year by almost £ ... and the total is a record figure in the history of the bank. The rate of increase has slackened in comparison with recent years, but it is not out of keeping with the general trend.
That is, the description by a bank chairman of a rise in profits of his bank in 1963 when that bank's profits in that year were lower than any other quoted bank. The shareholders in that bank had no means of knowing that unless they obtained the reports of all the other banks and compared them. They were misled by the chairman of that bank as to the true position. Shareholders in banks do not get anything like the information which shareholders in other companies get because the Government do not require that they should have this information.
We also had the case of a bank last year publishing a balance sheet and accounts, with no comparative figures at all for the previous year, but the excuse given was that they had to consolidate their accounts because of legislative requirements. So, the shareholders could make no evaluation of how their bank had done for that year as compared with the previous year. The Bank of Ireland, which had always disclosed the basis of valuation of investment in its subsidiary banks, used the Companies Act, 1963—which was intended to increase disclosure—to withhold this particular bit of information so that the shareholders now in the Bank of Ireland are unaware of the basis of valuation of investments in its subsidiaries, which they had always had before. The Bank of Ireland published consolidated accounts which were completely uninterpretable because the transactions are so recorded that nobody could possibly work out the return between the Bank of Ireland and its subsidiaries, although the purpose of consolidation accounts is to enable that to be done.
Therefore, there are many matters which require attention. The time has come, after nearly 30 years in fact, for the whole question of banking to be reviewed. We need another Banking Commission at this stage. There are also other matters which affect the public interest—the size of the margin between deposit and bank rates. We know the profits are much higher than are disclosed. Should advance rates be fixed? If in Northern Ireland the question of whether this bank profit margin is too high is being examined by a committee, is this not something we, too, should look at? I think that is what has happened in this case, and the position arrived at when shareholders are being asked to sell something they do not know the value of. Banking is an extremely difficult and complex business and, of course, there are problems of confidence. I think the Minister should give serious consideration to the question of another Banking Commission at this stage. In the meantime, in this particular instance, I think the Government ought to require full disclosure of information before endorsing this transaction of the shareholders and particularly of the Irish shareholders who comprise, I think, 62 per cent of the total. The Government have an obligation to protect the Irish shareholders here and ensure at least that the Irish shareholders know what they are doing.
Finally, I think the Government should state its policy on commercial banking, on amalgamations, rationalisation and so on. There appears to be complete confusion on that; such as the idea that if you put two banks together and do not do anything to make them more efficient—as in the case of the Hibernian Bank—they do rationalise for domestic reasons. The Government should have a policy in relation to this. Surely it is something on which the Government ought to have a view. The banking system in Ireland is of enormous importance to us. They do not seem to know what is best for the benefit of the country.
I have explained that I am not happy about the Bill. The Minister has not made a case for it, except in regard to the extra tax he is to get. The structure of banking in regard to this is unbalanced. The shareholders' interest has not been protected. It is the duty of the Legislature so to ensure. This is not good enough and I think the Minister really should give us more information than we have had for the reason for this. He should turn his attention to the whole question of banking in Ireland and banking policy, which has not been looked at for 30 years, during which time this country has changed a lot and made great progress.