I welcome the Minister of State and his officials. I suggest we consider the Bill until 5 p.m. and if not concluded by that time a further meeting will be arranged. Is that agreed? Agreed.
ACC Bank Bill, 2001: Committee Stage.
Amendment No. 1 in the names of Deputies Mitchell and McGrath is deemed out of order as it involves a potential charge on the Exchequer.
I have just received that notification which states that amendments Nos. 1 and 2 tabled by Deputy Mitchell and Deputy McGrath on the Committee Stage of the above Bill must be adjudged out of order since they involve a potential charge on the Revenue. It is a question of one fund or the other and both funds are in the charge of the Department of Finance. Where is the charge to the Department of Finance on which the amendment is ruled out?
I had no involvement in ruling it out; in fact I was happy to take it. I did not rule it out of order. I had no difficulty in taking it but the Bills Office ruled it out of order. It is not my view.
Have we no say in relation to this matter?
I shall read the note on it. It states:
Amendments 1 and 2 in the names of Deputies Jim Mitchell and Paul McGrath seek to provide that moneys received by the Minister for Finance in respect of the disposal of shares by the Minister shall be paid into the National Pension Reserve Fund. At present, pursuant to sections 4(4) and 5(4) such moneys shall be paid into or disposed of for the benefit of the Exchequer. The moneys received by the Minister from the sale of State assets constitute State revenue and are governed by Article 11 of the Constitution. The effect of the Deputies' amendments, therefore, would be to approÍpriate public money from the Central Fund to the National Pension Reserve Fund. As this involves a charge on the Revenue the amendments must be disallowed in accordance with Standing Order 142(3).
Is the National Pension Reserve Fund not under the control of the Department of Finance? I understand it is.
No, it is not.
By whom is it controlled?
It is independent. The Deputy is trying to correlate that the same standing of Exchequer funding is equal to the money that would be garnered from the sale of ICC and that he wants to appropriate it to the National Pension Fund. The establishment of an independent commission, the National Pensions Reserve Fund Commission, to control and manage the fund, comes under the auspices of a separate independent commission. In effect, there would be a charge on the Exchequer to do what the Deputy suggests. I emphasise I did not rule the amendment out of order. I have no difficulty with it.
Is it subject to the control of the Department of Finance?
No. It is an independent commission.
I accept that but I understood it was under the control of the Department of Finance.
It is not. It is independent.
I move amendment No. 3:
In page 6, subsection (5), lines 11 to 13, to delete all words from and including "the" in line 11 down to and including "Oireachtas" in line 13 and substitute "ACC shares equal in value to 110 per cent of the value of the amount remaining outstanding shall be issued to the Minister".
I am trying to get information from the Minister of State on same. This amendment proposes that the ACC shares equal in value to 110% of the value of the amount remaining outstanding shall be issued to the Minister. We are asking for prompt payment, so to speak. If there are outstanding funds or a lengthy delay in repaying them, we request that 110% charge be put on them.
The explanatory memorandum states:
Section 6 provides for the continuation of guarantees provided by the Minister. As at 31 December 2000, £489 million of ACC's total borrowings of £2,469 million were guaranteed by the Minister.
Will the Minister of State explain if the remaining moneys that are not guaranteed are looked upon as assets of the ACC and, as such, do not require a guarantee? Who is responsible if anything goes wrong with that section of the bank's assets?
The existing State guarantees cannot be unilaterally withdrawn by legislation or by the repeal of the legislation under which they are given. The purpose of section 6 is to make provision for the continuation of the existing State guarantees issued by the Minister under section 14 of the Agricultural Credit Act, 1978, after the bank is sold.
Subsection (1) provides for the continuation of each such guarantee until such time as the guaranteed amounts are repaid by ACC Bank, or the Minister is paid the guaranteed amounts if the guarantee is called, or the Minister's liability under the guarantee ceases, or the guarantee is replaced by a third party guarantee acceptable to the beneficiary.
It is necessary to ensure that once the bank has been sold the guarantees the Minister has in place cannot be unilaterally withdrawn from whomsoever may hold them, until such point as they are deemed to be no longer necessary or the Minister is paid them, if they are called in. That is the purpose of the section.
The guarantee is for £489 million and the total borrowings are £2.468 million——
Section 6 will only commence when the bank is sold. It will be a condition of the sale that the purchaser will provide the Minister with a counter-indemnity in respect of all State guarantees in force on the day of the sale of the bank. The interests of the Minister are protected in this manner. I do not consider there is any sound basis for the amendment proposed by Deputies Mitchell and McGrath. Therefore, I am not in a position to accept it.
The Deputies have raised an interesting idea, that of receiving shares in certain circumstances if a debt cannot be paid. This legislation does not close off that option. These are merely standard provisions in relation to the ministerial guarantee. The interests of the Minister are protected under the existing provisions of the Bill. However, the proposal put forward could be considered in the course of negotiations of the terms of the counter-indemnity from the purchaser on which the Minister will rely in the event that this guarantee is ever called. I stress that a counter-indemnity in respect of State guarantees will be a condition of any sale.
Who will be responsible for the guarantees after the sale takes place?
That would still come under the Minister. It is done in the normal way. The guaranteed amount is about £489 million and about 19% of the rest of the money is the normal State borrowing guarantees. They stay in force until such time as they are repaid or no longer exist.
Once the purchase takes place, the guarantees automatically lapse, is that correct?
No, they do not. I am saying the opposite; they stay in force. The Minister cannot unilaterally withdraw guarantees he would have given and customers would have taken in good faith. The Minister will not give any new guarantees and those existing guarantees will die off over a period. The Minister could not, in any shape or form, unilaterally withdraw from commitments to guarantees already in place. The Minister's responsibility for them will end when they go by the wayside, are repaid or whatever.
Will a new purchaser have the cushion of the Minister's guarantees while they last, in terms of the amount of £480 million?
No, the Minister will get a counter-indemnity from the purchaser.
Then the purchaser will become the guarantor.
Were those funds borrowed by the State bank to lend to customers and, if so, in what currencies are the guarantees?
All bar £25 million of the money is in punts. The total borrowings are £2.468 million.
Is some of that money loaned from State funds to the semi-State bank?
None of it is Government loans?
So an Government funding to the ACC would have——
It was share capital.
Is the share capital being repaid back to the State?
We will get it back when the bank is sold. I take it that from what the Minister of State said, there is no loss to the State in respect of the guarantees given that, as the loans are repaid, the State's exposure will become less and less.
That is the intention.
That is very acceptable.
I move amendment No. 4:
In page 6, subsection (6), line 24, to delete "unsecured" and substitute "secured".
Will the Minister of State explain the position regarding subsection (6), which states:
Notwithstanding the provision of moneys undersubsection (5) to repay an amount to the Central Fund, ACC shall remain liable to the Minister in respect of that amount and that amount (with, if the Minister so requires, interest thereon at such rates as the Minister appoints) shall be repaid to the Minister by ACC at such times and in such instalments as the Minister appoints and, in default of repayment as aforesaid and without prejudice to any other method of recovery, shall be recoverable by the Minister as a simple contract debt in any court of competent jurisdiction and on a winding-up of ACC shall, notwithstanding anything contained in any agreement or any enactment, rank pari passu with the debts of all other unsecured creditors of ACC.
Should the words "unsecured creditors" not read "secured creditors", as they are already secured?
The amendment proposed by Deputies Mitchell and McGrath seeks to upgrade the status of debts owed to the Minister on a winding-up of the ACC Bank, which would arise from the payment of moneys in respect of funds under State guarantees. The status of these debts would be raised from unsecured, as the Deputy said, to secured.
Under section 14(3) of the Agricultural Credit Act, 1978, the Minister may require ACC Bank to give him such security as he may specify in relation to a guarantee. The reality is that no such securities have ever been sought in relation to guarantees given by the Minister. Therefore, the effect of the proposed amendment would be to put the Minister in a preferential positionvis-à-vis unsecured creditors and to improve his position in relation to secured creditors, including secured creditors already in place before the commencement of this section. It would not be appropriate to retrospectively alter the priority of debtors in this way. In any event it would be a condition of the sale of ACC Bank that the purchaser would provide the Minister with a counter-indemnity in respect of the outstanding funds guaranteed by the State under section 6 which would only commence following the sale of the Bank. That is the point we touched on earlier. That was also the position in the case of ICC Bank. Consequently, the Minister would be paid by the new owner of ACC Bank in respect of guarantees he was required to honour.
I presume the Department of Finance has knowledge of the sale of TSB and ICC Bank. Is this legislation similar to that covering the sale of those banks?
The position regarding ICC Bank is identical to that of ACC Bank.
What about the TSB?
It is a different legislative approach. I dealt with that Bill. The comparison the Deputy is seeking and the one that is most appropriate is ICC. I understand the Deputy's point. It is a strong academic point and is not without interest. However, I am counteracting it by pointing out that it is not necessary. The fact that there is a counter indemnity from the bank answers the question raised by the Deputy in both amendments.
The unsecured loans, therefore, have the same benefits as the secured loans. Is that correct?
That is the effect of it, yes.
It is not absolutely clear.
With regard to the secured creditors, we would not be in a position of waiting for the winding up if there was such a case. We would not have to wait for that process. On both the secured and unsecured sides the effect is that once the bank is sold there should not be any call-back on the State or on the Minister. That is the effect of it and it answers the two points made by the Deputy.
There is a differentiation between them but the effect in reality is the same.
For secured and unsecured?
It is being sold as a going concern.
There is exposure on both sides. One is to borrowing——
We have not sold it yet.
There is exposure on either side. There are the borrowings to fund it and the people who borrow from the organisation. What safeguards are there on either side should somebody buy it and then get into difficulty themselves? That can happen. Financial people are no different from any other business people. What are the safeguards for the State and the customers? Could the State be over-exposed in that situation?
No. What we will do, from the State's point of view, is make it a third party guarantee.
How can they be indemnified?
The purchaser will have to get the same. We do not know at this stage because there is no sale process. However, much of that, as was the case with ICC, is negotiated directly with the purchaser. The State's point of view will be to protect the State's exposure and that will be done with ACC.
Is there any exposure as far as ACC is concerned in respect of unsecured business?
We believe the ACC Bank is in a strong position, a better position than previously. We do not have any particular concerns. The Minister has been in contact with the bank over a period of time. Many changes have been made, particularly in the structures, and we believe that the bank will be attractive to a potential purchaser. I hope when this legislation is passed, that will be the case and the bank will be bought. If it is bought, it obviously will be bought in good faith as an important banking institution in its own right.
Has the Minister considered the timing? The DIRT cost the bank £14 million which was almost its entire profit for one year. Does he not think the bank needs a little time to consolidate its position and show decent profits again over the next two to three years before it is disposed of?
What we are trying to do is put the legislation in place so that if a purchaser is in the market for the bank, it can be sold. Who is to say whether it will be sold in the next six months or in the next three years? I do not know. However, the Minister has been anxious for some time, as he was with regard to the ICC and the TSB, to put the bank into the market and, I hope, to see it purchased. He mandated the board to pursue a change of ownership over the course of next year and the board will pursue that. That should shake out who in the market is interested in ACC and what is thought of the bank.
What happened to ACC with regard to the DIRT exposure was unfortunate and I do not deny or hide that. It was a substantial amount of money, regrettably, but we must move on from that and that is the purpose of the restructuring being carried out by the bank.
That was the culture of the time.
I do not blame the bank exclusively. I accept that point. It is simply unfortunate in the context of where the bank might be today.
The Minister says he is putting the legislation through the House to prepare matters, as it were. However, the bank is being offered for sale at its weakest time given that it had no profits for the past 12 months. It will need time to consolidate its position. I believe it should not be put on the market for at least two years to allow it to consolidate its position in respect of profits. Profits are the name of the game for all banks and it is important that this bank show a profit rather than simply the break-even situation of last year.
I accept the Deputy's point but, in fairness to those involved, negotiations will have to take place with management and staff. They need to put a great deal in place before they are ready for a sale. Even the ESOP will have to be put in place. However, one must be ready for prevailing market conditions. There is no point in everybody knowing that the ACC is to be sold and then doing nothing about it should a purchaser come along with a reasonably good offer. The bank will make a judgment call on the offer in the first instance.
This is an enabling mechanism to ensure that the ACC Bank will at least have the same opportunities as the other banks that have moved into different ownership. It will take time for the bank to get all its ducks in a row internally, so to speak, to be able to complete the process but that is what it wants to do and the Minister is anxious to facilitate that.
Section 11 states:
"Where the company referred to in section 2 is-
(i) the holder of a licence under section 9 of the Central Bank Act, 1971,
(ii) a company which a building society has converted itself into under Part XI of the Building Societies Act, 1989,"
Can the Minister explain that?
The main purpose of section 11 is to provide for the deletion of ACC Bank from section 3(2)(b) of the Companies (Amendment) Act, 1990. This is, in effect, a consolidation section. The Office of the Parliamentary Counsel to the Government is of the opinion that as the Companies (Amendment) Act, 1990, is an important Act, this consolidation section should be used to clarify the exact status of the section in question. Subsection (1) reflects the current situation with ICC Bank plc deleted from the subsection as the bank has been sold and is operated under a banking licence granted by the Central Bank. Subsection (2) will reflect the situation after ACC Bank is sold, that is, ACC Bank plc will be deleted from the subsection. This subsection will only be commenced after ACC Bank has been sold and is operating under a banking licence either granted or recognised by the Central Bank.
Is there any change in the company in so far as that regulation is concerned?
No, there is no change.
What does section 3 of the Companies Act do in the first place?
An examiner can only be appointed to a bank on application by the Central Bank.
Is it the case that the measures only commence when the bank is sold?
That is important. Deputy McDowell was involved in the discussions on the TSB and the ICC where the same principle applied. There will not be a change until after the bank is sold.
I did not intend to obstruct the passage of the Bill or unduly delay Committee Stage, but I repeat a point I made on Second Stage and which other Members also mentioned. I understand the Bill is intended to encourage people in ACC Bank to get their act together so that it might be ready for sale, I hope in the relatively near future. However, I hope this will not have the effect of a fire sale where a sign is put up which suggests that the bank should be bought because it is available at a knock down price. The Minister should take the message from Members today and on Second Stage that there is still some distance to go before it would be good for the ACC Bank and its customers to be sold and before the State can realise its best value.
I agree with Deputy McDowell. I worked in the bank as a director for some time and I also used it for banking purposes. It is part of the nation's silver and that is what is being sold. When farmers could not borrow from other financial institutions, they depended on the ACC. Great work was done in building it up. I was in conflict with the Department of Finance and successive Governments in relation to their support for the bank over the years. It was always my view that the bank was being held back by the Department of Finance and not being given the authority to move ahead. The bank only expanded in the mid-1980s when it entered areas outside the agriculture sector.
As I said to the Minister, the bank is not ready for sale. A reasonable price should be achieved for it. The bank has dedicated staff and I hope whatever arrangements are made with the ICC will ensure they are looked after and properly treated by the State. The staff work on behalf of the State and gave great support to the agricultural community over the years.
In common with Deputy D'Arcy, I am a former director of the ACC Bank and a customer of the bank. This organisation will be a loss to the farming community. It was established after the State's foundation to develop agriculture. It funded farming when other institutions were not prepared to provide lendings and borrowings to farmers. I am convinced the bank would have survived if it had stayed in the farming area and had not strayed into financing other activities. It will be a major loss. Farming is in a difficult position because of foot and mouth disease and people are beginning to realise the importance of the four green fields to the economy in terms of exports, etc.
Farmers are finding it very difficult to get finance for their businesses. People have approached me and told me what is happening. The ACC Bank was established to help in such circumstances, but there will not be no provision in that area in the future. The TSB, which broke the mortgage barrier and created an opening for house buyers under the late former Minister, George Colley, is also gone. The ACC Bank always gave good value for money in terms of its lendings. It did not charge the huge rates demanded by other financial institutions and it is a loss. It has a good branch structure throughout the country, although it did not often make profits. Whoever buys the bank as a going concern will inherit this structure and I hope it is linked to another similar agricultural bank. There are number of such institutions in Europe, including the Crédit Agricole in France. It has been particularly successful in the agricultural field and the success of French agriculture is obvious. It is the fifth or sixth largest bank in the world.
It is a tragedy that there will not be an institution in Ireland with the primary purpose of financing agriculture. The ACC Bank has good staff, comprising dedicated people who worked hard. The bank had its ups and downs because it tried to broaden its base. It was not successful and it experienced many difficulties as a result. I wish the Bill and the Minister success in the effort to bring in more money to the State's coffers, although the economy will grow by a further 5% or 6% this year. I am disappointed with the sale of ACC Bank and that there will not be a State organisation to fund agriculture in the future.
I understand the Deputies' comments. Similar points were made on Second Stage and during discussions on other Bills. They are essentially correct. However, there is no intention to hold a fire sale of the bank. I, the Minister and the Government want good value to be achieved from the purchaser. Deputy O'Keeffe's point about a bank focused on the agricultural sector is true. The ACC played an important role, but the financial services industry in general has expanded its products widely. Its products are more generally available to the agricultural sector than they were in the past.
I presume whoever purchases the bank will do so for its strengths which include its agricultural focus, the branch network and the aspects referred to by Deputy D'Arcy. We should not at this stage be overly negative. It is important to confirm that this is not a fire sale and that the bank needs some time. However, it is anxious to have an opportunity to get its internal position correct to ensure it is in the best situation to move forward. It behoves the Oireachtas to facilitate that; otherwise, the bank will not exist at all.