I move:
"That Dáil Éireann:
(i) notes that the Governor and Company of the Bank of Scotland has announced its intention to make an offer for ICC Bank plc which values ICC Bank at IR£275 million,
(ii) approves, pursuant to Section 4 of the ICC Bank Act, 2000, the disposal of the Minister's shares to bank of Scotland subject to the terms of the offer, and
(iii) approves that, pursuant to the irrevocable undertaking to be given by the Minister to Bank of Scotland subject to the terms of the offer, the Minister reserves his right to accept a better competing offer made on or before 16 January 2001 which must be at least 10% higher than Bank of Scotland's offer."
The Bank of Scotland recently announced its intention to make an offer under Irish Take-over Panel Rules for ICC Bank plc. Under section 4 (2) of the ICC Bank Act, 2000, I am required to obtain a motion of approval from the House prior to disposing of any shares in ICC Bank. As Deputies will be aware, a copy of the pre-offer document has been circulated to all Members of the House. I will refer to the details of the pre-conditional recommended offer later.
I wish to take this opportunity to congratulate ICC Bank on its achievements over the past 67 years. ICC was set up in 1933 as a channel to provide finance for the establishment of native industry. At that time, of course, the financial sector in general was very poorly developed. As Irish industry has grown, so has ICC Bank as it steadily expanded its range of services and the type of business it financed. This has now broadened to a full range of financial services to many businesses. Sectors served by the bank now include transport, software, tourism, distribution and a wide range of service sectors as well as manufacturing.
The 1980s saw the introduction of additional trade products and the expansion of the bank's commercial loan portfolio and treasury services, including foreign exchange services. ICC equity investment activity was also expanded by direct investment and by the establishment and management of venture capital funds. Venture capital is a major part of its core business and it is one of the leading providers of venture capital in Ireland.
ICC Bank has always worked closely over the years with the Minister for Finance of the day. Successive Ministers have had an excellent working relationship with the board and the staff and I take this opportunity to thank all the members of the board of directors and the staff of ICC Bank down through the years for their commitment and hard work, all of which culminated in making ICC the successful bank it is today. The bank is highly professional, successful and operates to very high standards.
It is impressive to note that since its beginning ICC Bank has made a profit in each year of its operation and that this year will mark a further significant improvement. While the State has made equity investments totalling £36.9 million over the years, the bank has grown through retained profits and deposits and loans to a stage where its balance sheet now amounts to over £2.8 billion. The most recent interim results show pre-tax profits up by 64% to £18.3 million and the cost to income ratio reduced to 35.8% from 47.1 % for the same period last year.
As Members are aware, the climate in which ICC operates has evolved dramatically since its early days. There is now significantly more competition from the private sector in the areas in which the bank specialises and a considerable increase in the levels of expertise and particularly risk management required in banking generally. The board concluded, with my support, that the company's future would be best served by a change of ownership.
The Government made a decision in principle in mid-1998 in favour of disposing of the State's interest in ICC Bank. Following this decision, a sale process was initiated in 1999 and we all know that the outcome was unsatisfactory – mainly because of the general decline in the valuation of financial stocks at that time. I suspended the sale process temporarily in December of last year, but I asked the board to review all options for the future and reiterated my view that the current status quo was not an option. Earlier this year, I authorised the board to explore the options for a change in ownership. This process led to the bid by Bank of Scotland.
The board recommended my acceptance of the pre-conditional offer announced by Bank of Scotland for ICC Bank on 5 December, which values ICC at £275 million. My advisers have also indicated to me that the offer represents fair value. The offer was made by Bank of Scotland subject to Dáil Éireann passing this motion of approval for the disposal of my shares and receiving an irrevocable undertaking from me to accept its offer for ICC Bank.
I have agreed to give this irrevocable undertaking but retain the right to consider a bid, by 16 January 2001, provided it is 10% higher than Bank of Scotland's offer. The board of ICC Bank has advised me to accept this offer as the price Bank of Scotland is offering represents a significant premium on the price offered last year. I have also received advice from my financial advisers, ABN AMRO, that it is appropriate for me, as shareholder, to enter into the irrevocable undertaking proposed by Bank of Scotland. The offer is being made under the Irish take-over panel rules which means that the offer is fully binding, provided the conditions set out in the offer document are satisfied.
The irrevocable undertaking will be in respect of the approximately 85% of ICC's issued share capital owned by me. This excludes the ICC shares to be transferred to the employee share ownership plan. On a small technical point, a special dividend was approved at an ICC EGM on 1 December 2000. It will be paid to ICC minority shareholders who hold approximately 1,650 shares, provided the offer is declared wholly unconditional and I am satisfied that the interests of this very small block of shareholders are fully protected.
This is an excellent opportunity for the expertise in the ICC Bank to develop further under the umbrella of a much larger group. Bank of Scotland is a diversified financial services group engaged in a range of banking, insurance broking, financial services and finance related activities throughout the United Kingdom and internationally. We are all aware of the impact the bank made when it became involved in the mort gage market here in Ireland. In that case, keenly priced mortgages offered by Bank of Scotland played an important part in the reduction of margins on mortgage rates generally. The Irish commercial banking market is considered by Bank of Scotland to be attractive, not only because of the growth of the Irish economy but also because there is real opportunity to offer vigorous competition in the market.
Bank of Scotland's financial strength and standing is a significantly positive aspect of the offer. Given the structure of funding of ICC Bank's deposits and borrowings, it is important that any purchaser should be of sufficient financial standing and strength to secure the current and future funding of the bank. I am glad to say Bank of Scotland has such a standing.
Deputies will be aware that over the years various State guarantees have been given in relation to deposits placed with ICC Bank. For some time there has been a policy in place of limiting and reducing the level of guarantees provided and those outstanding in ICC's case are only a small fraction of their overall funds. The level of guarantees will be actively reduced as facilities mature and alternative facilities are made available. Meanwhile, Bank of Scotland is providing a counter indemnity in respect of the capital on outstanding funds that are State guaranteed. Given the continuing, though reducing, guarantee which the State will be providing on some of ICC Bank's funding pending maturity, it is important that the party giving the State a counter indemnity covering such guarantees is of appropriate quality and strength. Again, Bank of Scotland provides such financial strengths.
The purchase of ICC Bank by Bank of Scotland should significantly improve career opportunities within the bank for the employees of ICC.
The ESOP agreed between management and staff of ICC will also be honoured by Bank of Scotland. The terms of the offer envisage that the ESOT shares in ICC will be swapped for Bank of Scotland shares. This is in line with the terms set out in the transformation and flexibility agreement. In return for a 5% stake in ICC, the staff have agreed to: increasing the hours in the working week; outsourcing of services; an open-ended option to reduce staff numbers on a voluntary basis; transfers within the bank; changes in duties; closer linking of performance and reward; no cost increasing claims to be submitted for a period of three years; and continuation of staff flexibility.
Another element in the ESOP was the purchase of 9.9% of the shares in ICC for £19.8 million, funded through increased pension contributions, borrowings, dividends and a 5% profit share arrangement subject to a cumulative limit of £6 million.
Based on the value of the offer now made by Bank of Scotland of £275 million, the 5% element which relates to the transformation of ICC would be worth about £40,000 to each staff member. Based on the offer price, the staff would, having purchased the 9.9% stake for £19.8 million, get a futher benefit amounting to an average of £20,000 per employee. It is likely to be at least four years before staff receive any benefit, with the benefit being distributed over the following ten years or more.
The acquisition of ICC Bank will provide Bank of Scotland with a significant boost to its existing commercial banking operations in Ireland. Bank of Scotland's existing commercial businesses in Ireland are principally focused on the small and medium sized business sector and this is precisely the focus of ICC Bank's operations. Over nearly 70 years, ICC Bank has built up a strong presence in this sector and has earned a reputation for integrity, efficiency and customer service. Bank of Scotland intends to develop these businesses, focused on the SME sector. Accordingly, as advised by the board of ICC Bank, the proposed acquisition should contribute to the development of the company which would enable an expanded and improved range of services to be provided to its customers.
Overall, I believe this is a very favourable offer with obvious advantages for both banks and I am hopeful it will increase competition in the Irish banking sector.
I say a very special thank you to the current board of ICC Bank under the chairmanship of Philip Flynn, as well as its management and all the employees who have contributed to making the bank the profitable and attractive institution it is today and for bringing this excellent proposal for a change in ownership to me.
Under the takeover panel rules and the terms of the offer, other bidders will have until the middle of January to submit offers to me, through the board. The motion before the House is for the current bid only – one which I have agreed to accept. If the board recommends a higher bid to me and I contemplate acceptance, I will come back to the House with a new motion of approval.
The Exchequer will receive £234 million from Bank of Scotland in respect of the 85% of shares that will be held by me when I accept the offer. The Exchequer will also receive a further £19.8 million from the ESOT in respect of the 9.9% stake in ICC that it is purchasing, bringing total receipts to the Exchequer to almost £254 million. I will be considering the appropriate use of these proceeds once they have been paid into the Central Fund and I will report back to the House at the appropriate time on this point.
I commend the motion to the House.
