Trustee Savings Banks (Amendment) Bill, 2000: Second Stage.

I move: "That the Bill be now read a Second Time."

On 5 December last year the trustees of TSB requested me to authorise the reorganisation of TSB in accordance with the terms of a contract agreed by the trustees with Irish Life and Permanent plc. Having agreed, I have decided to propose the amendment of the Trustee Savings Banks Act, 1989, to provide explicitly for the sale mechanism as proposed. The amendments are included in the restated and amended section 57 of the Trustee Savings Banks Act, 1989, which makes up the bulk of this Trustee Savings Banks (Amendment) Bill, 2000.

The proposal from the trustees, which they proposed following a full competitive sale process, involves selling the assets and transferring the liabilities of the bank to the Irish Life and Permanent group. The employees of TSB are to benefit from an employee share ownership trust agreed along the lines of ESOTs in Eircom and ICC Bank. The offer from Irish Life and Permanent values the bank at £339 million.

The request and accompanying documentation from the trustees was examined by my financial advisers, Arthur Andersen, which advised me it was its belief that the sale process had been carried out by the trustees and their advisers in an open, transparent and fair manner. Arthur Andersen also advised me that the bid from Irish Life and Permanent plc represents full value for the bank and recommended that I authorise the reorganisation. I have also benefited from the legal advice of Arthur Cox. On 13 December I made a public statement of my intention to authorise the reorganisation and published the Bill. The purpose of the Bill is to facilitate the trustees' proposal.

TSB was created by the amalgamation of TSB Dublin and the Cork and Limerick Savings Bank in 1992. Prior to the 1989 Act, and in accordance with their original purpose, the TSBs had been severely restricted in their range of activities. They were required to maintain at least 80% of their customers' deposits with the Exchequer and in terms of lending, they could only deal with personal customers.

In 1989 the Dáil provided for a broadening of the range of activities of Trustee Savings Banks. This was provided for in response to the changing situation in the financial sector and to deal with the fact that the original purpose of TSBs was no longer widely relevant. Since 1989 the TSB has grown significantly. Customer deposits have increased from about £760 million in 1989 to over £1,775 million at the end of 1999. The number of employees has also increased from about 800 to more than 1,200.

The trustees have, with the agreement of staff, reached the conclusion that the best interests of all the stakeholders in the bank will be best served by moving to the next stage of the process by changing the status of the bank and merging with the Irish Life and Permanent group. This change will give the bank access to the capital markets, a wider product range and a broader set of delivery and distribution channels, all of which are necessary if the bank is to continue to grow and prosper. Most importantly, it will provide continuity for staff and customers so they can benefit from ongoing developments in the banking market. This merger will also result in a very strong third competitor in the retail banking mar ket and is to be welcomed in terms of competition.

Section 57 of the Trustee Savings Banks Act, 1989, provided for the reorganisation of TSBs into companies. This section was incorporated in that Act because it was already clear from developments in the Irish financial markets and from the experience in countries such as Britain, France and Denmark that Trustee Savings Banks would need to become companies in order to adapt.

The provision for the reorganisation of Trustee Savings Banks was broadly drawn in the hope that it could cover any likely scenario. It was anticipated it would only be necessary for the Minister for Finance to bring a draft of any order authorising the reorganisation of a TSB before both Houses of the Oireachtas and to secure a motion of approval before proceeding.

Section 57 of the 1989 Act provided for the reorganisation of Trustee Savings Banks into either companies controlled by the Minister for Finance or not controlled by the Minister. The latter option is being adopted for the current process. However, under section 57 as it currently stands, it is not possible to establish an ESOP in TSB as it does not have any shares. It is also impossible to establish the ESOP following the merger of TSB's operations with Irish Life and Permanent because it is not possible to establish an ESOT for a particular group of employees within one company. Therefore, it has proved necessary to have an intermediate step. The assets and liabilities are being transferred to Kencarol Limited, a subsidiary of Irish Life and Permanent, at which point the ESOT will be established and then immediately transferred on, with the ESOT in place, to Irish Life and Permanent plc.

Existing legislation does not permit the establishment of an ESOP by a company while it is controlled by another company. Accordingly, section 2 of the Bill is required to allow for the establishment of the ESOT in Kencarol Limited while it is controlled by another company.

As I have already stated, the employees are in favour of the transaction. Their employee rights, including conditions of employment, are protected by employee rights legislation, particularly the EU Directive on the transfer of undertakings. In addition to this, the business sale agreement specifically provides for the protection of the employees' rights including their pension entitlements. The employees will benefit from an employment share ownership trust under which 5% of the shares in Kencarol Limited will be transferred by the trustees to the ESOT in return for agreement to the transformation agreement and the ESOT is purchasing a further 9.9% stake in Kencarol Limited for £19.8 million. On completion of the reorganisation, the ESOT's Kencarol shares will be swapped for shares in Irish Life and Permanent plc., worth £50.5 million.

As with all other ESOTs, the ESOT must hold the shares for a period of three years before it can allocate shares to employees through an approved profit sharing scheme. The maximum tax efficient allocation by an APSS is £10,000 per annum per employee. Deputies should note that while the transformation agreement envisages redundancies, it is a requirement of the agreement that all redundancies arising from the transaction must be on a voluntary basis only.

Separately from this Bill, provision is being made in the Finance Bill to ensure that the benefits of the ESOP due to the employees of TSB will be maintained after the merger with Irish Permanent. Specific exemptions are being created for TSB and also for ICC Bank, where the same issue arises.

As amendments were required in any event, the operation of section 57 in its entirety was examined and further amendments were proposed in order to provide certainty, in legal terms, in its operation. The net effect is that the existing section 57 is being restated in this Bill in its entirety but in an amended form. The main amendments are additions to provide for the ESOP, the structure of the transaction and certainty in relation to the transfer of assets and liabilities, including property and customer accounts, from the TSB to the Irish Life and Permanent Group. The other amendments are of a minor nature.

Before turning to the detail of the Bill, I want to deal with two issues which may concern Deputies – the use of the proceeds of the reorganisation and the possibility of branch closures. The present TSB is the result of the amalgamation of many trustee savings banks over the years. These trustee savings banks were founded to provide a service to small savers. The legal advice from the Attorney General has always been that the Oireachtas has the power to dispose of the assets of trustee savings banks. This was reflected in the Trustee Savings Banks Act, 1989, which consolidated the legislation and provided for the regulation of TSBs by the Central Bank and also empowered them to trade on a fully commercial basis. The power of the Oireachtas is subject to the condition that the rights of depositors are fully protected in relation to their deposits and the interest thereon. The net proceeds from this process will be paid into the Central Fund for the benefit of all citizens. I am satisfied that this is the correct course of action.

Another issue of concern to Deputies and customers of TSB and Irish Permanent is that of branch restructuring. While there are more than 40 branches that overlap between the two institutions, I have been advised that the merged bank will not close both their branches in any single location and that they will continue to serve all the communities now served by either of them.

I will now turn to the sections of the Bill. Section 1 substitutes a new section 57 for the existing section 57 of the 1989 Act. As there are numerous additions to the section, the advice of the Office of the Parliamentary Counsel to the Government was that section 57 should be restated in its entirety for ease of use. I will go through each subsection, explain its purpose and indicate whether it is an existing subsection or an addition. I will point out any amendments made to existing subsections.

Subsection (1) is an existing subsection which defines certain terms used in the section. It has been expanded to include such new definitions as are necessary for the operation of the section. Subsection (2) is an existing subsection which provides that I can make orders for the purposes of this section and that I can also make orders amending or rescinding orders made previously. Subsection (3) is an existing subsection which provides that an order may authorise the reorganisation of one or more trustee savings banks into either a company controlled by the State, referred to as a State company, or a company not controlled by the State. In the current transaction this is Kencarol Limited.

Subsection (4) is a new subsection which confirms that the trustees have the power to enter into contracts to effect a reorganisation subject to an order. It also empowers them to sell or otherwise transfer shares received by them in any reorganisation to an ESOT subject to an order. The subsection also provides that the trustees are carrying out their duties as trustees in exercising the powers conferred on them and complying with the obligations imposed on them by this section. As such, the personal liabilities of trustees in relation to a sale process are limited as set out in section 22 of the 1989 Act, as is the case with their other duties.

Subsection (5) is a restatement of the existing subsection (4) which provided for the reorganisation of TSB into a State company. It stipulated the matters that the order should take into account. There is one amendment to the subsection in paragraph (g) which prohibits the transfer of the Minister's shares other than to a director of the company. The amendment allows for the transfer of shares to an ESOT. This subsection is not being used in the current transaction but the amendment is being made for the sake of completeness as the 1989 Act is not being repealed.

Subsection (6) is a restatement of the existing subsection (6). Paragraph (b), which provides for the payment to me of the proceeds arising from the reorganisation into Kencarol Limited, has been amended to take into account the fact that the trustees will have proceeds arising from the transfer of shares to the ESOT. Subsection (7) is the existing subsection (5) which provides that an order may provide for the transfer of specified assets to me. It is not being used in the current transaction.

Subsection (8) includes the existing subsection (7) but there have been additions. It provides that the 1989 Act will not apply to a company not controlled by the State and that it will be subject to the Central Bank Act, 1971. Paragraph (c) has been added to provide that the order may make provision for the regulation of Kencarol Limited in the period during which it has the assets and liabilities of TSB Bank. This is to avoid a gap in the regulation by the Central Bank of the operations of TSB Bank. Paragraph (d) is a new paragraph which provides that from the transfer date the trustees will cease to act as trustees in the business of the bank. Paragraph (e) provides that the trustees shall continue in office to comply with their obligations in relation to the final accounts of TSB Bank prior to the transfer date. Paragraph (f) provides that any trustee who becomes an employee or officer of either Kencarol or Irish Life and Permanent shall cease to be a trustee.

Subsection (9) is a restatement of the existing subsection (8). It provides that the order may provide for the conditions of the staff. It is not being used in the current transaction because staff's entitlement and conditions of employment are protected by employment rights legislation and provision has also been made for the staff in the business sale agreement between the trustees and Irish Life and Permanent plc.

Subsection (10) is a new subsection which makes certain provisions in respect of the period after the transfer of the bank's operations to the Irish Life and Permanent group. It provides for the dissolution of the TSB, the distribution of the proceeds of the reorganisation to me, the preparation of accounts by the trustees for this period and vacation of office by the trustees.

Subsection (11) provides that Irish Life and Permanent will be able to use "TSB" in its name subject to conditions that will be set out in the order. This is required because section 14 of the 1989 Act prohibits anyone other than a trustee savings bank using the name or its derivatives. I consider this is a reasonable, commercially sensible approach and I am satisfied that, subject to the conditions I will place in the order on the use of the name, it will not cause any confusion.

Subsection (12) is a new subsection that provides for the technical aspects of the transfer of operations from TSB Bank to Kencarol Limited and on to Irish Life and Permanent. It has been modelled on provisions in the Central Bank Acts and similar legislation that provide for the transfer of the operations of one financial institution to another. Subsection (13) is a new subsection that provides for the transfer of TSB's properties to Kencarol Limited and on to Irish Life and Permanent plc. Subsection (14) is a restatement of the existing subsection (10). It is not being used in the current transaction.

Subsection (15) is the existing subsection (11). It requires me to obtain a motion of approval from each House of the Oireachtas for the draft of any order I propose to make under this section. I will lay the draft order before each House as soon as possible after the enactment of this Bill.

Subsection (16) is a new subsection that disapplies section 60 of the Companies Act, 1963, to the provision of assistance by Kencarol Limited or Irish Life and Permanent or the ESOT company in the acquisition of shares by the ESOT. Similar provisions have been made in legislation dealing with Telecom Éireann and ICC Bank.

Section 2 extends the original provisions of section 64 of the 1989 Act. That section provided an exemption from stamp duty arising from a reorganisation. This exemption is being extended to the second step of the current transaction, the onward transfer from Kencarol Limited to Irish Life and Permanent. This is being done because the only reason Irish Life and Permanent is going through Kencarol Limited is to facilitate the establishment of the ESOT in accordance with ESOP legislation.

Section 3 amends Schedule 12 to the Taxes Consolidation Act, 1997, to allow Kencarol Limited to establish an ESOT even though it will be controlled by Irish Life and Permanent plc., at the time. This is necessary because it is not possible to establish the ESOT prior to the transfer to Kencarol Limited because the TSB in its current structure does not have any shares.

Section 4 is a standard section setting out the short title and collective citation of the Bill.

I commend the Bill to the House.

I welcome the Bill and the opportunity to contribute to the debate. It is the end of a saga in which the three banks, ACC, ICC and TSB, were supposed to have amalgamated into a third lending institution. Fortunately or unfortunately that did not occur. Whatever went wrong with the original idea for the amalgamation of all three, this is the final episode in the sale of these banks.

Rationalisation means there is a possibility problems may arise. The most obvious problem is one the Minister mentioned – rationalisation of the branch network and its consequences for employees. I cannot accept that rationalisation will occur in an easy transition, as the Minister outlined. It is inevitable that despite the guarantees given at this stage, there will be some job losses as a result.

The front page ofThe Irish Times property supplement makes it obvious that this rationalisation is even hitting the property market. No less than six major banking institutions' buildings, such as administrative centres and headquarters, are being offered for sale. At that rate, is it not an appropriate deduction that this rationalisation will cause problems for staff and for customer access? Most commentators have indicated that this was a good sale and the price was right. The Minister and the Government have been major benefactors and Irish Life and Irish Permanent have also been winners. The employees' share options mean they are also winners here but someone has been left out – the loyal customer.

If we look at the changes to mutual societies, either through amalgamation or privatisation, all of them have, at one stage or other, acknowledged the customer with some sort of benefit. I do not know why the customer has been left out in this case. Of all the sales of building societies – which were mutual societies beforehand – this is the only one in which the customer has been omitted. I call on the Minister to rectify this by way of an amendment which allows him to make anex gratia payment to all the loyal customers of the TSB, as they seem to have been forgotten. Irish Life and Irish Permanent have acknowledged that it was good for them and at some stage the Minister should make provision for an ex gratia payment to customers. The employees have accepted their share options but there is a downside for them in terms of rationalisation.

It is reckoned that by the end of this decade 50% of the current banking facilities here and in Europe will have been rationalised, which will have serious consequences. The Minister cannot guarantee long-term job security for bank employees, nor can he guarantee access for customers. The Minister said competition will be enhanced but it will be the opposite now we have the third largest banking institution in the country being created by this sale. It is obvious that the TSB's small customers will find normal conditions of banking will apply now they are part of a larger bank. The Bill refers to liabilities and depositors but what protection exists for the ethos these customers once enjoyed in the TSB? Will those customers be as important to the new bank? Will they have the same access, facilities and conditions as customers with the TSB? I doubt it. Members who deal with other banking institutions know those banks have become more centralised and that the traditional importance of the local branch network has gone. If one receives a letter from one's bank about an account it comes from College Green. Banking has become faceless and this sale of TSB will mean a loss of the kind of personal banking we are used to.

On-line banking has a definite downside. It caters for big business and wealthy customers but we are talking here about account holders who will be swallowed up and forgotten, which concerns me. TSB, ACC and ICC have branch networks in small towns throughout the country and rationalisation will mean that the choice offered by those institutions will be reduced. An additional difficulty is presented by the fact that AIB and Bank of Ireland are looking carefully at their network of outlets and are threatening to close them down unless there is pressure from the public, town development companies or chambers of commerce to retain the branch. Such local bodies have to tell these institutions to stop as they are going too far.

It is difficult for people with small pay cheques. Last November the Bank of Ireland hoped to be in a position to stop cashing cheques over the counter for customers. This meant that many people with social welfare cheques or local authority or health board employees could no longer walk into the bank on a Thursday or Friday and cash their cheques over the counter. If this is the end result, it is time somebody somewhere asked if this is the right way to conduct banking. The Celtic tiger is bouncing along and the banks are responding quickly to the major opportunities that exist with regard to large customers at the expense of small savers who are loyal customers of the TSB. It will be regrettable if the ethos changes.

In one of his last reports in December 1999, the chairman of the TSB indicated the vibrancy of the bank. There was growth in all areas of the business, lending, saving and mortgages. However, this has reduced in the past 12 months or so because of uncertainty about the bank's future. There is an idea that there is no place in the economy for small lending institutions. This is the reason for the current developments and it is regrettable. The chairman said the TSB's pre-tax profits of 40.3% were the result of an extremely satisfactory period for the bank. He said the loan book continued to show impressive growth, that advances grew by 24% and that the deposit side of the business grew by 16%. This is a good record for any financial institution and its vibrant growth is reflected in the bank's sale price to Irish Life and Permanent.

However, the original concept was to amalgamate the ACC and TSB. Traditionally, the ACC was good to rural Ireland and the farming community. In many cases it provided facilities that the other major commercial institutions would not provide. If a farmer brought a development plan to the Bank of Ireland or AIB in the 1970s, as most farmers did, he had to sign away his soul to get access to development funds. However, the ACC provided support and services and, much to its credit, it acknowledged difficulties. During times of difficulty in farming in the past, the ACC was always willing to acknowledge the fluctuation in market prices that occasionally meant farmers could not meet their commitments.

The ICC operated in a similar way with regard to business and industry. They gave many small businesses and entrepreneurs the opportunity to make proposals. Their plans were supported and encouraged by the ICC. The other major commercial banks rejected such plans because of a lack of sufficient capital, backing, property or collateral. The TSB deals in the main with small savers. If a person has money to invest today and goes into a bank, the only thing he or she will get is an assurance that the money will be safe. There are no offers of a return on the investment. In the past, the Trustee Savings Bank gave a reasonable return to its customers on investments.

I hope amendments will be tabled to the Bill. Regarding rationalisation, the sale of property is not of concern to most people. However, the safety of employees' positions is a matter of concern. This aspect must be dealt with in stronger terms in the Bill. I am not convinced by the undertaking given by Irish Life and Permanent regarding the security of employees' jobs. We are aware of what happened in the past when another banking enterprise came to Ireland. It gave plenty of assurances but, within months, due to reasons of which it said it was not aware initially, there was a change of policy and employees felt threatened. They had to fight to secure the long-term security of their jobs. In this case, the purchasers will benefit; the only people who will lose are the customers. I ask the Minister to rectify this during the later Stages of the Bill.

I move amendment No. 1:

To delete all words after "That" and substitute the following:

Dáil Éireann declines to give a second reading to the Trustee Savings Banks (Amendment) Bill, 2000, until such time as the Government publishes an appropriate financial scheme to recognise the loyalty of long-term depositors with the Bank.

I was surprised and bemused by the Minister's contribution. He effectively introduced a set of technical amendments and made entirely technical arguments. However, the Bill is worth more than technical arguments and amendments to one section of an Act passed 12 years ago. This is important legislation because it privatises an asset that has been, more or less, in public ownership for 200 years. It seeks, in effect, to create a third banking force and it deserves more than the Minister gave it earlier. The Minister is capable of giving it much more than he gave it earlier.

There is an onus on the Government and the Minister to make the argument for privatising the TSB. There is an onus on the Minister to make the argument for disposing of a State banking sector. It is not sufficient or adequate to propose an amendment to section 57 of the 1989 Act as if the matter was only technical because it is anything but technical. People want to hear the argument and engage with it and they are entitled to do so.

I confess that I have mixed feelings about the Bill. I recognise that the creation of TSB-Permanent represents a good deal for the bank and, most likely, its customers in the current circumstances. I support the Bill in that sense. However, I would have preferred if matters had developed differently over the past ten years. For me and my party there is a feeling of missed opportunity. As the Minister is aware and Deputy Burke noted, we argued ten years ago for the creation of a third banking force from the three State banks in co-operation with An Post, but for various reasons, that did not happen.

If the Bill is passed and the deal that underpins it goes through, a third banking force will be created – albeit a third banking force in the private sector – I will refer to that aspect later. Ten years ago I and the Labour Party thought the TSB could have been the core of a genuinely progressive and competitive third banking force in the State sector. Unfortunately in 1989, before I came into this House, we cut the TSB loose and the possibility of consolidating with other State banks ceased to exist some time in the mid-1990s.

As the Minister stated, savings banks were set up in the early part of the 19th century to enable small savers to save. Over the decades a great deal of amalgamation and consolidation took place. Having started out as a local savings bank, the TSB effectively became and is a national bank. It then got into additional services such as providing mortgages and lending. It started out providing services to individual customers, whereas now it also deals with business, particularly in the SME sector. It is true that the focus of the TSB is still the small saver and small business, but nonetheless there has been a gradual and significant shift in the focus and ethos of the bank, particularly since we passed the amending legislation in 1989. Effectively, the bank is just another small bank, and I do not mean this in any sense pejoratively. That being so, it was always inevitable, and certainly increasingly so in the past few years, that it would get caught up in the wave of amalgamation which is currently going on in the banking sector.

I want to briefly state my attitude to privatisation. It would be stupid and dishonest to suggest that there is not an element of ideology here; clearly there is. The Labour Party has always supported the semi-State sector. We supported and still support the great public utilities which have given considerable service over many decades. We supported the creation of the commercial semi-State companies and we also supported and still support direct State intervention where the market fails to provide. Having said all of that, State intervention or privatisation must always be driven and decided by a detailed and practical assessment of the needs of any particular sector, utility or industry. Above all, those decisions must be driven by the public interest and the needs of consumers.

For me, there are two broad tests which I apply to decisions of this kind regarding privatisation. First, is it a good thing to privatise? Second, is there a good reason to retain the utility within the State sector? Both tests must be answered satisfactorily before we make a decision and this marks a significant difference between the Minister, me and my party. The Minister believes that privatisation should be the norm unless there is a very good reason for not implementing it. I suggest he believes there are very few reasons to retain it within the State sector whereas I believe we should only sell if there is a strategic reason to sell.

This difference reflects itself only too well in our approach to the State banking sector. The Minister has not ever made any secret of the fact that he has believed for quite some time that we should sell off all of the State banks, possibly including An Post, although I am not quite sure about that. He has not attempted to justify or explain that view in any real way other than to repeat the mantra that "The current position is not an option". It is an approach born totally out of the Minister's ideological position on the public sector. It has little to do with the needs of the sector and much less with the interests of the customers.

Our approach is quite different. Only a few weeks ago, as the Minister will be aware, I opposed the sale of ICC Bank. I did so because I believed and still believe that ICC Bank had an important strategic role to play in supporting small business. My view was supported by other Deputies – Deputy Burke has made similar comments here this morning – who believed that ICC Bank had a role in supporting small business. Many of those Deputies had a background in small business and experience of dealing with the bank. ICC Bank gave the State useful leverage in an important sector and it was a mistake to forgo that leverage.

To return to the TSB and the two tests I mentioned earlier, is there any persuasive reason to retain the TSB in the ownership of the State? I suppose that is the critical question and I suppose the honest answer is, "Not really". The truth is that unlike ICC Bank, TSB does not have a strategic role. As I said earlier, it has developed into another small bank. It is true that it evokes important local loyalties, particularly in Limerick and Cork. It continues to focus on small savers and small business, but in truth this is more of a reflection on the bank's origins than anything else. Even in the few short years since the 1989 Act was passed, the bank has become more commercial and more business oriented and clearly this trend will continue, whoever owns the bank. In brief, the defining characteristics of TSB are nothing like as clear cut as they once were.

As an aside, the credit unions are beginning to fill the gap which TSB at least in part has left behind. They now fill that niche in the market in dealing with the small customer. Equally, it is interesting to observe that the credit unions have also started down the road TSB has followed, starting off with a form of automation and using improving technology and then dealing with parts of the market other than purely lending and saving. It will be interesting to see just how far down that road the credit unions will be in ten years.

We also must question whether the State in any real sense owned TSB in any event. The structure of the bank evolved over the years into something which is obviously completely different to just about any other State-owned body or utility. Certainly for many years the bank enjoyed State indemnity. The State effectively underwrote the deposits so that if the bank were in any sense to fold or default on a particular deposit, the State would step in, although to the best of my knowledge it never had to do so.

Currently the bank is run by trustees and since 1989 it is under the supervision of the Central Bank. The trustees perpetuate themselves in a fashion which is certainly not democratic and certainly not in any sense accountable to the Minister. The Minister or the State may well own the bank at least in theory but it is only in the very narrow sense that the Minister is entitled to the proceeds of any sale. TSB is not now and really never has been a serious instrument of public policy. I doubt whether any Minister has ever attempted to tell TSB what to do in terms of what market they should look to enter or anything of that kind. Certainly it is true to say that had any Minister attempted to do so in recent years, he or she would have got a pretty frosty reception. I remember that 18 months ago when the new bank proposal was first floated, it was made quite clear by TSB that it did not really want to be told what to do and wanted to maintain its operating independence for as long as possible.

The second question I pose is this: is there any good reason to sell TSB? I do not suppose we can seriously answer that question without looking at the proposal being put before us. On the face of it, TSB seems to make a good match with Irish Life and Permanent. It combines the expertise of Irish Life in life assurance and pensions, Irish Permanent in mortgages and TSB in money transmission products. The figures given in the briefing to the press by the two joint chief executives when they announced this proposed deal a few months ago are interesting. They tell us that on completion of the deal the group, TSB Permanent, will have a 25% share in the mortgages market, 12% in savings, 20% in life and pensions, 20% in new car finance and 10% in current accounts. This market share puts the new bank comfortably in third place in Irish banking and puts it in a position to compete with the big two banks over a fairly broad spectrum of business. Needless to say, we all hope the new bank will do just that, that it will genuinely compete with the other two banks and other banks in the sector rather than simply slot comfortably into the cartel which has been Irish banking over many years, as is clearly a danger.

I mentioned earlier that the Labour Party has argued in the recent past for a third banking force based on the State sector and we looked to do this by combining ACC Bank, ICC Bank and TSB, in co-operation with An Post. The concept was a very solid one but for a variety reasons, into which we do not need to go now, it did not come to pass as we hoped. However I emphasise that in passing this Bill, we are creating a third banking force. The new bank is privately owned and run, but it is made up of two financial institutions which were owned by the State in the very recent past and one former mutual society, namely Irish Permanent. We have our third force, albeit in the private sector, but there is good reason to hope and believe that the new force will perform much the role which we envisaged for the State third banking force ten years ago.

The primary role of any third force has to be to provide customer choice and competition. Ultimately, ownership does not matter if there is genuine competition in the sector. The State can and should have provided a buffer against cartelisation by having a presence in the marketplace based on ownership. There is no reason, however, rigorous enforcement of competition law cannot do the same job.

Looking at the synergies in the new alliance and at the initial market share it will enjoy, it is clear there is genuine potential for the new bank. Undoubtedly, the amalgamation will be good for the banks but it should also be good for customers in that the new bank will be able to offer a full range of financial services, something which, at the moment, neither of the two parts can do as individual entities.

In relation to the details of the deal or, specifically, the amount of money the State is getting as part of this deal, the State is receiving 430 million in total in exchange for TSB Bank. What is most striking about this figure is that it is significantly higher than the evaluation given to the bank only a year ago by Arthur Anderson. When that company valued the bank for the purposes of deciding on the ESOP and subsequently agreeing it, it was valued at 254 million or £200 million. There has been an increase, therefore, in the value of the bank of nearly 70% during a period of less than one year.

There have been changes in the financial markets and in the value of financial stocks over the past year, but it is difficult to see how anyone could justify such an enormous increase in price. Thankfully, it is not a reduction but an increase in price. Nonetheless, a change from 254 million to 430 million in less than one year seems staggering and requires explanation to this House.

The primary beneficiaries of the increase in price are the State and, more specifically, the workforce. The ESOP was based at the lower evaluation so that they are getting 14.9% in exchange for a borrowing of only £3 million or £4 million. What they are getting now is valued at a great deal higher.

I am inclined to say "Fair play to you, lads" to the unions that negotiated this ESOP deal and to the workforce in TSB. I will not gainsay that. It is, by any standards, a good deal. I have said before in this House that we have to look at the way these things work.

The ESOPs in various State companies have yielded different benefits, cash in most cases, to individual workers. This one will be worth in the region of £40,000, or 50,000, to each individual over a period of time. One wonders whether this is not entirely arbitrary or, in some cases, unfair.

There is an additional aspect in this particular ESOP in that TSB is being amalgamated with another entity and, as the Minister has said, people who previously worked for TSB will be working alongside people who previously worked for Irish Permanent. The TSB employees will have significant share options, which will be of considerable value to them over a period of time, whereas the Irish Permanent employees will not. The Irish Life employees have some arrangement but not the generous arrangement that will apply to TSB employees. It is not difficult to imagine that that will lead to certain tensions in the workforce over a period of time, when two people are standing side by side doing the same job and one has considerable additional fringe benefits.

I support the idea of financial participation by the workforce in enterprise, whether in the private or the public sector. The way in which this has worked in the public sector, however, is, to say the least, disorganised. We need to look at this matter carefully in the future in relation to the State sector. We should extend share ownership and financial participation to all companies in the State sector as soon as possible, and it should not be done as a bribe to smooth the path to privatisation.

Deputy Ulick Burke raised the important issue, covered in our amendment today, of what happens to the proceeds. I met Mr. Went and Mr. Lorton a few weeks ago and they made the point, powerfully and correctly, that what happens to the proceeds is not a matter for the individual banks or the management of either bank. It is purely, solely and totally a matter of political decision by the Minister for Finance.

Deputy Burke pointed out, correctly, that when the building societies were demutualised, an effort was made to recognise the loyalty of long-term customers in those mutual societies. That was the right thing to do. No doubt the Minister will come back to me and say that the legal structure of building societies is different, that the individual members of mutual societies had to vote on whether to demutualise and that this was caught up in that different legal structure.

My mother is a customer in Irish Permanent and TSB, both in Artane. As I said to Mr. Went a few weeks ago – she would not thank me for repeating it, but it is true – she got a few extra shares, free shares, from the Irish Permanent when it was demutualised. I do not fancy going to her to try to explain why her loyalty to TSB is not similarly rewarded when TSB is privatised in a few weeks' time.

There is a powerful, overwhelming, persuasive argument for recognising the long-term loyalty of customers of TSB, particularly deposit holders. I urge the Minister for Finance, even at this late stage, to reverse the decision he has taken not to recognise that loyalty.

It is undoubtedly the case that customers of TSB have a greater sense of identification with the bank than do customers of, say, Bank of Ireland or AIB. That has a lot to do with the background of the bank. It is true, for example, in Cork and Limerick, where people have a sense of ownership which customers of the Bank of Ireland and AIB do not have. The State should recognise that loyalty and sense of ownership in a direct monetary fashion by giving some additional bonus.

The Minister for Finance, when a new bank was on the cards about a year ago, indicated he would set aside certain shares for sale to customers. It is not of the same measure, I appreciate that, but some gesture will have to be and should be made to recognise the loyalty and sup port of customers, in many cases going back over a long period. That decision is not a commercial one. It is a political decision, one which falls entirely to the Minister, and I hope he will reverse the position he announced heretofore.

Both the Minister for Finance and Deputy Burke mentioned the issues of employee conditions and branch reorganisation. I have had the benefit of a briefing from the Minister's officials and am grateful for that. They have given me details of the carry-over conditions that have been agreed. The Minister should take the opportunity to spell those out for the record of the House in more detail than he has done before, as it is useful.

Employees will want to have confirmed that their pension conditions, for example, will be fully met and will not be adversely affected by the amalgamation with TSB and Irish Permanent. They will also want it to be expressed clearly that there will be no compulsory redundancies as a result of the amalgamation that is due to take place.

The issue of branch reorganisation is a greater issue. I accept the assurance being given that where there are two branches in a particular town, the town will not be deserted and that, at most, one of the branches will be closed down. That is fair enough. This is happening within all the major financial institutions. It is happening within Bank of Ireland where, for example, the branch in Clontarf, in my constituency, was closed. It is also happening in AIB.

There is a case for giving the Central Bank or the Director of Consumer Affairs, or, if we ever see it, the single regulatory authority, whose role it will be to decide whether an adequate service is being provided in a particular town, a say in this matter. Before a small community, for example, is left without the direct presence of a branch of one of the banks, the bank would have to apply for permission to the regulatory authority to be allowed to withdraw its services from that community. We need to focus on that issue as it is something which has crept up on us in the past two or three years but which will clearly continue into the foreseeable future.

The Minister made clear that the Bill is very much a technical Bill. The strange legal structure of TSB is the reason behind that. We will need to examine that in detail on Committee Stage and I intend to contribute at that stage.

To return to the major point I made at the start, I am not happy with this proposal. I would prefer that we were not privatising a bank that has been in the State sector or in public ownership of one kind or other for 200 years. The primary point is that we are creating an opportunity not just for the bank, of which I am sure they will take advantage, but also for the customers. That will require vigilance and enforcement of competition law.

Members will want to express their appreciation of the work done over the years by the staff and management of TSB. I hope in their new entity they will continue to give the good service to the community that they have given heretofore.

I support this Bill, which I am glad is being introduced so early in the year. I have my mortgage and deposit account with the Irish Life and Permanent Building Society and when they demutualised I received 300 shares, as did several hundred thousand other people. I have since received another ten and now own 310 shares.

I hope the Deputy is watching his personal finances.

I will not get into that. Any time I have been questioned on that topic I have been able to acquit myself and will continue to do so. Since my current accounts and other banking arrangements are with TSB, I have a direct interest in both financial institutions that are merging.

In Portlaoise, each has a branch a few doors from the other and when they merge one will have to close. I hope all the employees can be retained.

There may be trouble when they start comparing notes about the Deputy.

That is life in this age of openness. I have very little to hide. It is all in the public arena. I will come to the issue of the TSB and myself regarding a point raised earlier.

The purpose of the Bill is to facilitate the sale of the TSB to Irish Life and Permanent and set up the employee share option scheme, a standard feature of these transactions. There was recognition of the need for a third force in banking and the merger of ICC, ACC, TSB, and An Post Savings Bank was suggested to create a third savings bank under State control. I understand Deputy McDowell's concerns when he speaks in favour of that but the reality is that with economic changes we have moved in a different direction in relation to merging and reorganising State banking institutions.

The sale of ICC to Bank of Scotland went ahead. This morning we have the new Bill to facilitate the sale of ACC and establish an employee share option scheme there. All of this is being done in different ways. If it had been a valid option these banks would have come together. Their businesses were so small that they needed a strategic partner to increase their range of business and to make themselves secure in the increasing banking sector.

One other option should be considered by the Minister for Finance. An Post Savings Bank has large deposits and a network of nearly 2,000 branches. People can save in but not borrow through the local post office. The credit unions do a lot of work at local level but there is scope for An Post Savings Bank to advance loans like the Royal Mail's savings bank in the UK. It would strengthen the post office network, especially in rural areas where less business is going through.

This merger will create a third force in banking. As Deputy McDowell said, ultimately the sector needs to be well regulated and there must be competition for customers. The essential issue is that the public have a choice. Who owns it is not the primary issue. It is about customers having a range of services.

The relevant banks said that the new institution will have 25% of the mortgages, 12% of savings, 20% of car finance, 10% of current accounts and 20% of pensions. It will be a major organisation with 4,000 staff and assets of over 30 billion euros.

This new group will have over one million customers. The credit unions have 2.3 million. This leads to the assumption that there must be 15 or 20 million bank accounts for a population of 3.5 million. I do not know how active those accounts are. Under other legislation dormant accounts will be brought into the public arena rather than left in financial institutions earning money for them to which they should not be entitled. There is a package of legislative measures that I support.

The new branch network will be important. In Portlaoise, Irish Life and Permanent is two doors away from the TSB. I know the management and staff in both and they recognise that only one branch can survive. I hope all the staff will remain in the employment of Irish Life and Permanent. There is a similar situation in Tullamore. This is an issue affecting every county.

I expect good negotiations with the staff. I urge them to drive a hard bargain because if they do not they will be walked on. I always support employees in these cases. They are dealing with people whose purpose is to make a profit for the shareholders. Employees should seek to protect their own interests. I encourage them to get the guarantees they require.

It is unrealistic to expect the Minister to give guarantees in respect of future employment in a bank or company anywhere. It would be wrong to do it and would mean that the company would not be independent. It will all come down to the quality of service the company provides, the number of customers they satisfy and whether their business can grow. I hope this merger will enable them to increase their business and secure the employment of people already working in these institutions.

Most Deputies know of the recent trouble in Ulster Bank. There the employees had a hard fight but that is how things are. The staff are paying their dues to the unions for this and expect nothing less. In these situations employees have to be vigilant.

This reorganisation of the financial sector does not just affect the banks mentioned but also the AIB, Bank of Ireland and others. In Laois recently two major banks closed branches in two towns. This was a major setback for these towns. Where a bank is closing a branch in a rural town, as a minimum they should establish an ATM to ensure some banking facility remains. People should not have to drive 20 or 30 miles to get cash. Many towns like Durrow have no ATM. When young people get their pay cheques or the money is lodged in their banks they cannot access those funds. They have no option but to go to Portlaoise or the neighbouring town for cash. Then they do all their shopping in the supermarkets in the bigger towns thereby taking business from the smaller towns. It is essential that there be an ATM in every town so that the income earned by the people of the area can be accessed and spent locally if they choose rather than having to hike 10 or 20 miles to the nearest big town with an ATM.

It is inevitable that there will be further branch closures by the main banks because of the cost base. I could put my head in the sand and say that will not happen. Unfortunately it will continue to happen. Procedures to ameliorate this should be put in place for customers in those areas. Also people working in those institutions should be guaranteed their jobs. When a branch closes staff should have the option of transferring to a nearby branch. That is as much as we can achieve in this House because we cannot get into the detailed management of the companies. We will support the employees in any of the arguments they have with their employers in those situations.

What is to happen the proceeds of the sale of this bank? TSB bank is now valued at 440 million. Over a year ago the Minister for Finance made a decision that the proceeds of the sale of all State assets would go into the new pension reserve fund. That was stated categorically by him in the House. It happened with the sale of all assets last year and it has given a great kick start to the pension reserve fund. That is in addition to the 1% of GMP that goes in on an annual basis.

Will the Minister clarify that by the end of the year when this transaction has gone through that this will actually take place? It is not referred to in his speech today but having spoken to him I understand it is stated Government policy. Initially he said it is going into the general State fund but before the end of the year a decision by Government will formally transfer the proceeds into the new national pension reserve fund, as happened with previous sales of State assets. I expect the matter to be clarified.

The sale of State assets should not just fund current expenditure. In a booming economy we do not need extra income in the Exchequer current account. There are enough funds there already. The proceeds should be put away for the good of all in the years to come. I hope that will be clarified on Committee Stage.

The employee share option scheme is also of concern. We considered this matter at the Finance and Public Services Committee when we were dealing with ICC Bank. Representatives from the bank gave us a copy of their financial statement last autumn. I did a quick run through the statements and the value of the company. Employees were getting 15%. Based on the number of employees in ICC a rough calculation showed employees would get shares worth approximately £100,000. This is excessive. A person doing a job in a bank today who will continue doing the same work next month should not get a windfall of £100,000 when their colleague in another business or company or State service doing the same type of work has not the same opportunity. This type of bonus should not be given to people just because they happen to be in an institution where there is a change of ownership.

There should be employee share option schemes. We have long left the old economic theory of labour and capital. The labour element in any business now includes the intelligence of the employees, not just the brawn. Ultimately the biggest asset of any company is its staff. When I worked in a professional chartered accountancy firm years ago it was always understood that the one asset of the firm was its staff. If the staff had a bad reputation so did the company.

This 15% formula can create an outstanding windfall for some people, depending on the financial institution. Based on the figures mentioned by Deputy McDowell, if TSB is valued at 440 million then roughly 15% or 66 million will go to employees. If there are about 1,200 permanent employees that is about 50,000 per employee. That is a more realistic figure, probably about £40,000. Employees are entitled to some compensation when they move from State employment into the private sector where they do not have guarantees of their jobs as in the public service. Figures that can arise in these situations can give these procedures a bad name and cause jealousy and envy among those who cannot benefit also.

Another concern is where senior management in the new companies can get share options. I have a bee in my bonnet about this. One of the biggest controversies in the eyes of the general public in relation to the Eircom privatisation was the share options that senior management managed to extract for themselves. It was wrong and obscene. They were not entitled to it and did nothing to earn the money but employ consultants to come forward with the proposals. The job of running any of these companies, be they privatised or in State ownership, remains the same before and after. There is no justification for people getting share options worth hundreds of thousands of pounds for no good reason. They have not earned it.

The difficulty is that when the Government relinquishes ownership and a company enters private hands the Government has no further say in the matter. There is nothing we can do about it because we no longer own the company. We all know these share options gave privatisation in England a very bad name. The water services executives were on share options worth a couple of million pounds while people had no water. The same happened with the train network. Although I support the principle, it is on these issues that people take umbrage when they see people in organisations get millions of pounds worth of unearned share options just because they are in a privileged position where they can influence these things.

It goes back to when the building societies were demutualised. One of the driving forces for demutualisation was the expectation of the senior executives that privatisation would give them share options. I guarantee that if there were no share options for senior management not one of them would have been demutualised. They would all continue to operate as they operate today. They were in a position to come to their board of directors and offer share options with privatisation. The deal was that the ordinary depositor like myself got a token 300 shares and that kept them happy. Demutualisation was then passed by the membership and the depositors in these institutions. We must watch the overuse of excessive share options.

The change in banking structure is another concern. A new feature of banking in Ireland and around the world is direct or on-line banking. You get your loan over the phone and do not even have to see, meet or know where the bank is. All you need is an 1850 telephone number and you get your loan and have your money in your bank. It is brilliant and a great way of doing business for busy people. People might not like having to sit in front of a bank manager revealing personal details. It also frees up a lot of time and resources and overheads and makes the organisation more efficient. It is the way many banks are going. They are all developing that line of their business.

While I welcome this I do so with a word of caution because I look at direct insurance. We are talking about the banking and financial industry. Last week, the Department of the Environment informed me that the motor insurance industry cancelled 32,000 valid policies last year. That figure has risen from under 10,000 four years ago. The figures have trebled in three years and this is due to the arrival of Quinn Direct into the insurance business. This company issues insurance policies by telephone. A quotation is given and the customer signs a direct debit form. Last year, Quinn Direct cancelled over 14,000 valid motor insurance policies. I received a complaint from a constituent and informed the company that its policy was out of step with other companies in the motor insurance industry, even though this is permitted under the legislation. I know the Minister will clarify on Committee Stage where the proceeds of the sale are to go. I support the Bill.

(Dublin West): I am totally opposed to another privatisation of a publicly owned asset by the Government. The Minister had a choice in regard to TSB. He could put the bank under State or semi-State ownership for the benefit of the people, or sell it to private interests. There are no prizes for guessing what the Minister for Finance and the coalition Government will do.

This is another example of the privatisation of public assets. Legislation to privatise ICC Bank has recently been before the Dail and the ACC Bank will also receive the same treatment. The Government attempts to justify the privatisation of these valuable public assets just as the politically late and unlamented Margaret Thatcher did in Britain. The argument is that it will bring about a share-owning democracy, that more people will share in the wealth of society and the lot of the working person will be enhanced. The opposite has been the case in Britain where a huge programme of privatisation has been vigorously implemented. There is now a higher concentration of wealth in fewer hands. The Tory government came into power in the late 1970s and began the programme that this Government is now following so slavishly.

There has been a relentless campaign by Fianna Fail and the Progressive Democrats, aided and abetted by Fine Gael which shares Fianna Fail's philosophy. Many Fine Gael members have been looking in the wrong direction for the source of the party's problems. They should not just look at personalities—

Where does the Deputy do his banking?

(Dublin West): The banks make a very slim profit on my dealings with them.

A mystery man.

(Dublin West): No mystery about it. I publish my accounts. I will send the Deputy a copy.

There has been a relentless campaign for privatisation. The Labour Party has not offered any practical or philosophical opposition to the privatisation of public assets. The Dublin bus strike last year caused a clamour for the privatisation of Dublin Bus. There was a Pavlovian response by the right wing parties to a crisis within a publicly owned company which was starved of investment for decades and underdeveloped. The policy of subvention of public transport by low wages was ignored by the Government and Fine Gael and there were strident cries for privatisation.

The sale of TSB will create a major new force in retail banking, to be called Permanent TSB. There will be a concentration of important sectors of the economy in fewer hands and there will be less competition. This new bank will have 25% of the new mortgage market, on a par with the Bank of Ireland. It will have 12% of the savings market and one million customers.

The creation of more competition is given as the reason for the privatisation of public assets. What plans has this new entity for developing the assets which have been acquired? There will be a reduction in bank branches from 155 to 110. This is an astonishing programme of savage cuts. There will be loud disapproval from the Deputies supporting this Bill at the effects of closures on provincial towns and rural areas. There will be job losses but what thought will be given to the workers involved?

TSB was not operating at a loss. Pre-tax profits last year were £30.8 million. That is a substantial profit. Total assets of over £2 billion compare with Irish Life and Permanent assets of £7.8 billion. That is half the profit level of Irish Life and Permanent. I have taken these figures from the media. This was an enterprise which could potentially have been developed as a public asset in the interests of the people but the Government took the privatisation route. Privatisation is always and on each occasion a rip off both of the assets which properly belong to the people and of the people themselves. The infamous example of Eircom has hit home with the public although that has not been allowed to happen with many other privatisations. What we have now is a conspiracy of collusion between the privately owned media which support privatisation and the main political parties whose philosophy supports privatisation. Privatisation is not subjected to any real critical analysis because the private interests which dominate the media want to see their sector and private enterprise and big business generally benefit from the privatisations.

There have been infamous examples which should be publicly denounced on an ongoing basis. In 1996 the Labour Party and Fine Gael gave the licence for the mobile phone network to a private individual for a song. It was sold for about £14 million or around that figure. Everyone knew it was like giving a gold mine that properly belonged to the people to a private individual. Four years later, what loyalty was shown to the people or gratitude shown to the Dáil that made this decision to sell the licence for a song? The company was sold to a multinational and the individual in question walked away with a personal gain of about £230 million. He was greeted in the main part in the media by the most obsequious articles lauding the entrepreneurship and business acumen of this individual and the company he founded despite the fact that everyone knew that one could not possibly lose money on the licence under the terms laid down for it.

It is no surprise that, a few weeks back, that individual rewarded the parties who facilitated him so generously with an asset of the people by donating £50,000 to Fianna Fáil, Fine Gael, the Progressive Democrats and the Labour Party, which, I am happy to say, has had a change of view regarding corporate funding and has sent it back.

Did the Deputy not receive any?

(Dublin West): I did not receive a pound and, if I had, the Deputy can be sure it would have gone straight back to where it came from.

How much does the Deputy receive as party leader?

That goes into his No. 2 account.

Carlow-Kilkenny): Perhaps the Deputy will continue on the Bill.

(Dublin West): Deputy Burke's party receives £600,000 to £700,000 each year as a party leader's allowance.

Acting Chairman

That is not part of the Bill.

(Dublin West): I am sure we would not suggest – I would not because I know it does not happen – that his party leader would use that for personal purposes or that any other leader in the current set-up would either.

The gas wealth of the west in the Corrib field has also been shamelessly sold out by the Government. Now the myth is being put forward that the result of this Bill will be a progressive force because it will be a third banking force. It is sad to hear the Labour Party attempting to say with soft soap and suds that what is happening with this merger and sale is akin to the idea the Labour Party had previously of a publicly owned third banking force. Deputy McDowell said ownership is not really important. He should read again some of the simple maxims of James Connolly, who founded the Labour Party which has become unrecognisably different from that time. One cannot control what one does not own. That will be the case once this entity is privatised and a new banking force is set up which will not be amenable to public or political control in any real sense towards obliging it to work towards social ends in the interests of a majority of the people.

TSB was not anyway, much that we might prefer that it was.

(Dublin West): The Minister for Finance could have made this a full publicly owned enterprise. Instead he is selling it for a killing for the Exchequer under the current Government.

In a debate on the Nitrigin Éireann Teoranta Bill last year, I mentioned some figures which I found astounding and which showed the rip-off of the public sector by the main banking concerns. Not a word was heard from the main political parties or the media about it. I will repeat them briefly. The debt of £164 million was taken into the control of NET by the banks in 1987. The Minister for Enterprise, Trade and Employment told me last year that, up to 1999, NET had paid an incredible £188 million in interest alone on a debt of £164 million. NET borrowed during the 1980s and 1990s from the same banks simply to pay the interest back to them. This is a scandal by any proportion. A State owned bank should have been given responsibility for that debt to manage it in a way that would not be a rip-off of the people and that certainly would not have robbed us to the extent that was done legally and with the oversight of successive Governments and the main political parties.

As with all privatisations, the current measure is extremely short sighted. Growth rates of 10% in the economy have intoxicated the Government which thinks they will last forever. It is blind to the inevitable cycles of international capitalism but the warning signs are already on the way. One has only to read the financial press at present to see the prognosis coming from the United States of America regarding an imminent recession in that economy. We have a Government which has turned this island into an aircraft carrier for US multinationals to launch economic offences within Europe which, in turn, has created a massive dependency on the United States economy. When that recession strikes, which is predicted all over now, what will the multinationals and major companies do? They will retrench and cut the Irish workforce ruthlessly when it suits their profits, they will relocate to eastern Europe where they will find more easily exploitable labour and they will leave our people again at the mercy of recession and economic crisis.

What then about our people who have invested so much in the obscenely priced homes they have been forced to buy? Will these private banking concerns allow them to stay in their homes when they run into trouble with their mortgages? It is precisely in this context in the next few years that we need publicly owned banking and other financial enterprises in this country which can deal with ordinary people in a humane and compassionate way rather than the brutal treatment they will receive from the main players in the market at present who will put profits above everything. We will see widescale attempts to repossess homes and small enterprises, bankrupt small businesses and all the rest of it.

A Chathaoirligh, is náireach an lá é nuair a thagann an Rialtas isteach sa Dáil ag príomháidiú comhlachta a bhaineann anois leis an gcóras poiblí agus a fhéadfaí a thógaint faoi úinéireacht cheart an Stáit agus a fhorbairt don Stát.

Ina ionad sin, tá Fianna Fáil agus Páirtí an Daonlathais ag díol an chomhlachta thábhachtaigh seo le comhlacht atá thar a bheith cumhachtach cheana féin. Is ag tabhairt níos mó cumhachta atá siad do chomhlacht a bhéas mar cheann de thrí no ceithre de na grúpaí is luachmhara sa Stát.

In ionad comhlachtaí a chur i gcoimhlint lena chéile, mar a deir an Rialtas atá ar intinn acu a dhéanamh, is amhlaidh atá siad ag tabhairt níos mó cumhachta do uimhir níos lú comhlachtaí. Seo mar a tharlóidh leis an príomháidiú seo agus le príomháidiú ACC agus ICC agus gach príomháidiú eile.

Tá sé náireach nach bhfuil aon fhreasúra sa Teach maidir leis an ábhar seo. Níl éinne ag caint thar ceann gnáthmhuintir na hÉireann. Is é an Páirtí Sóisialach amháin, nach bhfuil ach Teachta amháin aici sa Teach, atá ag seasamh i gcoinne na fealsúnachta seo atá ag an Rialtas gach rud a bhaineann le seirbhísí poiblí a thabhairt dóibh siúd a bhfuil ach an t-aon aidhm acu, brabús thar fóir agus ní leas ghnáthmhuintir na hÉireann.

I do not understand the preaching of the last speaker of doom and gloom, that the end is nigh and that we should prepare for the end of the world. While some of what he said might be valid, I do not agree with most of it. There is a notion that in times of recession or trouble, somehow or other one could expect a State-owned bank such as the TSB to be a soft touch and more generous than a commercial bank in dealing with its customers. That is an attitude we have been trying to kill for many years. In the case of local authority rents, for example, some take the view, "I will pay the Corpo when I have a few bob". Like everybody else, State and semi-State bodies have to be efficient. Paying Dublin Corporation, therefore, should be at the top of one's list. The attitude should not be bred that because a body is State-owned, it has to be inefficient and can be ignored and that one can let one's arrears go through the roof. I do not agree with this philosophy, which was reflected in what Deputy Higgins had to say.

For years there was talk that something would happen to the TSB. Various proposals were made. In some respects, I welcome the Bill because, at least, it shows that the matter has been resolved and that decisions have been made. There have been too many false starts and proposals which did not seem to be going anywhere.

For good or bad, the TSB, certainly in Dublin, is looked upon very differently by individual depositors and ordinary constituents. The bank has many loyal customers who have been banking with it for a long time and who speak very fondly of it and in totally different terms than the other commercial banks. I do not know how it has managed to do this successfully, but it, obviously, goes back to its origins. Many of its customers speak highly of it and perceive it to be on the same level as the credit union and even more friendly than the building society. Many depositors have this perception and attitude.

No matter what the Minister may say and what the legal advice may be, many equate the TSB with the credit union and building society and cannot understand why it is being sold. It is not that they are against this; because it is their perception that the bank is the equal of the credit union and building society they thought and expected that they would be treated in a special way and receive free shares or some of the proceeds. While I accept that the position has been explained to them and that the legal case does not stand up, we have failed miserably to convince them of this. I hope the TSB, its owners or the Minister will conduct an advertising campaign or send a personal letter to all depositors because it is their perception that the bank which was created and fostered by them is somehow or other being swiped and that their special position and years of loyal service are not being recognised by way of free shares, as happened in the case of many of the building societies. That is how they see it, for good or bad. I hope something will be done to get the message across, even if nothing can be done in monetary terms.

On the employees, I am concerned about the ESOP schemes, in which I fully believe. They are a great idea. I worked in a semi-State body for most of my life and wish I had had the opportunity to avail of such a scheme. The position is that because the social partners are now on board the trade unions will sit down with management and negotiate a share option scheme for employees, but what about pensioners? I have met pensioners who are of the view that they gave 35 to 40 years loyal service to the TSB and the ICC during which time they made many sacrifices. There was always a great attitude and motivation in the TSB and the ICC. The staff could always see the effects of their sacrifices and the benefits that accrued to the body concerned. The pensioners whom I have met are of the view, however, that those who are only in the job for two or three years are being bought off with a shareholding and are happy as a consequence. The social partners are also happy. While the trade unions bring retired members along to the Christmas dinner each year and smile at them, retired members do not seem to have any real influence. There is no one shouting on their behalf. Because of this, I am not happy with the way in which the ESOP scheme is being operated, although I accept that if one takes the shilling, the employees will be affected by any branch closures or rationalisation in years to come while pensioners will be safe. The official line is that the share offering is to secure efficiencies in the future rather than loyal service in the past. That is fair enough from one point of view but nobody is shouting for the pensioner who feels that his or her loyal contribution to TSB is not being recognised.

The real movement on this must come not from the Minister but from the unions who are the central figures in this body. They are probably just looking at the subs they are getting, who is paying and who is paying today. This is one of the problems – everybody is looking at who is paying today and nobody is looking at the loyal service in the past. They are my two concerns. The second relates to all privatisations. I am not opposed to them in theory; I recognise how the world is progressing. I wish, however, that when we carry out privatisations we would look after the people who have given loyal service over the years.

There is a great deal of talk about competition. It is fine in theory but I do not see much of it in practice. Generally, the commercial banks, as far as the ordinary customer is concerned, are more involved in big business and capital markets. That is probably where the money is but I see no improvement in the service and competition offered to the ordinary account holder. In fact, there is even more, rather than less, red tape involved in lodging and withdrawing money and I do not know if this legislation will affect that. There is a general movement in that direction in the sector and it is outside the remit of this legislation.

The Minister still talks about a question mark over the proceeds. I wish an effort were made to explain this issue to the people who have been depositors and clients of the TSB for many years. The legal jargon they have been confronted with thus far has not got through to them or if it has, they are not convinced. Somehow they have convinced themselves that they are special and are similar to credit union or building society investors. Cold technical legislation and statements do not get through to them. I hope something can be done about that.

I thank the Deputies who contributed to the debate. A number of Deputies raised the issue of ownership of TSB and suggested that the customers should receive all or part of the proceeds from the sale. Deputy McDowell is seeking an appropriate financial scheme to recognise the loyalty of long-term depositors with the bank. There are two issues in this regard. The first, which is a legal issue, concerns the ownership of TSB. The second issue is whether the customers should receive some or all the proceeds as a reward for being customers.

I will deal with the ownership issue first. This has been the subject of legal advice from the Attorney General. The conclusion of this advice is that trustee savings banks do not have members and that they are not owned by their depositors. The relationship between TSB and its customers is the same as the relationship between any bank and its customers. The advice at the time of the Trustee Savings Bank Act, 1989, was that the Oireachtas had the power to dispose of the assets. Incidentally, a review of the debate in 1989 shows that all sides of the House agreed with this view.

That Act copperfastened the legal position. Deputies will also be aware that in other State companies, customers are not shareholders either. Public assets such as these are held by the State on behalf of all citizens of the country. It is not open to me arbitrarily to allocate public owned assets to a small group of citizens. The only way I can discharge my overall duty in this regard is to take the proceeds of disposals into general public ownership.

Several Deputies also compared the TSB to building societies where the customers got shares on demutualisation. There are fundamental differences between TSBs and building societies. Customers opening a share account in a building society are told that they become an owner of the society with the right to vote at annual general meetings. It is the customers of a building society who actually run the society, elect the board of directors, decide to wind up the business or decide to demutualise. In the case of the TSB, the customers have no ownership stake, there are no annual general meetings of depositors, the customers do not elect the trustees and they have no role in the running of the bank or deciding to sell it. It is the trustees who have taken the decision to request a reorganisation. Finally, customers opening accounts in the TSB do so in accordance with the rules of the TSB which clearly state that they have the right to their deposit and the interest thereon. They are not given any indication or impression that their account confers any ownership interest on them.

The second issue is whether customers in the TSB should receive some payment from the proceeds anyway. The argument put forward by Deputies is that they have been loyal customers for many years and that they built up the bank. Deputies also point to the unique status of the bank and say that unlike State companies, the State has not put in capital or given any assistance to the bank or its predecessors.

I will deal with the latter point first. Until 1989, the TSBs kept at least 80% of their funds from customers on deposit with the Exchequer. Prior to 1979 almost all the TSBs' funds were deposited with the Exchequer. The customers received a rate of interest on their accounts which was funded by the Exchequer and the banks were paid a margin of 1.65% above this to cover their administration costs. The TSBs have throughout their history been funded by the Exchequer and customers effectively benefited from State support of their deposits. The customers had a choice about where to place their deposits which meant that the rate of interest payable always had to be attractive.

The bank also funded the State's borrowing.

Since the 1989 Act, the TSB has been allowed to operate on the same terms as any other bank but, until 1992, it was exempted from corporation tax in recognition,inter alia, of the fact that the reserves of the TSB effectively belonged to the public generally. In fact, it was only in 1993 that the TSB started to pay corporation tax at a reduced rate and only since 1996 that it has paid corporation tax at the full rate.

I am, therefore, unable to support the amendment proposed by Deputy McDowell. The customers have no ownership stake in TSB Bank and this is also the situation in all State companies. I have to discharge my responsibilities to all citizens by taking the proceeds into State funds.

The issue of branch closures was also raised. The Minister for Finance has no role in the day to day operations of Trustee Savings Bank or Irish Life and Permanent. I have been advised that the merged bank will not close both its branches in any single location and that it will continue to serve all the communities now being served by either of them. I will quote from a public statement made last December by Mr. David Went, group chief executive of Irish Life and Permanent plc, on this matter. He said:

Let me start by stating quite emphatically that – as a group – Irish Life and Permanent is committed to maintaining a strong branch network. And Permanent TSB will have that. Our plans envisage a combined branch network of approximately 110 branches. In a simple combination of the existing networks of TSB and Irish Permanent, there is clearly an overlap of as many as 45 branches.

To deal with this, Permanent TSB will initiate a comprehensive and objective evaluation of all the branches of the combined entity. This will identify those which, in terms of design, size and location – will be best suited to offering the combined customer base full breadth of products in the most convenient and comfortable locations possible.

And let me add, there will be no town which currently enjoys the services of either Irish Permanent or TSB Bank which will be left without banking services as a result of this exercise. And indeed we'll continue to review opportunities to open new branches.

The issue of redundancies was also raised. I have been advised that there will be no compulsory redundancies as a result of the merger. In the memorandum forming part of the sale there are sections relating to the employees' rights and interests and I will quote from a memorandum concerning employees of the Trustee Savings Bank. On employee rights and interests, the memo states:

(a) As the sale of TSB Bank is taking the form of an asset and business sale, the provisions of the European Communities (Safeguarding of Employees Rights on a Transfer of Undertakings) Regulations 1980 (S.I. No. 306 of 1980) apply to protect the rights of employees. This means that the employment of all employees of TSB Bank immediately prior to the sale is automatically transferred to the purchaser and that the same terms and conditions as they enjoyed with TSB will apply. This is expressly acknowledged in the Business Sale Agreement (the "Agreement") between TSB Bank, Irish Life and Permanent plc and Kencarol Limited (a subsidiary of IL&P).

(b) Pension arrangements fall outside the scope of S.I. No. 306 of 1980. Accordingly, the Business Sale Agreement expressly provides for Irish Life and Permanent to continue the pensions schemes which are in place immediately prior to the completion of the sale. In the Agreement, IL&P have accepted a contractual obligation to ensure that such schemes continue to provide pension benefits for the TSB Banks employees which are broadly comparable to and no worse overall than the pension benefits provided to them in TSB Bank.

Deputy McDowell asked why there was a 70% increase in the value of the bank between the ESOT valuation and the sale price. The TSB's financial advisers, PriceWaterhouseCoopers, valued the bank's operations at £200 million when the ESOT negotiations commenced in the early part of last year. This valuation was accepted by the trustees because it was consistent with the net assets and price earning – pe – multiples which prevailed for similar financial institutions at that time. The 70% premium paid to Irish Life and Permanent plc comprises three elements – the strategic pe premium typically paid by acquirers which is often in the range of 40% to 50% of the most recently quoted price of the company; the recovery incentives towards financial stocks during the sale process as investment is moved away from new economy stocks; and the competitive auction process in which IL&P was engaged. My advisers, Arthur Andersen, agree with this view. The ICC sale was quite similar.

Deputy McDowell also referred to my attitude towards privatisation. I have outlined my views on the State banks in the form of parliamentary replies and during the debate on the ICC Bank Bill and I do not see the need to elaborate on those. I have clearly stated that I am in favour of disposing of the three State banks – ICC, ACC and TSB – and that thestatus quo cannot be maintained. The ICC deal has practically been finalised and the TSB deal will, hopefully, be completed in the coming months. We await developments in regard to the ACC. I thank Deputies for their contributions.

Question put: "That the words proposed to be deleted stand part of the main question."

Ahern, Bertie.Ahern, Dermot.Ahern, Michael.Ahern, Noel.Andrews, David.Ardagh, Seán.Aylward, Liam.Blaney, Harry.Brady, Johnny.Brady, Martin.

Brennan, Matt.Brennan, Séamus.Browne, John (Wexford).Byrne, Hugh.Callely, Ivor.Carey, Pat.Collins, Michael.Coughlan, Mary.Cowen, Brian. Cullen, Martin.


Daly, Valera, Síle.Dennehy, John.Doherty, Seán.Ellis, John.Fahey, Frank.Fleming, Seán.Flood, Chris.Foley, Denis.Fox, Mildred.Gildea, Thomas.Hanafin, Mary.Harney, Mary.Haughey, Seán.Healy-Rae, Jackie.Jacob, Joe.Keaveney, Cecilia.Kelleher, Billy.Kenneally, Brendan.Killeen, Tony.Kirk, Séamus.Kitt, Michael P.Kitt, Tom.Lenihan, Conor.McCreevy, Charlie.McDaid, James.McGuinness, John J.

Martin, Micheál.Moffatt, Thomas.Molloy, Robert.Moloney, John.Moynihan, Donal.Moynihan, Michael.Ó Cuív, Éamon.O'Dea, Willie.O'Donnell, Liz.O'Donoghue, John.O'Flynn, Noel.O'Hanlon, Rory.O'Keeffe, Batt.O'Keeffe, Ned.O'Kennedy, Michael.O'Malley, Desmond.Power, Seán.Roche, Dick.Ryan, Eoin.Smith, Brendan.Smith, Michael.Treacy, Noel.Wade, Eddie.Wallace, Dan.Wallace, Mary.Walsh, Joe.Woods, Michael.Wright, G. V.


Allen, Bernard.Boylan, Andrew.Bradford, Paul.Broughan, Thomas P.Browne, John (Carlow-Kilkenny).Bruton, Richard.Burke, Ulick.Clune, Deirdre.Connaughton, Paul.Cosgrave, Michael.Coveney, Simon.Crawford, Seymour.Creed, Michael.Currie, Austin.D'Arcy, Michael.Deenihan, Jimmy.Dukes, Alan.Durkan, Bernard.Farrelly, John.Finucane, Michael.Fitzgerald, Frances.Flanagan, Charles.Gilmore, Éamon.Gormley, John.Gregory, Tony.Hayes, Brian.Healy, Seamus.Higgins, Jim.

Higgins, Joe.Higgins, Michael.Hogan, Philip.Howlin, Brendan.McCormack, Pádraic.McDowell, Derek.McGinley, Dinny.McGrath, Paul.McManus, Liz.Mitchell, Gay.Mitchell, Jim.Mitchell, Olivia.Neville, Dan.Noonan, Michael.O'Shea, Brian.O'Sullivan, Jan.Owen, Nora.Penrose, William.Rabbitte, Pat.Reynolds, Gerard.Ryan, Seán.Sargent, Trevor.Shatter, Alan.Sheehan, Patrick.Shortall, Róisín.Stagg, Emmet.Upton, Mary.Wall, Jack.

Tellers: Tá, Deputies S. Brennan and Power; Níl, Deputies Flanagan and Stagg.
Question declared carried.
Amendment declared lost.

I declare the Bill read a Second Time in accordance with Standing Order 111(2). I understand it is proposed to refer the Bill to the Select Committee on Finance and the Public Service. Does the Minister wish to move the referral now?