I move:
That Seanad Éireann approves the following Order in draft:
Trustee (Authorised Investments) Order, 1969.
Private Business. - Trustee (Authorised Investments) Order: Motion of Approval.
The purpose of the order before the House for approval is to give trustee status to the shares of Allied Irish Banks Limited. It is being made in response to a request from that bank.
The investments in which trustees may invest trust funds, unless prohibited by the instrument creating the trust, are set out in the Trustee (Authorised Investments) Act, 1958. Subject to the approval of the Oireachtas, the Minister for Finance may vary the list of investments by order. The main qualifications for trustee investments are that they should be secure and give a reasonable income to the beneficiary. The shares of Allied Irish Banks fulfil these criteria and they are a suitable security for inclusion in the list of authorised investments.
Allied Irish Banks Limited was set up as a public company in 1966. It is the parent company of a number of well-known banks, namely, the Munster and Leinster Bank, the Provincial Bank of Ireland and the Royal Bank of Ireland. Its authorised share capital consists of 12 million shares of £1 each, of which 7,700,000 have been issued and are fully paid-up. The shares are quoted on the Belfast and London Stock Exchanges as well as on the Dublin and Cork Exchanges. Total assets of the company on 31st December, 1968, amounted to £386 million.
The stocks and shares of the two principal banking groups in this country—that is, the Bank of Ireland and Allied Irish Banks' groups—are the only Irish bank stocks and shares which can be purchased by the public. The Bank of Ireland's capital stock has been a trustee security since 1889 and a loan stock issued by that bank in 1966 was accorded trustee status by means of an order similar to that which I now propose to make. There are no good grounds for differentiating between the two banking groups in this matter and I am satisfied that the request of Allied Irish Banks to have trustee status given to its shares is reasonable and should be acceded to. I would be reluctant, however, to make further additions to the list of authorised investments pending completion of a comprehensive review of the existing legislation.
Under the 1958 Act, the Minister for Finance is obliged to consult the following persons on the terms of any order he wishes to make varying the list of authorised investments—a judge of the High Court nominated by the Chief Justice, the Governor of the Central Bank, the Public Trustee, the Chairman of the Irish Banks' Standing Committee, the President of the Incorporated Law Society of Ireland and the Presidents of the Dublin and Cork Stock Exchanges. I have consulted all these persons and they have no objection to the proposed order.
On behalf of the Fine Gael Party I want to welcome this but must make the following comments on it.
First of all, it is quite evident that the Minister's statement is absolutely correct that there is no reason why if the Bank of Ireland stock is a trustee security the Allied Irish Banks' stock should not be a trustee security too. The most recent market capitalisation for these stocks I had made was that the Bank of Ireland Stock stood at £44 million on the Irish market and the Allied Irish Banks at £36 million. It is perhaps pertinent to observe that the Bank of Ireland stock is the only equity which is within the narrow range of authorised security in both Britain and Ireland. However, I do not think that the Minister has been fully and thoroughly briefed on this. He says that the main qualifications for trustee investments are that they should be secure and give a reasonable income to the beneficiary but at the same time he says he would be reluctant to make further additions to the list of authorised investments pending completion of a comprehensive review of existing legislation.
I agree and certainly welcome the news that such a comprehensive review is under contemplation; but if the main qualifications for trustee investments are that they should be secure it certainly does not take sufficient note of the fact that the whole trustee code was introduced at a time when giltedged securities were secure. We are now living in an age when this can no longer be true, certainly in relation to undated stocks. I must emphasise that the short-dated type of security which is now on offer is an entirely secure one. However, take the case of an unfortunate trustee who, without the proper authorisation of his trust, 20 years ago invested in trustee securities and bought an undated security. According to the information given in a publication I have before me, The Investment Review of the Financial Times Investment Bureau, his investment would now be 30 times worse off than if it had been put into equity securities, from which the unfortunate beneficiaries of trusts are now excluded. When one considers the type of people they are, this is very serious. They are people who are dependent on the provisions that have been made for them because they were afflicted citizens of one kind or another. Their moneys are locked up in courts of justice. This is a very serious matter. It is not correct to say that the main qualification of a trustee security is to give a reasonable income to the beneficiary. This is a wholly inadequate statement of what the position is. The duty of a trustee is to consider as well the tenant for life, if it be a trust of that kind, and also the remainder man. This may mean that he should take a lower income in the circumstances of the tenant for life. In case the House should think I merely think of the well-off people, may I draw the House's attention to the fact that there are two formidable types of body who make their investments in trustee securities and can only make their investments in trustee securities and in certain other limited types of investments.
I shall take one of the two, friendly societies.
Friendly societies, for example, who hold the investments of very modest savers—of institutions such as trade unions, for instance—are permitted to invest only in the investments specified in section 44 of the Friendly Societies Act, 1896, which depends on the provisions of the Trustee (Authorised Investments) Act and certain other authorisations, for example, the purchase of land or the erection and alteration of offices and other buildings. It is of some interest to note that the Minister has created the situation in which intelligently guided trade unions may look beyond the building of office blocks to investment in the Irish banking system. However, this does not seem to be a sufficient extension of the powers that should be given to trustees, particularly when in the neighbouring country there is provision for full investment in equities if there is good advice given to the trustees to do so and a proper proportion of the portfolio is invested in narrow-range securities which would be equivalent to the only type of security in which one may invest in Ireland if one does one's duty as a member of the committee of a friendly society or as a trustee concerned with the public welfare.
It has also a restricting effect on a type of institution we ought to be concerned to attract into business here —merchant banks—who have the job very often of administering portfolios and who have got this great limitation on their ability to take over trustee investment because they must comply with the local trust law, where they cannot get sufficient indemnities to go beyond it, and where the trustee has not got the right under the law to simply leave the matter to the advice of the bank in question.
Senator Alexis FitzGerald has commented on the Minister's statement that the main qualification for trustee investments is that they should be secure and give a reasonable income to the beneficiary. As regards the particular matter being dealt with under this order I do not think anybody has any doubts about it—I think the Minister is doing the right thing in making it a trustee investment. However, it is right to say that —and I imagine any Senator in the position of Senators FitzGerald and Nash and myself will appreciate this— the time has come when the Minister and the Government must try to do something in a serious way in regard to the fall in the value of trustee securities. I am thinking now only in terms of investments in trustee securities arising on the application of funds in court—settlements made or awards given in court proceedings—where the plaintiff is a minor and where the money is lodged in court and invested in trustee securities. We all have had the experience from time to time, and I am sure the Minister is not unaware of the problem, that investments were made in what at the time of investment was a trustee security of good standing and value but after a period of years, consequent upon further issues of Government loans and stock, the value of the investment is reduced.
I have just consulted the Dublin Stock Exchange news in one of the daily papers today and my eye fell on one in particular—6 per cent Exchequer Stock 1980-85—which according to this morning's Irish Times is quoted on the Dublin Stock Exchange at 71. Take the case of a court settlement which was made say eight or nine years ago; at the time the money was invested that stock was standing at about the 99 or 100 mark. If that is being paid out today the beneficiary is suffering a very heavy capital loss. This may not possibly be the Minister's direct concern in relation to this particular order but it is a matter of general concern in which I think the Minister and the Government must interest themselves and endeavour to do something about it. I could make some suggestions to the Minister with regard to this but all I wish to say to him now is that this is a question to which he should devote his attention in the coming years.
I should like to say a few words on the same lines as Senator O'Higgins. The Minister has indicated in his statement that before he adds any further stocks to the trustee list he would want to have another careful look at existing lists. I would suggest to the Minister that this offers a good opportunity to have another look at the Trustee (Authorised Investments) Act, 1958, which Act will be 12 years old very shortly, and I suggest to the Minister that the time is now opportune to consider what constitutes a trustee investment. As Senators FitzGerald and O'Higgins have pointed out, in the last ten or 12 years the rate of depreciation in the value of all types of stock, trustee stock not excluded, has been more rapid than in any other time in recent history. If this rate of depreciation—which is of course the result of an increasing depreciation in the value of money—goes on, it is obvious that trustee stocks, even in their own right, will not be regarded as a safe investment compared with property and land.
I wonder if the time has not come when the list of trustee stocks could not be expanded to include investments in certain types of property or land. We all know that over the years, if one was to invest in property as against investment in trustee stock, one would be far better off and wealthier in terms of capital assets today than one would have been ten or 12 years ago. I would suggest that the time has come for us to look at that again in the light of current conditions. I do not know what the Minister or what any Government can do about the value of trustee stock which has been depreciating over many years. British War Loan, which is now quoted at less than 40 as against the original 100 many years ago, is regarded in England as the classic example of the depreciation in value of money and the continued inflation going on for almost a century. Very serious consideration must be given to the continued depletion in the value of money if all stocks are not to be regarded as of very doubtful value in the years ahead.
The Minister might perhaps be inclined to reply that, from the point of view of estates, the purchase of trustee stock at its declared value is acceptable at its face value, and from that point of view it is a very good investment.
An Leas-Chathaoirleach
I do not think the Senator should wander on to that particular matter. The scope of the motion is relatively narrow. The Chair has allowed some latitude as regards the general position of trustee stock, but this should not be taken advantage of.
I would ask the Minister to confirm that the stock of three banks which now constitute the Allied Irish Banks group was previously trustee stock in its own right and whether this Order is regularising the position and putting the shares of Allied Banks in the list of trustee stocks.
Taking the last point first, the answer is no. As Senator FitzGerald pointed out, the Bank of Ireland was the only bank stock which was a trustee security. In reply to the point raised by Deputy O'Higgins——
I do not know whether the Minister is looking to the past or to the future.
Senator O'Higgins. I would say to Senator Russell that the situation is that we are making a very comprehensive and detailed review of the whole position of trustee securities and what should or should not be authorised as a legitimate outlet for trustee funds. I agree that this review is necessary and that there is need for considerable changes. I am certain that the review will confirm the need for changes in the existing position.
On the question of the funds which are lodged in court losing their value, I also recognise that this has been a source of considerable discontent for some years. I would point out that in recent times we have been doing a fair amount to improve matters generally in this regard. The existing National Loan which is on offer at the moment —and I cordially invite all Senators to subscribe handsomely to it—has its own built-in arrangements whereby it will maintain its value over a considerable period. We have had the same safeguards incorporated in recent issues. Furthermore, we can help, and have been helping, by making a greater variety of securities available to the market and to trustees in general and we intend to continue doing that. The hoped for extension of the money market here in Dublin will also be of assistance in this regard. Trustees will have available to them a greater range within which to select, and they will not have to put their money into something for which they may have to wait a long, long time for redemption. They will have available to them a variety of stocks from which they can pick and choose as suits their purpose. In any event this comprehensive and detailed review is underway at the moment and we hope that as a result the situation will be very considerably improved.
I did not think that my opening words about the security necessary for trustee investment would be taken so literally, and I can only regret in that connection that I used the word "secure". I did so in its widest sense, and I do not think that it was restricted to simply meaning something that was safer in so far as it was not going to disappear overnight. I meant security in all its aspects. Security in holding its value would, of course, be one of these.
Question put and agreed to.