Allied Irish Banks

Allied Irish Banks plc

File:Aib logo.gif
Company type	Public
Industry	financial service activities, except insurance and pension funding
Predecessor	Provincial Bank of Ireland Royal Bank of Ireland
Founded	1966
Headquarters	Dublin, Ireland
Key people	Dermot Gleeson, Chairman Eugene Sheehy, Group Chief Executive
Products	Banking products
Revenue	€4.868 billion (2007)
Operating income	€2.508 billion (2007)
Net income	€2.248 billion (2007)
Number of employees	24,000 (2004)
Website	aib.ie

Allied Irish Banks plc (AIB; Irish: Bainc-Aontas Éireann; Template:Ise, LSE: ALBK, NYSE: AIB, FWB: AIB) is a major commercial bank based in Ireland not to be mistaken for Anglo Irish Bank. AIB is one of the so called Big Four commercial banks in Ireland.

Services

AIB in the Dublin Docklands

The bank has one of the largest branch networks in Ireland; only Bank of Ireland fully rivals it. AIB offers a full range of personal banking services, including loans, credit cards and mortgages. The bank also offers a range of general insurance products such as home, travel, and health insurance. It offers life assurance and pensions through its wholly owned subsidiary, Ark Life Assurance.

The bank also offers the full range of corporate banking services. AIB Capital Markets is the division of the company that offers international banking and treasury operations. It offers stockbroking services through its subsidiary Goodbody Stockbrokers.

Internationally, AIB operates mainly in the United Kingdom (as Allied Irish Bank (GB) and First Trust Bank in Northern Ireland), and Poland (as BZ-WBK). It also owns a 22.5% stake in M&T Bank in the United States.

Name

Allied Irish Banks is usually referred to, both inside and outside the company, as simply AIB and often by its trade name of "Allied Irish Bank" (singular). In Northern Ireland however, the bank trades as First Trust Bank, while in Great Britain, it is called "Allied Irish Bank (GB)" - the only part of the operation where the full name, in the singular, is still in day-to-day use.

Initially, the bank operated under the names of its former constituent companies, alongside a new AIB logo, a circle divided in three with an "A" at the centre. From 1970, these were replaced by "Allied Irish Banks". In 1990, AIB introduced a new logo (prompted, it was said in some quarters, by the remarkable similarity between its previous logo and that of Mercedes-Benz.). Since then, the bank has preferred to be referred to as simply "AIB", though "Allied Irish Banks plc" remains its legal name.

The bank is often referred to colloquially as "AIB Bank", an example of a redundant acronym. This is due to the name "AIB Bank" being adopted for the Republic of Ireland branch banking business at the time of the 1990 rebrand (with the word "Bank" being printed in the green stripe in the logo). This version of the logo is no longer used in print advertising but can still be seen on the facades of most AIB branches in the Republic. The Trustees Savings Banks similarly rebranded to "TSB Bank" in 1993.

History

Allied Irish Banks Limited was formed in 1966 as a new company which acquired three Irish banks: Provincial Bank of Ireland, Royal Bank of Ireland, and Munster & Leinster Bank. The banks saw an alliance as the best way to overcome the fragmented nature of the Irish banking industry. Ireland in the mid-1960s was changing fast and the merger strengthened the banks’ position in the emerging global business era. In 1966, AIB's aggregate assets were €323.8 million – as at 31 December 2005, the AIB Group had assets of €133 billion.

Early history

• 1825 Provincial Bank commenced operations, pioneering joint stock branch banking in Ireland. It also established a branch in London.
• 1836 Royal Bank of Ireland (RBI) commenced operations. It was known for its mercantile links.
• 1837 Shaw’s Bank merged with Royal Bank.
• 1864 The Munster Bank is established.
• 1867 The Munster Bank purchased some of the branches of the unsuccessful Union Bank of Ireland.
• 1870 The Munster Bank acquired the long established private bank David La Touche & Son.
• 1885 The Munster Bank failed due to mismanagement and fraud and is liquidated. However, Munster and Leinster Bank commences operations. Eventually it will become the largest of the three banks with the most extensive branch network.
• 1923 The Royal Bank of Ireland bought the Irish Free State business of the Belfast Banking Company, which in turn bought the Northern Ireland business of the Royal Bank.

Recent history

Over the decades, AIB has become an increasingly international organisation. It created a branch network in Britain in the 1970s. Then in 1983, AIB invested in First Maryland Bancorp in the USA. In July 1991, AIB merged the Group's interests in Northern Ireland with those of TSB Northern Ireland to create First Trust Bank. In July 1997, AIB acquired Dauphin Deposit Corporation which it merged with First Maryland Bancorp to form Allfirst in 1999.

AIB invested in Poland by gradually building a majority shareholding of 60.1% in Wielkopolski Bank Kredytowy (WBK) between 1995 and 1996. In June 1999, AIB reached an agreement with the Polish State Treasury to acquire an 80% shareholding in Bank Zachodni SA. In June 2001, AIB completed a merger of the two banks to create Bank Zachodni WBK SA. AIB now owns 70.5% of the combined bank, which is a leading bank in Poland in terms of asset size and key product market shares.

Between 1999 and 2001 AIB had an interest in Keppel TatLee Bank in Singapore, but withdrew after Oversea-Chinese Banking Corporation (OCBC) acquired Keppel TatLee.

In April 2003, AIB completed a deal merging AIB’s US subsidiary, Allfirst, with M&T Bank Corporation. AIB now has a 22.5% stake in M&T, which is headquartered in Buffalo, New York. AIB maintains representative offices in the United States in Chicago, Philadelphia, Atlanta, Los Angeles, and White Plains.

Controversy

The Can of Worms at ICI was the headline in Business & Finance magazine on 8 November 1984. Insurance Corporation of Ireland (ICI) was a wholly owned subsidiary of AIB when it collapsed in 1985 with losses of over £200 million that had arisen due to severe under-reserving and poor underwriting performance, particularly in its London office. Reinsurance business accounted for nearly half the company's income. ICI management were at fault for failing to closely monitor the activities of its London office, to find out what business was being written, whether adequate reserves were being maintained and to monitor the true profitability of the business. When it was discovered in November 1984 that ICI was operating below the statutory reserve ratio, a request for further capital was made to AIB - ICI had returned a profit of £80 million the previous year.

This collapse occurred at a time of deep economic recession in Ireland. The level of Government debt at that time was 116% of GDP. But the Irish taxpayer bailed ICI out of its difficulties. The Irish Government did so to ensure a continuation of the insurance business and to protect policyholders. AIB claimed that it could not resolve the problems of ICI without putting its core banking business in jeopardy. The investment of £85 million by AIB in ICI was written off and the cost to the Irish taxpayer was £400 million.

John Rusnak

It was Ireland's biggest banking scandal and the fourth-biggest banking scandal in the world when it was exposed on 4 February 2002 during Michael Buckley's tenure as group chief executive. John Rusnak , a 'lone wolf' currency trader at Allfirst, a regional Maryland based bank owned by AIB racked up losses of almost $700,000,000,

Tax evasion

The €90 million settlement that AIB reached with the Revenue Commissioners in respect of Deposit Interest Retention Tax evasion in 2000 was the highest tax settlement in the history of the State. The banks internal auditor, Tony Spollen, highlighted a potential deposit interest retention tax ( D.I.R.T.) liability of £100 million for the period 1986 - 1991, but Gerry Scanlon, the group chief executive at that time rubbished this estimate, describing it as "infantile". The Oireachtas Sub-Committee Inquiry into DIRT hearing on 27 September 1999 concluded that it was "extraordinary" when Scanlon told the Inquiry that he was unaware of the scale of the DIRT issue.

Four former senior executives were fined by the Revenue Commissioners on 28 March 2006 for a tax settlement arising plus penalties from their interest, while employed by AIB, arising from investments they maintained in Faldor Limited. Faldor was an investment company set up in the British Virgin Islands to manage funds on behalf of these senior AIB executives as well as people connected to them between 1989 and 1996. The funds in the company were then managed on their behalf by Allied Irish Banks Investment Managers at a time when Mr Gerry Scanlan was chief executive of the bank.

Faldor subsequently benefited from inappropriate deal allocations, and artificial deals that amounted to €48,000 out of AIB Investment Managers' own funds.

Those cited include:

• Gerry Scanlon, chief executive AIB Group when this arrangement was in place, of Glenageary, County Dublin from whom tax and interest penalties amounting to €206,010 was secured.

• Diarmuid Moore, former director of corporate strategy at AIB, Malahide, County Dublin from whom tax and penalties of €51,044 was secured

• Roy Douglas, chairman, Irish Life & Permanent Plc and formerly of AIB, Howth, County Dublin from whom tax and penalties of €53,245.43 was secured

• Patrick Dowling, former deputy chief executive, late of Delgany, County Wicklow from whose estate tax and penalties of €13,000 was secured

Excess FX charging issues

In 2004 it was revealed that the bank had been overcharging on foreign exchange transactions for up to ten years. The overcharging affected 3 million purchase transactions of foreign drafts. Initially the projected amount of overcharging was €14m. However the bank has set aside €50m to cover the cost of refunds.

The Irish Financial Services Regulatory Authority published a report into an investigation of AIB Group concerning overcharging its own customers for FX transactions and deal allocation and other associated issues. This revealed excess charges of €34.2 million, including interest. AIB failed to comply with the law for a period of almost 8 years and that certain staff and management were fully aware of this at the time.

AIB announced on 27 September 2006 that the final outlay in respect of restitution and interest arising from overcharging amounted to €65 million and that this included a donation of €20.6 million on behalf of its customers to an unspecified charity that it was unable to identify. No employee or officer of the banks is to be disciplined .

Other charging issues

Apart from FX, the Financial Regulator discovered, following an anonymous tip-off, that AIB overcharged customers €8.6 million. The account categories involved were:

• Surplus Builder, variable rate mortgage product with savings; 4,200 customers impacted; financial impact €3.6 million
• Student and Graduate facilities: 34,000 customers impacted; financial impact €1.4 million
• Overdraft limit amendments, fees incorrectly applies: 24,000 customers impacted; financial impact €600,000
• Financial & Leasing, early termination of consumer leases: 950 customers impacted; financial impact €230,000
• Personal Savings Plans Products, loan discounts: 2,436 customers impacted; financial impact €196,000
• Overdraft interest in Foreign Currency Hold Accounts, incorrect reference rate applied: 200 customers impacted
• Merchant Terminal Rental Charges: 155 customers impacted
• PPI Mortgage Top Ups: 573 customers impacted

Deal Allocation and associated issues

Between 1989 and 1996, funds of certain senior executives of AIB at the time and/or related parties were managed by Allied Irish Investment Managers Limited (now AIBIM) through a British Virgin Islands investment company, Faldor Ltd.

Faldor benefited from inappropriate favourable deal allocations, by way of artificial deals, amounting to approximately €48,000 out of AIBIM's own funds. We have no evidence to indicate that the beneficiaries of Faldor influenced or were aware of these allocations. AIBIM's own trading funds were also used to boost, through the unacceptable practice of artificial deals, the performance of certain clients' portfolios, other than those of Faldor.

Further inappropriate deal allocation practices relating to eight transactions in the period 1991 to 1993 were identified which adversely affected the performance of two specialist unit trusts, amounting to a total of €174,000, to the advantage of other clients. These were unrelated to Faldor. While the Internal Audit function of AIB did identify some inappropriate dealing practices in 1991 and 1993, there is no evidence that the Faldor account was identified in these audits.

No disciplinary action was taken against individuals involved in these practices at the time and compensation was not paid to the unit trusts affected. When this episode of law breaking was exposed a disciplinary process was put in place within AIB and compensation has been paid to those who were disadvantaged.

Tom Mulcahy, group chief executive of AIB from 1994 to June 2001, resigned the chairmanship of the board of Aer Lingus on 28 May 2004 following the disclosure of this matter.

Charles Haughey and the Moriarty Tribunal

In 2006, the Moriarty Tribunal published its report into the financial affairs of former Taoiseach Charles Haughey. Mr. Justice Moriarty found that AIB had settled a million-pound overdraft with Haughey on favourable terms for the politician shortly after he became Taoiseach in 1979; the tribunal found that the leniency shown by the bank in this case amounted to a benefit from the bank to Haughey. According to the report, the bank showed an extraordinary degree of deference to Mr. Haughey despite his financial excesses.

Current developments

The bank is currently involved in a number of "sale and leaseback" deals with its properties. In 2005 it sold an extension to its Ballsbridge Bankcentre headquarters for €367m. There also plans to sell the remainder of the building for €275m, as well as the bank's branch network for €421m.

In February 2006 the bank announced record pre-tax profits of €1.7 billion, a 23% rise on the previous year and the largest ever for an Irish bank. The majority of the increase came from its Republic of Ireland operations, but with its Capital Markets, Northern Ireland, Great Britain, Poland and American divisions also making significant contributions. This led to criticism from some newspapers, as their profit per customer is up to three times that of other European banks. Former Irish Labour Party leader Pat Rabbitte called for more competition in the Irish banking sector. In August 2006 the bank again announced record profits for the first half of 2006, making €1.2 billion before tax, equating to €1.2 million per hour., a figure equivalent to the earnings per hour of 156,862 people on Ireland's minimum wage.

AIB were the main sponsor's of the 2006 Ryder Cup, which was held at The K Club in Straffan, County Kildare. In May 2006 the bank launched a €5 million advertising campaign for the tournament.

Dermot Gleeson

Dermot Gleeson SC was appointed a director of the bank in May 2000 and chairman of the board in October 2003. His term of office was extended on 8 September 2006 to April 2011.

See also

• Inter-Alpha Group of Banks
• List of Irish companies

External links

• Official site
• AIB Insurance Online