Thursday, 1 March 2001
Dáil Eireann Debate
56A.–In making an order pursuant to section 57 (as amended by the Trustee Savings Banks (Amendment) Act, 2001) the Minister shall have regard to the desirability of making provision in such order for persons who have for a substantial period been customers of a bank which is the  subject of an order to receive a recognition of their loyalty to that bank.
The amendment provides that the Government should consider the possibility of giving a loyalty bonus, in effect, to long-term customers of the TSB in disposing of its interest in the TSB. The amendment is phrased in this way because I am advised that any more specific provision would be a charge on the Exchequer and would not be admissible. The intention of the amendment is, I hope, fairly clear.
The background is that what is now known as the TSB has been, in one form or other, in existence for about 200 years. It was originally set up by groups of people coming together and, effectively, providing a facility which would allow them to save. It has gone through a number of different mutations over a period of 200 years, since the start of the 19th century. The background is important because it is undeniable that customers of the TSB have a greater sense of loyalty and belonging to the TSB than customers of AIB or Bank of Ireland, for example. I have been contacted by a number of people, particularly from the Munster region, in the Limerick and Cork areas, who feel their loyalty should be in some way reflected in the manner of the disposal of the bank.
On Committee Stage the Minister said he strongly believes – I have no reason to doubt this – that there is no legal obligation on Government to make a gesture of this kind. That, in a sense, misses the point. What I am talking about is, in effect, an ex gratia payment which would acknowledge that people have deliberately chosen to save and place their money in the TSB and to support what they regard as a community-based bank going back, in many cases, over some decades.
As the Minister well knows, there is a provision to set up an ESOT as part of the rather complicated process of disposing or selling of the TSB to Irish Life. We have acknowledged in this House – the precedent is now well established – that the workforce is entitled to share in the proceeds of the sale. It seems it is only one further step from that to acknowledge that customers of a particular State enterprise are also entitled to, in some way, share in the proceeds of the sale. I understand that both the banks involved, the TSB and Irish Life, acknowledge that it is entirely a matter for the Minister to decide, that is, how he disposes of the proceeds of sale and, therefore, the matter falls to be decided by him.
I apologise that I missed Committee Stage. Unfortunately, I was not there to participate in the discussion at that stage. The Minister will recall that the Order of Business on that day went on for about an hour and a half longer than it normally does and Committee Stage was postponed on at least two occasions, as a result of which I unfortunately missed it. I record my apology in that regard.
The House will be aware that a precedent has  been set with, for example, mutual societies when demutualised and that their members have shared in the proceeds of sale. Again, we are not talking about anything more than a gesture. The amount of money concerned, in most cases, was not huge and amounted to a few hundred pounds. The precedent is established and many TSB customers looking at what happened in Irish Permanent and what is now First Active will feel that they too are entitled to share in a similar way. I appreciate, of course, that there is a different legal structure but, nonetheless, we cannot expect that most customers of TSB will be as sensitive as perhaps people in this House might be to the legal niceties of the matter. I hope that even at this late stage the Minister will give some consideration to this issue.
Mr. J. Mitchell: I second the amendment. I support the proposal made by Deputy McDowell. I hope the Minister will take on board at least the substance or thrust of the suggestion made by Deputy McDowell.
Minister for Finance (Mr. McCreevy): Deputy McDowell's amendment which I did not support on Committee Stage seeks to require me to consider the desirability of giving some of the proceeds from the sale of the TSB to its customers, who have been loyal to the bank for a substantial period, in recognition of their loyalty. As I said on Second and Committee Stages, there are two issues here, a legal issue, that is, who owns TSB, and a second issue, irrespective of the legal entitlements, whether the customers receive a payment as a reward for being customers.
The legal advice from the Attorney General in relation to the ownership issue is that Trustee Savings Banks do not have members, that they are not owned by their depositors and that the relationship between the TSB and its customers is the same as the relationship between any bank and its customers. The conclusion of this advice was that the Oireachtas had the power to dispose of the assets and this is the position under the Trustee Savings Banks Act, 1989.
The customers of other State companies are not shareholders either and such public assets are held by the State on behalf of all the citizens of the country. It is not open to me to arbitrarily allocate generally publicly owned assets to a small group of citizens. The only way I can discharge my overall duty is to take the proceeds of the disposal into general public ownership.
I also pointed out on Second and Committee Stages that 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 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 have no role in the running of the bank or in deciding to sell. It is the trustees who have taken the decision to request a reorganisation.
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 accounts confer ownership interest on them.
The question of whether TSB customers should receive some payment from the sale proceeds was raised. The argument made in favour is that the loyalty of long-standing customers built up the bank and gave it a unique status. I indicated on previous Stages that until 1989 the TSB had kept at least 18% of its customers' funds on deposit with the Exchequer which paid both the interest on customer accounts and an additional margin of 1.65% to TSB branches to cover their administration costs. Under those arrangements customers effectively benefited from State support on their deposits by receiving an attractive rate of interest. Since 1989 the TSB was allowed to operate on the same terms as any other bank until it was exempted from corporation tax in 1992 in recognition of the fact that its reserves effectively belonged to the public. In 1993 the TSB started to pay corporation tax at a reduced rate and has payed the full rate since 1996. Much of the value built up in the bank during the years resulted from the bank's special relationship with the State.
In arriving at a conclusion I must take precedent into account. In the case of Irish Life, Telecom Éireann and ICC Bank no free shares were provided for customers. The proceeds which I and my predecessors received were paid into the Exchequer. I am bound by these precedents. I am, therefore, unable to accept the proposed amendment. TSB customers do not have an ownership stake in the bank, as is the case with all State companies. I must discharge my responsibilities to all citizens by taking the proceeds into State funds.
As I stated on Committee Stage, I am aware of TSB customers' feelings, particularly those from the Munster region, specifically Cork, on this matter. Many Munster people are of the view that the bank is a Cork bank as it was originally established there. While I appreciate the depth of feeling about this matter, I cannot accept the amendment for the reasons outlined. I am not willing to create a precedent in regard to the bank. The bank is not the same as a mutual or building society and, if I were to set a precedent, it would be difficult to decide on the customers who should receive free shares. Should it be the customers who started out with the bank in 1965? Should it be those who were customers in 1995? How long should people be customers of the bank to qualify for free shares? Should one differentiate between big and small customers? The  most equitable way to proceed is to take the sale proceeds into State ownership.
The 1989 Act is unusual – I do not use the word “unusual” in any derogatory sense – in regard to the TSB's structure. This proposal was made by the trustees and although I have the power of veto in the bank's reorganisation, I cannot compel the trustees to take a particular course of action. The trustees have concluded that this is the best way for the bank to proceed. I concur, having had my own analysis undertaken. My advisers agree that this is the best deal which could possibly be done. I am not in a position to accept Deputy McDowell's amendment.
Mr. McDowell: I accept that legal process appears to have been followed to the letter in this matter and that the Minister acted on foot of the trustees' proposal, but that is not the point. The point is what will happen to the proceeds of the sale. There is no dispute about the fact that the Minister has 100% discretion in this area. I might take a different view if the Exchequer were in a different position, but it is clear that it does not need these funds at this time and can afford to make the sort of gesture I am seeking.
The Minister used the word “arbitrary” on this and previous occasions when speaking about this issue. I am not convinced that there would be anything arbitrary about giving a particular reward, bonus or acknowledgement to customers. Without its customers the bank would not exist.  There would not be anything arbitrary about deciding that the bank's customers and staff should be entitled to some sort of benefit from the proceeds of the sale.
The Minister stated that he would be setting a precedent in regard to other State companies, but how many other State companies does he intend to privatise? It would not necessarily have set a bad precedent to allocate a certain number of free shares to Telecom Éireann customers. That could have alleviated some of the political heat which I suspect still surrounds the issue and which may become more evident to the Government in the coming six months from frustrated Eircom shareholders. The Minister speaks about setting a precedent as if that would be a terrible thing. Such a gesture would certainly be appreciated by TSB customers.
It would not prove too difficult to decide who should qualify for free shares. If loyalty is to be rewarded, someone who opened an account in the past year should not be included. It would be necessary to draw the line somewhere and it would not be difficult to do this if there was the necessary political will.
Belton, Louis J.
Broughan, Thomas P.
Browne, John (Carlow-Kilkenny).
Wall, Jack. 
Browne, John (Wexford).
| Kenneally, Brendan.
Kitt, Michael P.
McGuinness, John J.
Ó Cuív, Éamon.
Wright, G. V.
Mr. McDowell: Today marks a very significant change for the TSB. It is an historic day for the bank, which has been in existence for 200 years. It also marks an historic day for Irish banking, as a third force has been created, which has the capacity and penetration to offer genuine competition and service to a huge number of customers. I wish the management and staff of the bank well and hope the amalgamation will be handled sensitively, as I believe it will. I hope the bank will live up to the hopes of many.
Mr. J. Mitchell: I welcome the long overdue enactment of this Bill, which is historic as Deputy McDowell has said. I hope it leads to successful growth for the TSB, and that it will be a good move for people, including the bank's customers.
Minister for Finance (Mr. McCreevy): This is not the end of the process as, assuming the Bill goes through the Seanad, a motion on details of the final deal, including the passing of the money, must then be laid before the Houses. A debate will probably be necessary and we will have another opportunity to address this issue. This process has been drawn out over many years, with false starts under different Ministers for Finance. I thank everybody involved for their effort, including the trustees and management of the TSB, and wish the future organisation success.
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