This country is crying out for clear leadership

We have had enough of spin and blind party faith – it’s time for a new direction, writes Bill Hobbs

DIRECTNESS, clarity and simplicity in expression are the hallmarks of great communicators including political leaders. Honesty, integrity, telling it as it is with sincerity and passion is what we value in our leaders. There’s an old saying that endures because it’s true. “People don’t care how much you know unless they know how much you care”.

With an ability to craft and tell a story that resonates with people allowing people to connect with one another, great communicators enlighten and encourage a higher order of public dialogue and debate. By shining a light on dark places, they speak of them with an honesty and sincerity that gives people hope for a brighter future. They show how much they care.

Last week, US President Obama provided an example of great communication - how to do it right. In a speech seeking to quell a vicious, bitter, fractious debate he spoke of the young nine year old victim whose life was taken by a deranged gunman. “I want us to live up to her expectations. I want our democracy to be as good as she imagined it”. In two short sentences, his powerful, sincere message was hope inspiring. He shone a light on a dark place – the rise of the Tea Party movement and right wing extremism.

Far too many Irish political, institutional and business leaders insist on hiding dark places. When a light is shined on these, they withdraw further into the shadows, hoping not to be caught out. They are driven to engage in ambiguity and fudge, dodging searching questions with defensive spin.

The current Fianna Fail saga, with its bitter narrative of who knew what and when, shines a light on a shadowy world of parochial loyalties and friendships that interlace Irish public and private life.

Embedded in its organisational culture are values that demand a myopic loyalty to the party. A form of parochial paternalism, it’s a system designed to ensure the unchallenging, unquestioning followership of its current leadership. Its biggest blind spot has been its collective failure to admit to making mistakes. Which is why when the lid of the Pandora’s box opened by Anglo Irish Bank’s demise is finally closed, Fianna Fail may have ceased to exist as a formidable political force.

Without the ability to tell the real story with believable integrity using a compelling, informative narrative, the snail like pace of secretive official investigations has been layered with media revelations engineered by those anxious to project an honest if ill-fated endeavour. Insiders have sought to apportion blame on external influences and regulators who bottled out.

We are left with trying to make sense of supposition, conjecture, rumour and innuendo to understand what went so badly wrong. Instead of direct active admission such as “I made mistakes” we are fed with a line passive non-statements such as “mistakes were made” carrying the subliminal subtext of “but not by me”. It should have been different.

Taoiseach Brian Cowen will probably stand down as one of the least impressive of political communicators and leaders. He will probably be remembered for his twin, starkly contrasting styles. The bellicose, stout defender, whose aggressive, pugnacious performances were cheered on by party loyalists, is one dated image. But it’s his most recent style with its meandering, jargon laden incoherence that frustrated, angered and bored the living daylights out of most of us which will endure.

Yet he is not alone. Almost every other erstwhile leader has none of the mastery required to communicate their vision, their views and opinions. None are capable of telling a compelling story, creating a narrative to help us understand why we have arrived were we are at and where we are going. None it seems have the capacity to raise the bar in public discourse. Instead we, the public are considered passive participants, receptacles for clever spin written by aides who cannot fashion a meaningful voice for their masters.

Instead of thoughtful clarity and simplicity, we have been treated to a stream of contorted language and sentences that struggle to amount to anything other than clever, informed nothingness. This style is now evolving into the typical pre-election party rhetoric of cheap point scoring, trite sound bytes with the usual claims and counter claims parroted by election candidates as one side tries to shout down the other.

Can anyone recall any single potent story, metaphor or message, one lucid sentence that sought to address the national crisis with clarity, simplicity and vision? Is this not a question to pose of Fianna Fail leadership but others as well, including those whose rhetoric remains rooted on political point scoring and inter-party faction fighting?

Has any political leader impressed? Are they capable of telling a compelling story, articulating a believable vision with the directness and simplicity in expression of great communicators?

A version of this article appeared in the Irish Examiner, Business Edition, Monday 17th January 2011

Could this be the end of the road for credit unions?

Unless the state intervenes, many of the 410 credit unions are likely to have to merge or be wound down, writes Bill Hobbs

The days of independent self-directing credit unions may be drawing to a close as quite a significant number of the sector’s 410 credit unions are likely to have to merge or be wound down.

Unless credit union leadership convincingly argues for state backing to transform into a European style credit co-operative system, then credit unions will become increasingly irrelevant.

Facing acute financial challenges, a majority of credit unions are unable to pay a decent dividend to their hard pressed savers. About one hundred may be unable to pay any dividend for last year, with one in two paying less than a half percent. Collectively responsible for €11.9bn in household savings, worsening financial performance now threatens the future of all but the strongest credit unions. Their problems have resulted from escalating bad debts and imprudent ill-advised investment losses.

Constricted by the need to maintain capital buffers and adequately provide for bad debts, they are also experiencing a dramatic decline in new loans and heavy savings withdrawals. Some of the largest have been instructed by regulatory authorities to curtail lending activity. After years of underinvestment in modernising operations and poor standards of governance and management, many will not survive these recessionary economic times. Their boards now face making tough decisions to amalgamate with others or wind down.

The IMF/EU agreement contains specific provisions for the credit union sector, including the need for a comprehensive restructuring and stabilisation strategy which must start later this year. And with Government’s new banking resolution legislation including powers to order the takeover of a credit union by another credit institution including a bank, it has the wherewithal to enforce change. Rationalisation, reducing overall numbers either through mergers or closures, is firmly on the table.

The core issue is there is no overall blueprint to ensure the viability of what remains of the credit union credit co-operative system.

Not only will rationalisation reduce numbers to below one hundred but credit unions will also need to become modern savings and loans co-operatives. However there is no reliable mechanism through which to manage or fund such a significant restructuring programme. I recently estimated that upwards of €650m in state stablisation support could be required before creating a modern fit for purpose, financially viable federated credit co-operative network.

Federated networks evolve when credit co-operatives establish a central facility thereby creating the financial platform to access wholesale money markets, achieve scale efficiencies and deliver broad range of products and services to their customers. By agreeing to the operational and strategic control of a central corporate body, greater cohesion is achieved. Owned and governed by participating co-operatives, these cohesive networks are financially underpinned by their member’s cross guarantees and binding governance contracts.

Across Europe, federated co-operative banking networks are a major force through which 140 million people, or one citizen in five, are customers and/or members. With over 4,500 individual banks, 720,000 staff and 60,000 branches, collectively they have a combined market share of 20%. In five countries they represent 40% or more of local banking services.

Transitioning credit unions here to a European style co-operative network will be required if the sector is ever to deliver on its potential to become a consumer and small business banking alternative to commercial banking.

It is a matter of historic record that while credit unions have long recognised the need to develop a cohesive centralist system, they have been unable for a variety of reasons to transition and mature as credit co-operatives in line with their international peers.

Change will largely be determined by their director’s and manager’s willingness to move away from zealously guarding independence to create bigger, better governed and managed credit unions within a cohesive centralist system. Unfortunately, controlled through personal fiefdoms created by long serving directors and managers, credit unions have been unwilling to consider merging with others and investing in long overdue transformation.

What’s needed is a national policy and strategy to stabilise and rationalise credit unions in the best interests of their customers and not their boards and management. There needs to be a systematic process to organise and manage transformation including transitioning to a modern credit co-operative system. Critically such transformation will require state intervention.

A version of this article appeared in the Irish Examiner, Business Edition, Monday 10th January 2011.

ILCU has since written an article in response to my piece here:

Price rises, sell-offs and more bailouts for new year

This year’s task is to refashion banking to a size where it can restart prudent financial intermediation writes Bill Hobbs

Early last year I wrote of how in 2010, banks would prove too costly to bail out and predicted the inevitable nationalisation of one of the two dominant commercial banks, AIB.

This year Bank of Ireland will struggle to remain outside of total state ownership as it attempts to shrink its loans to deposits ratio, achieve higher capitalisation levels and sell off its family silver. It may end 2011 in full state ownership or have been taken over by an international bank with the resources to resolve its problems.

In a sign of things to come, Bank of Ireland’s dramatic increase in the price of basic consumer banking services last month augurs badly for 2011, as other banks will undoubtedly increase their prices this year. It’s also likely retail lending rates will be increased again for all but the safest of lending propositions. This year an increasing proportion of people and small businesses will be marginalised by stricter lending criteria, higher rates, fees and costs.

Entering the third year of Minister Lenihan’s “cheapest of banking bailouts”, there is no certainty that a fourth round of recapitalisation will finally work to kick start banking. The IMF/EU bank bailout allowance of €35bn includes €10bn for immediate use to aggressively “overcapitalise” what remains of the banking system.

It’s a “shock and awe” tactic, that has yet to convince the financial markets as our banks remain systemically dependent on their €181bn twin ECB and Central Bank funding lifelines. The liquidity problem that saw tens of billions flow out of the main banks last year, has not gone away. And with the next round of loan loss estimates’ to be unveiled in March, any increase over current expected losses will automatically trigger the need to dip into the remaining €25bn bail out fund.

In this fourth round a new loan dump site will be fashioned from merging what remains of Anglo Irish Bank’s and Irish Nationwide’s loan books with their €18bn in retail deposits switched to address other banks still far too high loan to deposit ratios. These two “banks”, fuelled by billions in taxpayers’ will be wound up over time.

It appears AIB will be shrunk under state ownership and Bank of Ireland under State direction. But not before they are injected with at least €7.5bn of the State’s pension reserve fund. The plan is to refashion them as small domestically focussed regional banks. They will have to sell anything that no longer relates to their core domestic business of retail deposit gathering and lending. They will also have to sell off or securitise many of their good loans which will be insured against losses by State.

Cost cutting, rationalisation and consolidation could see them agreeing to shut down a significant number of overlapping branches. Once this is done, it’s hoped they may be of value to a larger international parent with the resources to solve their liquidity and capitalisation dilemmas. However this may not be possible without some form of bond holder “burden sharing”.

There may be some form of merger between the EBS and Irish Life & Permanent leading to the creation of a “competitive third force”. Given their limited banking franchise and IL&P’s stratospheric loan to deposit ratio of 250%, it is difficult to see how two a marriage of two turkeys’ could morph into a swan.

Expect also to see some form of state intervention in the troubled credit union sector this year.

While the Irish State has secured fiscal funding for the next few years, the Irish banking system has not.

The trick for 2011 will be to refashion banking to a meaningful size where it can restart the process of prudent financial intermediation. What size the new banking system will be and how it will be constructed is up the war-time-like emergency draconian powers vested in the Finance Ministry, already used to nationalise AIB.

Once dubbed “the wild west of banking”, Ireland has adopted the most intrusive and interventionist of emergency banking powers that has a lot of people, including the ECB, concerned about public censorship and subrogation of personal property rights to a common good.

Much depends not only on March loan loss estimates, which should include more realistic figures on personal debt such as mortgages and other loans, but also on the wider dimension of the continuing crisis of confidence in the Eurozone. Portugal is next for the sovereign bailout protection and after that the prospect of Spanish and Italian sovereign indebtedness looms large in 2011.

The Eurozone crisis will continue to dominate. Expect more muddling through as its leaders are pushed inexorably to a point where survival of the Euro may trigger greater fiscal integration.

While this uncertainty prevails, there may be a significant flight of domestic deposits as wealthier, concerned Irish citizens shift some of their money to what they perceive as safer sovereign and banking havens.

A version of this article appeared in the Irish Examiner, Business Section, Monday 3rd January 2011