When an Irish CEO can't give shareholders value.

I write today regarding the CEO of Irish Life & Permanent TSB, Dennis Casey. He is an articulate and educated individual and driven as well, he has led the company to profitablity for many years. However one of his latest moves is to reduce broker commissions in the coming year, this decision was met with a lot of hostility by the broker market. The basis for it is apparently because of huge losses in the subprime market in the USA, but are the out of state investment decisions of any bank really the concern of anybody other than the banks themselves? No, of course not, but the fallout is passed on it seems.

People might talk about broker greed but it pales in comparison to bank greed! The proposal means that brokers can potentially lose the money they earn as a commission if the loan is changed any time in the first five years, and the average loan is currently lasting about five years so brokers will never be able to remain liquid because they will never know if a claw-back is lurking four years in the future. They will make it essentially impossible for a professional Broker to place business with them.

Ptsb had a number of meetings around the country, one of which was in Stillorgan, during this meeting one of PTsb’s rank alluded that ‘they had to decide if they were still going to deal with brokers’. I find it amazing that this can be mentioned given that Irish Permanent got their market share specifically from brokers and brokers continue to be a massive portion of their business.

The question now is how will the intermediary market react? I think it would be fair to say that Dennis will ensure that PTsb’s numbers are down, and the one hundred and some odd sales staff they are recruiting in their direct sales channel won’t be able to stem the wound he is making because I assume the plan is to have them all trained up and producing for 2009 when the proposed changes will take place but that means there is a whole year where the business could be turned irreversibly into decline, especially in the current market and that quite frankly is not offering shareholder value which is the ultimate job of any CEO.

Irish Life are apparently responsible for 80% of the groups profitability, they are a separate entity but part of the same group, so I would suspect that their numbers will suffer on the back of this as well, the way the average intermediary sees it is that if a person hits you with their left hand you are angry at them as a being, not just the left hand, in this example PTsb are the left hand, and Irish Life is the right.

I think that this move was not well calculated. It shows a disregard for the fundamental channel of profitability to the group, Brokers can still offer clients the best prices on the market without having to rely on Irish Life or PTsb and for that reason I believe their share price will drop once they give their mid year profit announcement (it will take some time for the figures to come through) and I will say thanks in advance for making me money for short selling their stock.

I have a feeling that an Irish CEO unlike an Irish Politician won’t become more popular the more mistakes they make.

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