Business Anglo Tapes

Tuesday 23 September 2014

Anglo: The New Tapes - Recording shows the underlying air of contempt directed at board members

Published 17/07/2014 | 02:30

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TODAY'S Anglo Tape was recorded on January 22, 2008.

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At the time most people, including – as we have since learned – then Financial Regulator Patrick Neary, saw the bank as a major player in the Irish market, basically robust but, like lenders across the world, starting to be buffeted by the banking crisis.

Inside Anglo Irish Bank senior managers led by chief executive David Drumm were fully aware that they were lurching into a crisis.

January 2008 was a critical time in the Anglo story.

So far Ireland had escaped the worst but internationally the "credit crunch" was already unfolding.

In September 2007, Anglo Irish Bank chiefs had learned the full scale of Sean Quinn's stake in the bank held through the contracts for difference (CFDs).

By the end of March 2008, after shares crashed 30pc in a single day – the so-called St Patrick's Day massacre – Anglo Irish Bank would begin the desperate attempt to stop the Quinn stake unravelling by lending ever greater sums to Quinn Group. By the end of the year the bank would be in state hands.

Grave

On January 22, 2008 Mr Drumm knew that his bank faced a crisis so grave that he was prepared to consider unorthodox moves such as burning its bondholders.

But that knowledge was something he was loath to share – even with his bosses.

An idea he bounces off his more junior colleague John Bowe of giving the board of directors a 'Ladybird' version of the situation he already knows is becoming dire, is doubly insulting.

It is hard to hear the comment as anything other than a wish to keep the full – worrying – scale of the situation from the directors.

Ladybird books are for children. Insulting the board in front of John Bowe seems like a calculated way to undermine respect for what should be the ultimate authorities inside the bank.

Unlike Mr Drumm, John Bowe wasn't a bank director.

Like the tapes previously released by the Irish Independent, mainly recorded later that year, there is an underlying air of contempt.

Unlike the earlier tapes – where everyone from the financial regulators to the German authorities were lampooned and mocked, this time around the insult is aimed at figures inside the bank notably the board of directors who Mr Drumm reported to as chief executive.

Meanwhile, however, Mr Drumm himself has a firm grasp on the gravity of the situation. Using a mixture of traders' jargon and expletives Mr Drumm outlines a plan to save the bank potentially up to €200m by effectively burning bondholders – going out into the market and buying up bonds – debts owed by the bank – at the knock- down prices where they were already trading.

In January 2008 that would have been controversial. A bond is at heart an obligation on the issuer, in this case Anglo Irish Bank, to repay a fixed amount on a set day.

Mr Drumm knew in 2008 hedge funds were already buying up his bank's bonds, because more traditional investors were dumping them at knockdown prices.

In his view, having the bank do the same thing was simply a matter of taking advantage of the markets to turn a much needed short-term profit.

In the end it didn't happen.

If Mr Drumm's plan had been carried to its logical conclusion it might have been part of a private sector solution to the banking crisis.

Instead the deal we ultimately got put the public purse on the hook for the bank's losses.

Irish Independent

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