It is now late August/early September 2008. Anglo Irish Bank has kept lending even though there are ominous warning signs coming from America that a financial crash is in train. David Drumm, Anglo's inexperienced chief executive, is late in the day getting very worried. The "guys" are still lending money out the door and Drumm wants to batten down the hatches. This tape shows that if the Financial Regulator had stepped in earlier to stop Anglo lending, it could have saved billions. Instead, Anglo was allowed play on. It is now being downgraded by the credit rating agencies. Here, John Bowe and David Drumm discuss how the bank is running out of money and is perilously close to breaching Central Bank capital rules.
David Drumm: Just hit me with the big picture right now, what's the story?
John Bowe: Well, the story is that we're down to, if we have a flat day funding-wise on Monday, and a flat day on Tuesday, we will in breach on Tuesday.
DD: Yeah. I am not worried about in breach, but we are not going to miss any payments.
JB: We are not going to miss any payments, no, but it is just a very volatile position. It means that we just have to deal with the regulator. It may have put the complexion I think in terms of lending as well. Lending is up to €9.9bn now. . . there was €800m of new advances and there is written around repayments, which could in theory mean that it is over a billion, maybe a billion and a half more than where it is now.
DD: Oh fuck, that is not acceptable.
JB: And that's over. . . You are now talking about 11 and a half billion.
DD: That is not acceptable, so just fucking calm down we'll get that sorted. So the lending then. I need to get stuck into it. . . if we have to renege on deals or fucking get the lawyers to stick the boot in to stop them from closing then that is what we will do.
JB: Look $90m went out today, that is draw down, and people were just around the table and saying well fucking hell, Jesus, y'know what is going on here?
DD: This is communication, John, because if the guys that are trying to fund us [treasury] are thinking that the guys that are lending are just, you know, don't seem able to put the stops on. . . If there is money going out the door that has any amount of discretion about it, somebody will be fired as far as I am concerned.
The two men's conversation then turns to how much money is flooding out of Anglo. It is terrifying stuff for any banker.
JB: We had a really shitty week. €2bn [left Anglo in deposits]. Well we never had €2bn, we never had anything like €2bn before. We never had a day like today when one and a half billion went out.
DD: I just care about the fucking cash. Are we going to run out cash?
JB: Well look, the thing is the liquidity is an indicator of cash. The cash becomes the problem later.
DD: I know, I know that, John. I get that. What I am saying is that and I am not being flippant at all, please don't take it that way. The regulatory minimums are not in themselves a disaster for the bank unless somebody finds out about them.
JB: Yeah. I think that is right, but I think also you are moving into a different market, now you are having to tell the regulator what lending you are doing. He wants to sign off on, he wants to find out what your inflows are and your outflows are everyday so. . . you are going to have the regulator sitting in your corner office.
Anglo clearly knows in the section of the Anglo Tapes above that the Financial Regulator, after adopting a light touch approach with all Irish banks during the boom, is slowly awakening to the crisis. Drumm, a hard-working son of a truck driver and one of eight children, turns philosophical.
DD: Em, em, when I was growing up in Skerries [North Dublin] there was so much to worry about, you, you didn't worry about the things that hadn't happened yet.
DD: [Laughs] It was only the guy that was actually beating you up now that you were worried about.
DD: As opposed to the guy who was going to beat you up later on when this guy is finished with you.
JB: Ok. Well, you know. Maybe I've got a few thumps, but I can see the guy taking out the meat cleavers, you know.
DD: Yeah and he wants to stick it in your back.
The conversation then returns to the crisis facing Anglo. Running out of money, the bankers realise they are likely to need a dig-out from the Central Bank to keep going.
DD: We've been doing a lot of work. We've been working on it today actually. About maybe just having the conversation with our buddies in Dame Street [the Central Bank] about fallback, you know, if we do breach through this. First of all, I don't want any fucking bolloxology from them. And secondly, if it gets close to the bone in terms of cash, em, we need to be able to pull money down, so get yourselves ready, and then how does it look and does it become public and all that stuff.
JB: Yeah, yeah, and we need to find out what they need from us to give us the cash.
DD: I've no problem having that conversation, it is about time to have it now, I think.
JB: Yeah, yeah, ok.
[Conversation goes on.]
DD: So just steel yourself for the fact and accept the fact that we could end up, and I am trying to give you confidence here and put a bit of steel into your back. Accept that fact that someday we could fucking fall over with fucking literally cash flow. Accept the fact that between now and that day, we will figure out what will happen next, which is really the boys down below [the Central Bank] giving us a fucking loan.
JB: Well I'm there with you, I suppose. If you think it's not going to be this week and it turns out not to be this week.
DD: It's not going to be this week and it won't be next week, but next week we'll make it a priority to have that conversation with our friends on Dame Street. So I know you want that, and that's what I promise ya, to say look, what does it look like, the world is not getting any better what does it look like. I'm not in any way afraid of that conversation, so if you think I'm holding back from them, I'm not. I will march down there and be quite deliberate with them on it and what do I need to do because I need you to tell me that there's a five billion line there and then I might need 10, but tell me about five for now and don't be giving me any bureaucracy, tell me what I need so I can draw down tomorrow.