Anglo's loans tell the tale of an institution pressing self-destruct
The lending department was still increasing the bank's giant property exposures during a period of acute crisis
ANGLO Irish Bank is no longer allowed to lend money to any new customers. Under a government agreement, it can only lend to its existing customer base -- and then only sparingly.
However, attention continues to linger over its past lending decisions -- particularly in the periods just before and after it was nationalised.
The sheer size of pre-crash Anglo Irish meant that large loans for property purchases were commonplace. In fact, the financial results for the bank prior to nationalisation showed Anglo sitting on a loan book worth a staggering €72.1bn.
Most of this had been lent out during the decade before the bank was nationalised.
However, attention is hovering over how much lending the bank did around the period of nationalisation, when it should have been battening down the hatches.
It is worth recalling that when Anglo was taken into public ownership, the Irish property market had been falling for almost two years. In addition, other property-heavy banks -- such as Lehman Brothers and Bear Stearns in the US -- had already collapsed.
Now, it seems that Anglo was giving out loans for property purchases -- in this case in the south of France -- as late as January 2009.
One of the companies benefiting from these loans appears to have had a connection to Sean FitzPatrick, whose decision to hide loans from shareholders over an eight-year period made nationalisation all but inevitable in January 2009.
Mr FitzPatrick, of course, had resigned in December 2008 and he was soon followed out the door by David Drumm, the bank's chief executive.
With that sort of managerial turmoil, it is concerning and puzzling that the bank's lending department was still increasing the bank's giant property exposures during a period of acute crisis for Anglo.
It also highlights that contrary to Anglo's reputation as a purely large-scale commercial property lender, much of its lending was for small-scale investment property ventures.
The bank provided finance for property purchases in London and New York -- but France was another popular market.
Anglo was simply wrong to be extending any further finance into the property market by January 2009 as residential prices and commercial prices were both falling.
The consequences of lending into the early stages of a property crash are obvious. Providing loans to investors who are already sitting on property-heavy portfolios only tends to worsen the damage.
Unfortunately, Anglo Irish not only advanced loans at the wrong time to the wrong people -- it also seemed to waive the normal prudential rules of banking, while advancing loans to its own directors, including Mr FitzPatrick and Mr Drumm.
This has the potential to cost the taxpayer up to €155m, with the bank already putting €108m aside to cover potential losses on directors' loans.
To make the Anglo tangled web even more complex, some of the loans given to Anglo directors were used to purchase the bank's own shares.
So when the bank came crashing down and was nationalised, the new owner -- the Government -- was on the hook for additional losses beyond those incurred on the already-strained property loan book.