Saturday 1 October 2016

Banking Inquiry: Alan Dukes hits out at 'poor relationship' between IBRC and the Department of Finance

Clodagh Sheehy

Published 30/07/2015 | 22:53

Alan Dukes,former Chairman of IBRC , a witness at the Oireachtas Banking Inquiry at Leinster House yesterday. Pic Tom Burke 30/7/2015
Alan Dukes,former Chairman of IBRC , a witness at the Oireachtas Banking Inquiry at Leinster House yesterday. Pic Tom Burke 30/7/2015

Former Anglo Irish Bank chairman Alan Dukes has hit out at the poor relationship between the bank and the Department of Finance.

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He told the Banking Inquiry it seems that once the Department “conceived the perfectly valid strategy” of nationalising the bank, it then “decided not to have any trust in the institution it had set up.

Alan Dukes pictured as he arrived at Leinster House to attend the committee of Inquiry into the Banking Crisis.
30/7/15
Pic Frank Mc Grath
Irish Independent
Alan Dukes pictured as he arrived at Leinster House to attend the committee of Inquiry into the Banking Crisis. 30/7/15 Pic Frank Mc Grath Irish Independent

“In the process, it wasted a great deal of time and has now created an unnecessary political controversy”.

Mr Dukes added that the relationship between the nationalised Anglo/IBRC and the most senior officials in the Department of Finance was “unnecessarily complicated by the mistaken belief” that it should be run as a “subsidiary” of the Department.

This view rested “on complete ignorance of the most elementary principles of good governance of a statutory company and regulated entity".

It “dogged dialogue between the bank and the Department from 2010 on” he said.

Mr Dukes pointed out that once Anglo was nationalised it had to be recapitalised or liquidated and the recapitalisation requirement turned out to be far greater than expected.

It was, however, “difficult to imagine what other course might have followed”.

Mr Dukes agreed that the blanket Bank Guarantee decision of September 2008 was the option that would have the least damaging effects on the Irish economy.

His impression now was that the regulatory authorities had a much clearer picture and appreciation of the condition of the banks’ balance sheets and risk status.

Alan Dukes,former Chairman of IBRC , a witness at the Oireachtas Banking Inquiry at Leinster House yesterday. Pic Tom Burke 30/7/2015
Alan Dukes,former Chairman of IBRC , a witness at the Oireachtas Banking Inquiry at Leinster House yesterday. Pic Tom Burke 30/7/2015

Banking institutions were “much healthier, more focused, more questioning, more analytical and more adversarial in a constructive way than had previously been the case".

Mr Dukes described his tenure at the Bank, first as a public interest director at Anglo and later as chairmain of IBRC, saying he would not do anything differently.

“It has been an extremely demanding function, absolutely fascinating, terrifically frustrating at times but I think we did some good work and I’m glad to have done it.”

Mike Aynsley, former Chief Executive Officer Anglo/IBRC was also critical of the Department of Finance and its officials who towards the second half of 2011 “appeared increasingly to be driven by political considerations rather than supporting the very real challenges that the bank faced.”

He said there seemed to be “either a disregard for of lack of understanding of the legal requirements for an independent board”.

A key flaw in the process pursued by the Bank in forming its business model was the lack of open and transparent discussion between the Department, its advisors and the Bank.

This left the Bank uninformed as to influential event unfolding. “It was therefore unnecessarily lengthy, cumbersome and expensive”.

Asked about the Anglo business model before nationalisation, Mr Aynsley felt that the board governance level at Anglo had been very weak. 

At times there were small board meetings where decisions were taken, followed by larger meetings where the decisions were pushed through.

Reporting frameworks were not detailed or complex enough in a way that properly informed the board and the risk management seemed to have a process simply to say there was a process they had gone through.

“A small number of people in the organisation were responsible for very large decisions,” he added.

Mr Aynsley also referred to a number of accusations alleging that he as CEO and others in the Bank’s Executive team had “close relationships and provided private commitments to certain named key customers.”

He stressed: “I totally reject such assertions and there was nothing untoward in the management of these or other key client relationships which were focussed on achieving the fullest possible recovery for the Bank”.

He told the Inquiry a Department of Finance official ordered him to sell a major asset for €100m less than one bidder had offered and that a bid from a businessman should be overlooked because of their identity.

Mr Aynsley said the official had told him it would be better to sell the asset to the lower bidder instead of the unnamed businessman. He added that the Minister would support that view.

The former CEO said if he had any immediate concern it was simply that he was not certain that all valuable lessons had been learned to separate bank policy and operating functions within the State.

It made him worry that “the Department will continue to direct banking policy but also take and active role in directing operations and the regulatory function.”

This in part was a significant contributor to the bank breakdown in Ireland, he stressed.

Mr Dukes told the inquiry that Anglo Irish Bank had made a provision for impairment of its loans of €879m for 2008.

This figure rose to  €15.1bn in 2009 ​ which came as a "huge surprise" to the Department of Finance. The Department then commissioned its own review but that came broadly to the same conclusions as those of Anglo.​

On the relationship between bankers and politicians Mr Dukes said bankers had thought they knew more than pol​iticians but had found out they did not.

His experience of the relationship between developers and politicians had been "they are very very flexible who they support" and he felt the whole political system paid too much attention to them.

Mr Aynsley said what struck him most when he took over at IBRC was the "culture of denial about what went on and what was unfolding".

Mr Dukes said he thought that Anglo was probably technically solvent on the night of the bank guarantee in that the assets would have exceeded the liabilities. The real damage to the assets appeared fairly quickly after that.

Asked whether he favoured an orderly wind-down of the bank Mr Dukes  said it had been made very clear to him from a very early stage that "Brussels wanted Anglo gone"​.

Mr Aynsley denied that the size of his remuneration package of  €663,000 contributed to a souring of relationships between the Department of Finance and the bank pointing out that it had been arrived at by the Minister, the Department and the Bank.

"I know this is a lot of money but there is a market and if you want to bring people to the country to solve issues there is a price", he added​.

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