Saturday 22 October 2016

Banking inquiry: 'Senior business and banking figures lobbied for banking guarantee well ahead of September decision' - Cardiff

Daniel McConnell and Clodagh Sheehy

Published 18/06/2015 | 10:18

Kevin Cardiff's evidence is expected to contrast sharply with testimony already given to the committee by senior bankers Eugene Sheehy and Brian Goggin
Kevin Cardiff's evidence is expected to contrast sharply with testimony already given to the committee by senior bankers Eugene Sheehy and Brian Goggin

Significant leading banking and business figures lobbied the Government and its senior officials for a guarantee in the months before September 2008.

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In evidence to the Oireachtas Banking Inquiry, former Secretary General Kevin Cardiff, revealed under oath that among those arguing for a guarantee were former Finance Minister Charlie McCreevey and businessman Dermot Desmond.

Mr Cardiff said several people, including Sean FitzPatrick, Dermot Desmond, and Charlie McCreevy, suggested the introduction of a guarantee some months beforehand.

Read more here: Banking Inquiry: Burning of bondholders at time of economic crisis was stopped by ECB boss Jean Claude Trichet, inquiry hears  

The inquiry heard, that the end of April 2008, Mr FitzPatrick, then Anglo chairman, suggested some form of guarantee to John Hurley.

Around a week later, an individual noted as DD also suggested a broad guarantee. He could not recall whom.

Then on 3 May, Mr McCreevy suggested a form of political guarantee.

In early September, Mr Desmond rang Mr Hurley to suggest a guarantee might have to be considered. It was also suggested by Irish Life & Permanent chairman Gillian Bowler and Bank of Ireland chief Brian Goggin.

Mr Cardiff also said ECB head John Claude Trichet told Mr Hurley in the days before the guarantee that Ireland had to save its banks.

There was no discussion on specific terms and no message to guarantee the banks in any sense.

Mr Cardiff countered claims by the then Green Party leader and Minister John Gormley that the decision to issue the guarantee was actually taken the day before, Sunday September 28.

Read More: Daniel McConnell: 'Kevin Cardiff proves a colourful witness who says he has become more socialist in recent years'  

 He said he was not aware of any Government decision, formal or informal, in existence on the night of September 29.

 Mr Cardiff said that on that night, there were two decisions to be made. One was to make a recommendation to Cabinet ministers over the phone, and the other was the decision itself.

 Asked by Fine Gael member Eoghan Murphy could a minister who was only asked to approve the guarantee in a late night phone call, really had an option to disagree.

 Mr Cardiff said any well informed minister could have disagreed with the decision when phoned by the Secretary General to the Government.

 Mr Cardiff said he spearheaded the Wright Commission report into the actions of the Department of Finance, to identify its weaknesses.

 "I wanted the criticism, I commissioned the Wright report, I wanted to see what we could be doing better," said Mr Cardiff.

 The former Secretary General said the department wasn't conservative enough in its spending outlooks in the run up to the crash.

 "We didn't forsee the impending doom, the Department is naturally quite conservative, but we weren't conservative enough," he said

Mr Cardiff also told the Oireachtas Bank Guarantee that he and Brian Lenihan argued against a blanket bank guarantee on the night of Sept 29 2008.

Addressing the inquiry, he said Mr Lenihan later changed his mind on the matter, having spoken to the Taoiseach.

He said the liquidation of Anglo that night would have been too dangerous to contemplate, as has been proposed by Central Bank Governor Patrick Honohan.

He also said Ireland was "pushed very hard" into the 2010 IMF/ECB/EU Bailout by external forces.

He said backdoor briefings by external forces were clearly inappropriate.

In relation to the night of the guarantee, he said that: "Yes the banks did seek the broad guarantee. They did supply a draft, only one version, and yes they provided additional documents relating to the guarantee," he told inquiry members.

Mr Cardiff also revealed that he was aware Taoiseach Brian Cowen spoke to consultant Alan Gray on the night of the guarantee and economist David McWilliams was also in contact with some ministers around that time.

He said there was no "optimal options" on the night of Bank Guarantee, saying there were no guarantees with any of them. He said it was a case of trying to choose the one that was "least likely to lead to disaster".

 He said he felt something had to be done, it had to be significant, so significant to change the negative sentiment around Ireland.

 There were a range of options on the table that night following work by his department and other agencies like the Central Bank and the NTMA.

 In relation to other options, like the giving of emergency funding to Anglo Irish Bank, he said this would not have have reversed the run of funds out of Anglo.

 He said there would have been an old fashion people on the street on the bank.

 He also said Irish Life and Permanent was set to run out of money the following Thursday, give or take a day.

 He said the crisis in our banking sector was the worst in our modern history. He said he was involved in many if not all of the difficult decisions taken.

 He said he had not commented in public before now, because he was waiting for this opportunity to address the Inquiry.

 He said his evidence did not cover every aspect of everything that happened because he said he "ran out of steam" but that he would be happy to answer any questions.

 Before the session began, Mr Cardiff joked with committee members that because of the media leaks, he has amended his opening statement, but not in substance.

 Referring to the leak, he quipped: "It wasn't me."

 He went on to say that he checked the law that it was a crime for the committee to release his evidence but he was free to leak it.

 This quip drew a caustic response from some committee members, including Fine Gael's Kieran O'Donnell.

While he did not doubt the ECB and Mr Jean Claude Trichet were “sincere in their action”, at the time of the Bank Guarantee, he said, they did “a good deal more than simply give advice”.

At the time “our banks were under siege from every quarter”.

He explained that none of the interventions put in place were the least straightforward and there were difficult negotiations with EU institutions involving both”vultures and angels” and  “honest leaders and gougers”.

People wanted to know not just what happened on the night of the Bank Guarantee but who was there. “I was there the whole time”, he stressed, dismissing criticisms that the civil servants on the night were “hopelessly inept” and “poorly led”.

Those involved in dealing with the crisis worked diligently “to the point of great exhaustion”.

The Department of Finance team that night, he added, had performed “with confidence and integrity in the face of these pressures.”

Under questioning from Labour Senator Susan O'Keeffe, Mr Cardiff said he did not think Mr Cowen acted under any special influence of Anglo Irish Bank.

"I believe he was influenced by the information given to him, the people he spoke to. I never saw any special influence in the Taoiseach's thinking. I think the man was doing the best for his country and not doing his best for anyone else," he said.

Mr Cardiff said throughout August, plans were being prepared to nationalise one of the banks.

He said at the start of September, a downgrade of Irish Nationwide was a "trigger" and raised fears that there could be a run on the system.

He said he welcomed a Reuters news wire story that suggested Irish Nationwide was about to be liquidated, saying it allowed him to deal with a specific problem, rather than a vague "miasma" which was swirling around the Government.

He said the difficulty with Irish Nationwide allowed the Department of Finance to prepare for the much larger problem of Anglo Irish Bank.

He said he and a small team were engaged in the "secret work" in preparing emergency bank rescue legislation.

He said he was afraid that if it got out that they were working there would have been a run on the system.

He said Mr Lenihan and the Taoiseach were aware of the work of this secret team, saying the work began when Mr Cowen was still finance minister.

He confirmed he met with Tiernan O'Mahoney, then a senior Anglo Irish Bank executive about the financial crisis, but said he could not recall if the meeting was specifically about Anglo.

He similar meetings with Sean Fitzpatrick, Gillian Bowler of IL&P took place with him and other senior officials at that time.

He said the Taoiseach did not present a paper to support his argument for a broad guarantee.

"Look lads, we need a good broad solution that has a real chance of changing the sentiment. So I took that to mean a broad guarantee," he said.

He said the Taoiseach calmly and professionally chaired the meetings, despite the horrendous pressure.

In relation to the guarantee papers presented by the banks that night, he said it was his feeling that AIB were more over it than Bank of Ireland.

But he said it was one, short, document which originated with the banks  and not the Government.

Asked if he remembered the Taoiseach banging a table saying: "We are not fucking nationalising Anglo", Mr Cardiff said he did not remember that being said.

In relation to the document presented by the banks, he said he had real fears that it was even broader than even what the Government had intended.

He said that under the terms of what the banks had sought, any new lending issued under the two-year term of the guarantee would have been guaranteed for the total length of the borrowing.

Under questioning from Fianna Fáil's Michael McGrath, Mr Cardiff said auditor PWC was brought in at the start of September and had only presented brief reports by the time of guarantee.

 Mr McGrath said that while the department had prepared various scenarios as far back as January 2008, they did not "look under the bonnet" and see what state they were in.

 In response, Mr Cardiff said that there was a belief within the department that  the banks were solvent, but said they stopped believing they were ok at the start of September, when the Irish Nationwide issue arose.

 It was certainly the case in hindsight, he said, that more accurate information would have been of benefit on the night of the guarantee.

 "I could have requested the financial regulator had gone in to check them, I didn't, I wish I had," he said.

 Mr Cardiff did acknowledge there were fewer economists within the department at the time than he would have wanted.

 "We tried to change that, but I don't think this was caused the crisis," he added.

Mr Cardiff criticised the Inquiry for not giving him any help when they asked for his statement. He said if he had not started to put it together before Christmas, long before he was asked, he would not have been able to give the evidence he was giving.

Chairman Ciaran Lynch assured him he had been given the same treatment as other witnesses.

Deputy Joe Higgins asked for Mr Cardiff’s view that Taoiseach Brian Cowen had come to the meeting on the night of the Guarantee with a ready made decision that the banks should be guaranteed.

Mr Cardiff responded: “I dont think it was very strange. The Taoiseach had been involved in discussion prior to this.  It wasn’t a sudden conversion”.

While he did not think the decision strange “it did take me a little by surprise because, frankly I had a different view”.

Deputy Higgins asked him if Minister Lenihan  had been “over-ruled” by the Taoiseach that night. Mr Cardiff pointed to the fact that he was not at the private meeting between the two “so I don’t know what happened.

“I can only tell you what the Minister said and he didn’t put it in the form of over-ruling. He never used the word over-ruled”.

In relation to the AIB document proposing a Guarantee, Mr Cardiff, he thought he had been handed the document by the Taoiseach or the Attorney General.  He couldn't remember if it was handwritten or typed.

“Lets be clear, people in that room were not discussing bank wording, they were discussing what kind of Guarantee and the terms of the Guarantee.  The banks had no part of this, there were out of the room.”

Mr Cardiff told Deputy Kieran O’Donnell he thought the NTMA would have seen the draft document because they had been in touch with Merrill Lynch at about 1.30am saying it looked like the government had decided on a broad Guarantee and asking how they should handle that the following morning.

Brendan McDonough of the NTMA has previously given evidence that although they were present on the night, they were not consulted.

He believed that night that both Merrill Lynch and the NTMA were advising that two banks should be nationalised and the other four guaranteed.

At the start of the night both himself and Minister Lenihan were in favour of this but later on “it was just me”.  Even then he was not sure he was explicitly in favour of this option.  There were proposals and considerations for everything.

He told Senator Sean Barrett there were about five immediate options available on the night of the Guarantee including nationalisation, emergency liquidity assistance and the possibility of giving extensive loans from the Exchequer and Central Bank.

None of these were costed, they could not be because they would cost zero unless something went wrong.

The difficulty with giving a €20bn loan from the Exchequer was that they had the cash but in terms of the overall size of the banking system you might only get a few weeks from that money and then you would have an Exchequer with no cash.

“To be honest Senator I can think of a dozen things we could have done differently” but a lot of work had been done prior to that meeting. “we didn't just turn up unequipped’.

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