Wednesday 7 December 2016

Central Bank had no plan for Anglo hours before it was due to default on €1.6bn loan, Banking Inquiry hears

Clodagh Sheehy

Published 14/05/2015 | 19:57

Former Governors of Bank of Ireland Laurence Crowley (left) and Richard Burrows arriving for the Oireachtas Banking Inquiry at Leinster House.Pic Tom Burke
Former Governors of Bank of Ireland Laurence Crowley (left) and Richard Burrows arriving for the Oireachtas Banking Inquiry at Leinster House.Pic Tom Burke

The Central Bank had no plan for Anglo Irish Bank just hours before it was due to default on a €1.6bn loan, the Banking Inquiry has heard.

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Former Bank of Ireland Governor Richard Burrows said Central Bank Governor John Hurley “seemed surprised” when he told him about the “state of desperation” of Anglo on the afternoon of September 29th 2008.

Mr Burrows explained to Fine Gael Deputy Eoghan Murphy that Anglo bosses Sean Fitzpatrick and David Drumm had requested a meeting with his bank earlier that day where they revealed they faced default the following morning.

They had asked if Bank of Ireland would take over Anglo fully or in part.  “They were looking for any kind of assistance at all we could offer.”

Mr Burrows said a short while later he attended a pre-scheduled meeting with Mr Hurley where he explained the Anglo position and asked if there was a plan to deal with the situation.

“I was somewhat surprised to find there was not. Mr Hurley’s guidance to me was that if I wanted to take matters further, I should make an approach to Government.”

The Bank of Ireland former Governor felt the situation at Anglo was “clearly of the utmost severity” and “extremely serious, for the Irish Banking sector as a whole”.

He went back to his office, discussed the position with his chief executive, and they decided to ring AIB about making a joint approach to government.

Former Governors of Bank of Ireland Laurence Crowley (left) and Richard Burrows,t arriving for the Oireachtas Banking Inquiry at Leinster House. Pic Tom Burke
Former Governors of Bank of Ireland Laurence Crowley (left) and Richard Burrows,t arriving for the Oireachtas Banking Inquiry at Leinster House. Pic Tom Burke
Former Governors of Bank of Ireland Laurence Crowley (left) and Richard Burrows arriving for the Oireachtas Banking Inquiry at Leinster House. Pic Tom Burke

At government buildings the representatives of BOI and AIB met the Taoiseach Brian Cowen, Finance Minister Brian Lenihan and “quite a number of other people”.

Mr Burrows said he explained the reason they were seeking the meeting was to make sure the government was fully aware of the Anglo situation due to unfold the following morning.

Read more: Banks did not offer solution to Government on night of bank guarantee - Burrows

At one point they left the meeting to go to an ante-room while the Taoiseach and others discussed the situation.

When they returned Mr Hurley asked if the Anglo default could be covered by Bank of Ireland and AIB providing €5bn each by the following morning.

The bankers adjourned again to the ante room and when they returned to the meeting to report that  Bank of Ireland and AIB  had been successful in putting together the €10bn “it was at that point we were informed that a Guarantee was going to be put in place.”

There was no question of “four or six” banks being covered.  He understood it to be all banks.

Neither Bank of Ireland nor AIB  offered solutions to government on the night of the Bank Guarantee, said Mr Burrows

He believed that if the government had accepted the €10bn being offered in financial support for Anglo it “may have given the Government more time to consider options.”

However he wanted to place on the record that the bank appreciated the government action in providing the Guarantee, the subsequent capital injection for the bank and the creation of NAMA.

While the €10bn liquidity for Anglo might have bought a breathing space, the Guarantee was necessary, he added.

Mr Burrows also contradicted evidence given by his colleague, bank chief executive Brian Goggin, who previously told the inquiry Bank of Ireland asked for subordinated debt to be covered by the Guarantee.

Mr Burrows said that simply had not happened on the night.

Both Mr Burrows and Mr Laurence Crowley, also a former Bank of Ireland governor, insisted that property lending by their bank did not grow in a “disproportionate” fashion in the run up to the crisis.

Mr Crowley who was Governor of the bank from 2002-2005 insisted it was not reliant on property lending and this did not grow in “a disproportionate fashion” to other lending.

Mr Burrows, who took over from Mr Crowley until 2009,  echoed that view.

Mr Crowley said when he left the bank it was operating in a strong economic environment.

With hindsight if any decisions were taken in his time which subsequently contributed to the banking crisis “then this is clearly something I regret”.

Mr Burrows told the Inquiry it was “a source of great regret to Bank of Ireland that we required substantial support from the Irish taxpayer and the State.”

That support was comprehensive and “for that we remain very grateful.”

AIB Auditors Terence O’Rouke, former Managing Partner with KPMG and Paul Dobey Partner with the company’s Financial Services  both said that KPMG had drawn the attention to the risks associated with concentrated property lending.

Mr O’Rourke and Mr Dobey said in 2008 there were significant concerns about the liquidity and the solvency of the bank.

It was clear the institution was aware of the risks but also clear “they did not anticipate the potential scale of these risks and the resulting losses that would ultimately arise”.

In response to questions from Chairman Ciaran Lynch Mr Dobey said he saw auditors as “score keepers and I don’t think you can blame the scorekeepers for the performance of the team”, he added.

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