Sunday 25 September 2016

'I could have stopped it,' former AIB chief on bank’s risky lending to property developers

Clodagh Sheehy

Published 29/04/2015 | 17:55

Former chairman of AIB, Dermot Gleeson, departs Leinster House after the hearing of the Oireachtas banking inquiry. Photo: Clodagh Kilcoyne
Former chairman of AIB, Dermot Gleeson, departs Leinster House after the hearing of the Oireachtas banking inquiry. Photo: Clodagh Kilcoyne

Former AIB Group Chief Executive Eugene Sheehy has confessed to the Banking Inquiry that he could have stopped his bank’s risky lending to property developers.

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“We took too much risk in a sector that turned out to be toxic,” he told Senator Susan O’Keeffe adding “I was CEO, I could have stopped it.”

“But you didn’t” she stressed, to which Mr Sheehy replied “Correct”.

The former CEO said this was why he was apologising to the Irish people.  He had “failed” in his responsibilities during his tenure and this was “a matter for me of eternal regret”.

He wanted to say he was very sorry. He knew a lot of people were let down, felt very angry and rightly so.  “I take personal responsibility for my action”, he added.

Read more: Four property developers called to appear before the Banking Inquiry

Earlier former AIB CEO Michael Buckley made his own apology saying he deeply regretted the damage caused.

Mr Sheehy’s view of the Bank Guarantee was that it was “critical in providing liquidity” and he did not think “any Irish bank would have survived” without it, he told Deputy Michael McGrath

He was under the impression that night, however, that it referred to four and not six banks on the night it was agreed.

Mr Sheehy, who was present on the night of the Bank Guarantee on September 29th 2008, told how the AIB team was “dismissed “four times from the government discussions that night.

He said they were not present while the Guarantee was being discussed but it was his understanding at all time that four pillar banks would be guaranteed and that Anglo and Irish Nationwide banks would be nationalised.

His team had spent six hours in Government buildings that night after requesting a meeting with Government

AIB told the meeting they would start moving assets to have the funds ready by Wednesday morning and the meeting then reverted to discussing the deposit guarantee and its form.

Mr Sheehy said his bank wanted two years guarantee rather than one year being proposed and they were asked to leave while a drafting process was undertaken.

They had  also asked that the bonds be included.

Mr Sheehy then described the shock of his team when they saw the guarantee document for the first time later that morning.

“We could not understand why Anglo and INBS were included. All our discussions that night were based upon the premise that Anglo was to be taken down and as such we did not think they would be part of the guarantee.

He told Senator Sean Barrett that the Guarantee was not costed.

He felt it was appropriate to guarantee the the four pillar banks however because an Anglo default would result in immediate rating agency downgrades and worldwide risk aversion for all Irish banks.

In the UK they could expect a run on deposits and given the Irish public’s reaction to Northern Rock it was likely that “domestic customers would panic and Irish branches would not be able to cope”.

Asked by Deputy Kieran O’Donnell about a request for AIB to consider taking over Anglo Irish Bank, Mr Sheehy said it was discussed by the group executive and dismissed. The Board accepted the decision of the group executive.

Mr Sheehy who in 2006 had a total remuneration package of €2.4m including a €1.3m bonus told Deputy Kieran O Donnell that “the numbers are very high and not justifiable”

Bank executives were not banging doors looking for wage rises and he had never asked for a pay increase.  The figures were “mechanically devised”.

He agreed “there was no way you could tell anyone on the streets these were acceptable levels of pay”.

Both Mr Sheehy and former bank CEO Michael Buckley told the Inquiry they had taken substantial cuts in their pensions. 

Mr Sheehy said his pension was €250K and he had taken a substantial cut but Mr Buckley said he did not wish to disclose his pension figure.

Former CEO Michael Buckley denied the bank took too much risk in his time as chief executive up to 2005.

Mr Buckley said there was no evidence of "reckless lending" from 2001 to 2005.

 “Thinking back over all of the challenges I had to deal with, I can say that, as I retired in mid-2005, I had no premonition, let alone any evidence, that a liquidity or credit crisis was building internationally or in Ireland, or that a credit crisis was building in AIB.

Current AIB chief executive David Duffy said if the bank guarantee had not been put in place “it could have led to a more severe outcome”

He had joined in 2011and faced a daunting task of radical restructure which included 4,000 job losses and a €350m cost cutting programme.

Speaking of his own salary he said it was in the low €400,000’s after taking a pay cut.

He also said that pay cuts at the bank since he arrived amounted to €230m and perks preferential mortgages for staff, company cars and medical insurance had all been eliminated.

Today AIB was a profitable organisation with key performance metrics, he added.

 

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