Business Banking Inquiry

Thursday 27 October 2016

Just what did happen at IBRC? Alan Dukes speaks out

Documents revealing Department of Finance concerns over the sale of Siteserv have prompted the examination of a host of large asset sales by IBRC. Alan Dukes, IBRC's chairman until its liquidation in 2013, tells Sarah McCabe what he thinks it will uncover and why he feels he was made a scapegoat

Published 03/05/2015 | 02:30

Alan Dukes
Alan Dukes

Former Fine Gael leader Alan Dukes was chairman of IBRC until 2013.

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He oversaw the sale of Siteserv by IBRC, which along with several other large asset sales by the bad bank is now being examined by the Department of Finance.

This was prompted by documents recently released under the Freedom of Information Act revealed tensions between Anglo successor IBRC and officials at the Department of Finance.

In this exclusive interview with the Sunday Independent, Dukes discusses strains in his relationship with the Department of Finance, why he believes taxpayers got the best return possible from Siteserv, what the investigation into IBRC will uncover and why he feels he has, to some extent, been made a scapegoat in a larger political battle.

Do you believe that taxpayers got the best return possible from the sale of Siteserv?

"Yes. IBRC set out, in this case as in all others, to recover the maximum possible amount.

"The bank put in place a set of procedures to ensure that the sale, carried out by the board of the company, was effected in a manner that would maximise the return to the bank.

"The process was monitored by an independent external advisor commissioned by the bank and also by an internal review process which was accessible by the Department of Finance."

What do you think the investigation into large asset sales at IBRC, recently ordered by the government, will uncover?

"The bank had a comprehensive set of internal practices in relation to asset recovery. In each case, it followed an appropriate and robust process to achieve the most advantageous result, often commissioning independent external advice and sometimes commissioning independent external supervision.

"The bank reported to the Department of Finance on a monthly basis on progress with the work-out plan and on the achievement of maximum recovery levels. In 2011, the European Commission appointed a Monitoring Trustee to report quarterly on the bank's adherence to the terms and conditions of the agreed work-out plan.

"The bank's operations were conducted by a senior management team individually chosen from outside the Irish banking system on the basis of demonstrated expertise and experience. Each senior appointment was cleared by the Central Bank and approved by the Minister for Finance. They were supervised by a board with a wide range of banking, financial, commercial, legal and public policy experience, each member of which was approved by the Central Bank and appointed by the Minister of the day.

"The review recently ordered by the government concerns asset sales resulting in a capital loss of at least €10m to IBRC.

"It is not entirely clear whether the 'capital loss' is to be measured against the original face value of the loan or against the written-down value of the loan after the bank's provision for impaired loans.

"The former definition would, of course, result in a larger number of cases than the latter.

"Shortly after nationalisation in January 2009, the new board of the bank carried out a review of the bank's provisioning process.

"It quickly emerged that, as a result of the steep and continuing fall in property prices from mid-2008, much larger provisions for bad loans had to be made than had previously been thought necessary.

"The bank reported this to the Department of Finance at the end of the first quarter of 2009. The Department commissioned an external review which came to a similar conclusion.

"IBRC found it necessary to make substantial provisions for distressed loans in each year from 2009 to 2012: these provisions were scrutinised in detail by the bank's auditors, included in the annual accounts and accepted by the Department of Finance.

"Shortly before the liquidation of the bank in February 2013, I began to take the view that 2012 would be the last year in which the bank would have to make any significant provision of this kind.

"The 'haircuts' applied by Nama on the transfer of loans from IBRC were generally in the range of 50pc to 60pc of the face value of the loans.

"In general, the bank's experience was that the returns from asset sales in the period 2009 to 2012 did not result in a need to increase the level of provisions.

"In September 2010, the Government decided that the bank should be wound down over a 10-year period. The bank produced targets for the wind-down process which were accepted by the Department of Finance.

"Up to the date of liquidation, asset disposals were ahead of the agreed targets and in November 2012, the bank informed a representative of the Department that the wind-down could be completed by 2018. The Department's representative stated that this was in line with the Minister's objectives.

"I expect that the review ordered by the Government will find accordingly."

Do you think former IBRC chief executive Mike Aynsley was right to suggest that the investigation should be extended to Nama, AIB and the other covered banks?

"Mike Aynsley's essential point is that IBRC was operating in the same market environment as Nama and the other covered banks. The benchmark of a €10m write-down (however defined) is entirely arbitrary if IBRC alone is examined.

"A comparison made with Nama would have to take account of the fact that the book value to Nama of loans taken over from IBRC and the other covered banks was already substantially written down from the original face value.

"The review ordered by the Government is to investigate

• the processes, procedures and controls operated by IBRC,

• whether there is prima facie evidence of material deficiencies in the performance of bank functions, and

• the commercial soundness of transactions.

"Comparisons under each of these headings with other operators in the same market environment would, in my view, give a more complete picture than an examination of IBRC alone."

How would you describe your relationship with the Department of Finance while you acted as chairman of IBRC?

"There were a number of strains in this relationship - partly because the Department was less than forthcoming with the bank on a number of key strategic issues (as evidenced by internal documents noted as not to be shared with the chief executive or the chairman). The review ordered by the government must take account of these strains if it is to arrive at realistic conclusions."

How would you describe your relationship with IBRC liquidator Kieran Wallace?

"The board of the bank co-operated fully and without hesitation with the joint special liquidators."

Do you think Kieran Wallace is the right person to conduct the government's review into IBRC asset sales?

"It would be entirely inappropriate for me to make any comment on this."

Do you feel you have been made a scapegoat in a larger political battle?

"Yes, to an extent. Anti water charge campaigners have opportunistically seized on the Siteserv case and have invested so much political capital in the issue that they are unlikely to accept any conclusion that does not conform to their prejudices."

How have the last few weeks affected you personally and professionally?

"I have been accustomed to controversy since I first entered politics in 1979 and I believe that my integrity has always been vindicated."

Sunday Indo Business

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