Sunday 21 December 2014

Explained: The bank guarantee controversy

Published 25/06/2013 | 06:30

THE latest explosive revelations from the Anglo recordings show how the bank's chief executive was prepared to sacrifice Ireland's relations with the UK and Germany, if it meant his bank could be propped up by attracting sought-after customer deposits away from rivals.

The bank guarantee had been brought in because banks here were losing deposits at a dangerous speed.

It was hugely controversial at the time – because it put Irish banks at a huge advantage over their competitors elsewhere in Europe, especially if Irish banks were paying high interest rates.

The then-Finance Minister Brian Lenihan faced a storm of criticism from across Europe as a result.

His British counterpart Alistair Darling called Mr Lenihan directly to say the guarantee placed UK banks in an "impossible" position

In his memoirs Mr Darling said the Irish guarantee was the result of panic.

German Chancellor Angela Merkel was even more outspoken.

Days after the bank guarantee she publicly criticised Ireland, calling the move "unacceptable".

"The Irish way is not the right way," Merkel said.

That reaction made it important that banks like Anglo were not seen to be abusing the state backing.

But far from being chastened by the need for state aid, the then Anglo Irish Bank chief executive David Drumm can be heard in conversation with his subordinate John Bowe reacting with glee to the introduction of the bank guarantee.

The taped call gives an insight into the casual, even reckless, attitude senior Anglo executives had about the delicate relations with Germany and the UK in particular.

Drumm can be heard laughing at the financial regulator's concerns about being seen internationally to be "abusing" the guarantee.

It's clear he wanted to maximise the impact of the guarantee, not just to hold on to deposits as was intended, but to bring in new cash from abroad.

"We won't do anything blatant, but . . . we have to get the money in.

"Jack the (interest) rates up. That's what I really meant, get the f**kin' money in, get it in," he tells Bowe.

We know that Drumm was right to be sceptical about the regulator's soft touch.

Irish Nationwide Building Society's UK-based executive Michael Fingleton Junior, the son of the society's controversial chief executive, was caught blatantly abusing the guarantee by openly using it to tout for deposits for the building society.

He sent out emails to wealthy bankers in London, trying to get them to shift deposits into the Irish institution.

It was so blatant that the financial regulator was forced to act, but only by hitting the lender with a derisory €50,000 fine.

Irish Independent

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