Monday 23 October 2017

Kevin Beary: The Anglo tapes highlight the damage done to banking system

It's time to take the gloves off and start dealing with our festering banking problem

Kevin Beary

LOST in the sensational release of the Anglo tapes last week is the massive reputational damage to the entire Irish financial system.

The most shocking revelation was that Finance Minister Michael Noonan was not aware of the recordings. It is also worth noting that in recent years the Government's appointee to the Anglo/IBRC board, Alan Dukes, was a former colleague of Mr Noonan's and must have had direct access to all of the sensitive information.

Politicians are either shedding crocodile tears to avoid embarrassment or are looking to exploit the situation for political opportunism. The comments from politicians on all sides reveal how out of touch they are with real commercial issues and public sentiment. While Enda Kenny's "axis of collusion" comments this week probably scuppered any possibility of an Oireachtas committee inquiry, that is not necessarily bad. The inquiry should be conducted by qualified people who will act independently, rather than playing party politics. The suggested referendum is yet another cop-out.

There are two main strands to a solution – accountability and re-building.

No more resources need be invested in another public inquiry whose findings will be obsolete by the time they are finished, with few prosecutions and further embarrassing testimony where defendants end up looking like victims. There is also the near-certainty that an Oireachtas inquiry would evolve into another soap opera. More damage to our sovereign reputation. The inquiry needs to establish facts quickly so that lessons can be learned and we can all move on. The key players involved in any inquiry need to be "wide boys" who are fully empowered and independent so that this does not become another expensive political exercise.

We need to consider emergency legislation to empower a banking task force, giving them CAB-like powers to compel bankers to attend and interrogate the senior management teams in all of the banks. The task force should include international forensic experts and Irish (untainted) bankers and be chaired by a strong international banker of high repute, similar to the UK's Leveson inquiry.

It is worth considering the introduction of a witness protection programme to obtain information quickly. The interrogation process should be carried out in a court environment under oath, interviewing senior compliance executives, bank lenders, senior treasury executives, government ministers and senior civil servants and officials from the Financial Regulator's office. Lengthy custodial sentences, revised extradition laws and a swift prosecution process are required to deal with people who refuse to co-operate or mislead.

The task force also needs to examine the role played by the non-Irish banks operating in Ireland. These banks contributed to the banking crisis and reputational damage we have suffered, and were operating under the nose of the Financial Regulator. It is easy to forget the losses suffered by the foreign banks who have supported the Irish economy and contributed to the EU bailout funds while having to suffer the illiquidity resulting from the government guarantee.

The Irish banks need major recapitalisation, but there is no chance now of a second bailout from the EU.

We should raise funds internationally. There is support from investors in the US and Canada. Banks need to tell the truth in relation to their balance sheets. The capital markets do not believe them. Banks should revalue their loans and calculate the cost of fully recapitalising. This means more pain, but is vital.

The Government has no choice now but to renegotiate the bank bailout funds with the EU. In context, they relate to an unprecedented set of economic circumstances, accelerated by EU bondholders rapidly pulling their money out of the Irish banking system before the collapse. By looking outside of the EU for new capital, no second bailout is required. This is what the ECB fears most.

Re-energising our banks and restoring our international reputation should be the Government's main focus in driving the economy forward. There will never be a better time to enforce real change in the banks with public sentiment here and abroad so raw. Get the job done boys.

Kevin Beary is managing director of Beary Capital Partners.

Irish Independent

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