Race to stop the banks all falling like dominoes
Published 01/10/2008 | 00:00
MANIC Monday had morphed into a tense Tuesday when the two Brians called it a day and left the Taoiseach's office in Government Buildings just after 3.30am yesterday.
As they headed home for two hours' sleep, Mr Cowen and Mr Lenihan -- both red-eyed and exhausted -- looked like they had each done 15 rounds of kangaroo boxing.
They left behind the detritus of more than seven hours of hard bargaining and scribbled notes, mingled with the debris from half-drunk cups of coffee on the office desk.
The office was pristine when they met again at 7.30am to run over the details of the deal they had done with the banks to underwrite some €400bn of their borrowings and deposits.
Later, they would receive private calls from other EU leaders congratulating them on their deal, but in the reality of a sullen grey morning they still had to sell it to the Irish people.
Brian Lenihan had a particularly difficult day on Monday: meetings with IBEC, ICTU and other bodies making representations for his budget still two weeks away.
Between meetings, the Governor of the Central Bank, John Hurley, who was encamped in a nearby office with Financial Regulator Patrick Neary, was sending notes into the minister's office.
Banking shares were plummeting on the Irish stock market: AIB plunged 16.7pc, Bank of Ireland slid 20.2pc, Irish Life and Permanent sunk 39.9pc and Anglo Irish Bank tumbled a terrifying 46.2pc.
An intervention was becoming inevitable as the minutes ticked by.
For the past month, a small team had kept in regular contact with the chief executives and chairmen of the Irish banks and financial institutions.
The Government's team was tight: Dermot McCarthy, the secretary to the Government; David Doyle, the secretary general of the Department of Finance; Joe Lennon, the Taoi-seach's programme manager.
Other officials in the Department of Finance, who dealt with specific areas of banking or regulation, and the Governor of the Central Bank and the Financial Regulator would also be available.
The Department of Finance was instinctively hostile to any government intervention and wanted the banks to look after their own. They were appalled at the prospect of nationalisation after the US authorities started the international trend and the British government took over Northern Rock.
But intervention became inevitable when international hedge funds began selling Irish banking stocks short, taking one bank's shares from €20 to €4 and feasting on the profits.
The banks insisted they didn't want equity but guarantees from the Government.
On Monday night Dermot Gleeson, the chairman of AIB, and Eugene Sheehy, the chief executive, were shown to a room at the Government Buildings, with Brian Goggins, the chief executive of the Bank of Ireland.
The Governor of the Central Bank, John Hurley, and the Financial Regulator, Patrick Neary, had their own room downstairs.
It was obvious that an Irish bank or financial institution would go under when the markets opened yesterday unless hard choices were made.
The Irish banks could not countenance one of them collapsing for fear they would all fall, like dominoes, to the speculators.
The Attorney General Paul Gallagher was casting a legal eye over the deal as it emerged.
The original model to underwrite their deposits and borrowings was originally put forward by the banks and Mr Cowen and Mr Lenihan were more impressed by it than the Department of Finance.
Aware of his government's budgetary responsibilities in the EU, the Taoiseach spoke to the Economic Minister of France, Christine Lagarde, and then Jean-Claude Junker, chairman of the EU finance ministers.
Ms Lagarde was in the eye of the storm hammering out a rescue package for Belgian-French bank Dexia, while the Governor of the Central Bank, John Hurley, kept the President of the European central bank. Jean-Claude Trichet briefed on the detail. Still, the Europeans were intrigued by the Irish solution to an Irish problem and last night rumours of a similar deal to save a French bank ricocheted around Paris.
Looking back over the past month, those involved in the banking crisis recall some truly sickening moments.
As the wee small hours crept toward dawn, the deal was agreed and the parties and officials left Government Buildings aware that they had to explain their unique rescue package in a few hours,
And as they left, one official remembered that an astonishing €5m was lodged in a single rural post office the day after RTE's 'Liveline' programme panicked savers.
Another recalled a meeting on the day of the All-Ireland football final and the constant flurry of toxic rumours about banks and financial institutions.
And everyone knew they had done something unique: they had created the Irish save-our-banks model. And they are confident it will be rolled out in other worried countries, for other distressed banks.