Thursday 18 December 2014

Tapes that reveal what really led to national collapse

Paul Williams Special Correspondent

Published 24/06/2013 | 07:00

ANGLO Irish Bank pursued a dual strategy of deception and scare tactics to lure the State into a financial trap that eventually cost billions and bankrupted the country.

An Irish Independent investigation has uncovered startling evidence of how senior Anglo executives deliberately misled the Central Bank and Financial Regulator in order to "pull them in" to a bailout situation.

Evidence of Anglo's cynical strategy is contained in the recording of a phone conversation between two senior Anglo executives, and obtained by the Irish Independent.

The recording provides a rare insight into what was going on behind closed doors as the country's most toxic bank careered towards destruction – taking the country's economy with it.

The revelations are likely to lead to renewed calls for the long-overdue public inquiry into the bank crash, five years later.

At a meeting in mid-September 2008, Anglo executives including the CEO David Drumm told Central Bank officials that Anglo required emergency liquidity funding while at the same time playing down the true extent of their exposure.

The recorded phone conversation reveals that the hidden strategy was to panic the Central Bank into loaning them an initial €7bn, which they believed was "big enough to be important" but would not seem too high for the taxpayer.

The purpose of the loan was to artificially prop up Anglo's end-of-year financial statement, which was due on September 30 – the same date that the Government put in place the bank guarantee, which eventually led to a full bailout.

And, according to the Anglo executives, once the state bank had "skin in the game", it would be left with no choice but to continue providing Anglo with loans to "support their money" and then the sum "could creep up" over time.

They also hoped it would lead to the bank being nationalised so "we'd keep our jobs".

The bank was ultimately taken over by the State in January 2009 at a cost to the taxpayer of €30bn. In the meantime, it had benefited from the Government's September 30, 2008, Bank Guarantee Scheme.

The phone call between Anglo's Director of Capital Markets and acting Director of Treasury John Bowe, and the Director of Retail Banking, Peter Fitzgerald, took place on September 18, 2008, the day after a meeting with the Central Bank and regulator.

In the call, Mr Bowe, who was later appointed Director of Corporate Development when Anglo became the Irish Bank Resolution Corporation, briefed Mr Fitzgerald on the meeting and explained the bank's strategy when looking for the €7bn loan.

He says: "Yeah and that number is seven (€7bn) but the reality is that actually we need more than that. But you know the strategy here is that you pull them in, you get them to write a big cheque ... and they have to support their money.

Mr Fitzgerald replies: "Yeah. They've got skin in the game and that is the key."

CHOICE

Mr Bowe then says: "If they (Central Bank) saw the enormity of it up front, they might decide that they have a choice. You know what I mean?

"They might say the cost to the taxpayer is too high. But if it doesn't look too big at the outset ... if it looks big enough to be important, but not too big that it kind of spoils everything, then, then I think you have a chance ... it can creep up."

Mr Fitzgerald asks Mr Bowe how they had arrived at the €7bn figure for the Central Bank. Incredibly, Mr Bowe laughs and replies: "As Drummer (CEO David Drumm) would say, picked it out of my arse."

In the recording, the two men are heard laughing when Mr Bowe reveals that Anglo had no realistic prospect of re-paying the envisaged €7bn loan.

The Director of Treasury revealed: "We gave (Central Bank) a term sheet and we put a pro-note facility together and we said that's what we need. And that kind of sobered up everybody pretty quickly ... and (mimicking), 'Jesus oh, oh ... you have certainly focused our minds'."

Mr Fitzgerald asks if the €7bn is a term loan. The two men laugh when Mr Bowe replies: "This is €7bn bridging. So you know, it is bridged until we can pay you back ... which is never!"

Mr Fitzgerald says: "Yeah, yeah and that's in the pro-note ... that's in the terms and conditions?"

Mr Bowe replies: (laughing) "That's right, so under the terms and conditions that say 'repayment', we say 'no'."

Mr Fitzgerald adds: "None ... just none. Non-applicable. Okay and what did he (official) say? 'I need a change of underwear?'"

To which Mr Bowe responds: "There was a bit of that ... there was a bit of that. (Mimicking), 'Jesus that's a lot of dosh ... Jesus, f**king hell and God ... well you know that the Central Bank only has €14bn of total investments that would be going up 20 ... gee ... that would be seen. How would we do that?

"'Jesus, you're kind of asking us to play ducks and drakes with the regulations' and we said: 'Yeah'."

Mr Bowe described how he then met with the Financial Regulator Pat Neary and another regulatory official.

Mr Bowe says: "And then we had Pat Neary coming in and the (other official) saying [mimicking the official], 'so look, c'mere, have you actually got any decent assets that you can put in play? Is there stuff there, like, that has value?"

Approached by the Irish Independent at his north Dublin home over the weekend, Mr Bowe described the conversation as "off-the-cuff comments".

He refused to explain what he meant in his telephone comments about the bank's strategy and denied that Anglo was trying to mislead the state bank.

"If we had worked out that we needed €15bn and asked for €7bn to pull them in, then that would be misleading," he said.

"We had no idea how much money we needed because we were in a funding crisis, funding had dried up – it was like going into a bank branch and seeing the blinds coming down at all the tellers' positions.

"We were going to the bank of last resort and I didn't know if the €7bn would be enough ... I should have told them I didn't know."

Mr Bowe, who worked for the IBRC until March 2012 and is now a treasury consultant, told the Irish Independent that he could not remember all the details of his meetings with the Central Bank because they took place five years ago.

He said it was "likely" that the bank's CEO David Drumm was also with him at the meeting.

In a statement last night, Mr Bowe said: "For the record, I categorically deny the allegation that I was, whether directly or indirectly, a participant in misleading the Central Bank of Ireland in September 2008."

He added: "I utterly refute the unfounded inference and allegation that I was a participant in any wrongdoing."

The Irish Independent was unable to contact Peter Fitzgerald on Friday. However, in a statement released by his solicitors to this newspaper, Mr Fitzgerald said: "I was not a member of the executive management board of Anglo Irish Bank in 2008 and therefore was not involved in the discussions that were conducted by senior executive management of Anglo Irish Bank with the authorities in 2008 in relation to the funding position of Anglo Irish Bank.

"I am not nor have I ever been aware of a strategy or intention on the part of Anglo Irish Bank to mislead the authorities in relation to the forecasted funding position of Anglo Irish Bank."

pwilliams@independent.ie

Irish Independent

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