'There were no lovey-dovey super close relationships with any client'
Mike Aynsley, former CEO of IBRC, speaks frankly to Ronald Quinlan about toxic loans and relations with Denis O'Brien
Published 07/06/2015 | 02:30
With the Dail gearing up for a two-day debate on the establishment of a formal inquiry into the sale of Siteserv and corporate governance at the IBRC, the bank's former CEO Mike Aynsley breaks his silence to answer the key questions fuelling the ongoing controversy.
RQ: What do you make of the Government's decision to establish a commission of investigation into certain IBRC transactions?
MA: It seems to me that a full and thorough inquiry through an unquestioned independent body and process is the only way to reach a point where the ongoing debate can be finalised - I welcome it and will make myself available.
RQ: The committee's draft terms of reference propose the examination of transactions that resulted in a "capital loss of least €10m" to the IBRC. What is your response to this?
MA: It has to be remembered the new board and new management team were brought into Anglo post nationalisation to handle the wreckage left by the previous board and management. A total of over €34bn was injected into Anglo and INBS by the State to fill the black hole of losses and to recapitalise the bank. The new team was responsible for the clean up and not for generating the losses. As Alan Dukes said, 'It's like blaming the fire brigade after they have put out the fire'.
RQ: Do you think the €10m threshold for review is appropriate?
MA: I'm not certain where the €10m review threshold has come from, but I suppose it was an attempt to draw the line at a point where the extent of the review was manageable. While a huge proportion of the €34bn was associated with losses taken on the transfer of loans to NAMA, the remainder was spread over a very large number of transactions.
RQ: The draft terms of reference propose the examination of other transactions the commission identifies as "giving rise to or are likely to give rise to potential public concern" in respect of returns to the taxpayer. Would you have concerns in relation to the potential scope of this?
MA: No concerns. I think all relevant questions need to be answered if the questioning around IBRC is to be put to bed.
RQ: Some politicians believe the threshold for transactions to be investigated should be set as low as €1m. What do you make of that?
MA: Lowering the threshold would inevitably mean the commission's work would extend for a longer period and be more costly as a result. What I wouldn't like to see is a lowering of the threshold and a weakening of attention to the review of each case. Any review should be thorough, fact-based and fair.
RQ: The draft terms propose investigating whether or not the IBRC's transactions were "commercially sound". Are you confident that all transactions will stand up to scrutiny?
MA: Again, I am confident that there will not be any adverse findings here. Having said that, it is imperative that this particular area is well supported with detail of the environment and constraints that the bank was working under. For example, it could be argued in a certain case that commercially it might have been better to hold a loan longer and provide the management of a company with further finance to develop and grow the business to generate an eventual higher sales price. The review would need to consider the fact that this was not possible as the bank was forced to adhere to a wind down timeframe agreed to by the Department of Finance and was not authorised (under commitment to the European Commission) to lend to any new client or to lend new money to any client unless it was to protect current value: even then, there were strict limits to the amount advanced to any client and an overall limit on the total amount of such lending. This will be a difficult area for the commission to address. I think most people would acknowledge the difficulty of second guessing any decision on any matter that was made three or four years ago.
RQ: The draft terms propose the examination of the interest rates and periods for repayments given by IBRC to see if they were unduly favourable to any borrower. What's your view?
MA: I think this draft term is a little 'airy-fairy'. Some of the allegations recently made about interest rate levels are very inaccurate. The key here will be for the commission to get behind and understand not only the concept of pricing for risk, but also the very real issues that require careful management of the interest rate aspect when managing a distressed loan book.
For example, when we took over the bank, there were all sorts of historical deals with clients, some of which had extraordinarily low interest rates. Where facilities were healthy and performing, rates were increased when possible. If non-performing, it was a case-by-case decision on the approach to be taken which may not necessarily have resulted in an increase in the interest rate.
If not, it may, for example, have been because a renegotiation to a higher rate would, in most circumstances, have regularised the facility (committing the bank to maintain a lending commitment for a further period) and limited the bank's ability to enforce the loan. There could not be a 'one-size-fits-all' policy ... each was a case-by-case assessment and decision.
RQ: The Independent TD Catherine Murphy made a claim using parliamentary privilege that Denis O'Brien was afforded a rate of 1.25pc on his borrowings when a rate of over 7pc could have been applied by the IBRC. What is your response to that claim and the figures given by Ms Murphy?
MA: The claims made by Ms Murphy are not accurate and a review will show this to be the case. I will not comment on the actual interest rate being paid as this will be covered by the commission, other than to say that this piece of information provided by Ms Murphy is grossly inaccurate.
RQ: Are you aware of 'low' interest rates being offered to clients of other State-owned institutions, ie AIB and NAMA?
MA: Other institutions like NAMA and AIB also had similar and the same challenges in managing the fallout from the bubble years and will have needed to deploy bespoke solutions to cater for the numerous variations in loan structures being dealt with.
Also, like IBRC, they needed to manage these within a tight and appropriate governance and control framework, and also, like IBRC, they were expected to achieve the best recovery levels possible taking into account the constraints they were dealing with.
RQ: In his judgment, Judge Donald Binchy noted a meeting between the Minister for Finance and the IBRC in 2012 in which you explained that you had a strong "but not inappropriate" relationship with Denis O'Brien. Can you elaborate on this?
MA: There seems to be a mistaken suggestion by some parties that I and other members of the management team enjoyed some lovey-dovey, super close relationship with clients such as Mr O'Brien that were not businesslike, or to the extent where our judgment was impaired or compromised.
This was certainly not the case. As CEO, my professional involvement and engagement with clients was driven by the requests and requirements of the relationship manager and his or her relationship management team to support them in client meetings and to act as the point of authority for the submission of the larger proposals up through the credit committee and board process.
I did not cultivate personal relationships; there was, however, a focus on conducting business on an open and friendly basis - no different to the way in which any bank CEO would interact with key clients. Although, I have to say that the entering of the bank into wind down did provide an additional level of relationship management difficulty as it required the bank to place significantly more time pressure on clients to repay or refinance in what was a very difficult environment - an aspect that was not well received by many clients.
RQ: Do you regret your approach to managing relations with Mr O'Brien?
MA: No. The objective was to get 100pc repayment of facilities and this was achieved.
RQ: Were there other clients of the IBRC with whom you would have forged a strong relationship?
MA: As you well know, the two clients whose names keep on coming up are Denis O'Brien and Paddy McKillen. I have been accused of relationships with key clients that were not businesslike or to the extent where our judgment was impaired or compromised.
These even include mistaken suggestions of spending time at their holiday houses and flying around the world in their personal jets - all of which are untrue. Any interaction I had with any client, performing or not, was with the objective of obtaining as full a recovery as possible with as little difficulty as possible. Time and again it was proved that this was achieved through a cooperative open relationship management approach - there was nothing untoward in our approach and I am prepared to fully stand over our results.
RQ: Were there lunches, dinners or other social meetings with IBRC clients?
MA: Yes - I can count on two hands the collective number of these with ALL clients of the bank over the three-and-a-half years I was CEO.
RQ: There has been a lot of talk of the poor relationship between the IBRC and the Department of Finance. Can you give us your view?
MA: The new board and management team were brought in with the full approval of the then Minister of Finance to do an incredibly complex and difficult job. The board itself was highly skilled and experienced in all aspects of corporate governance and bank management. The management team was hand picked as one with extensive experience in banking and financial services with a depth in corporate finance, structured finance and loan recovery - many had worked on very difficult and large restructurings/distressed situations (including business closures) previously and I maintain collectively capable of handling virtually any problem put before it.
I said in an interview in July 2013 that there were areas of friction between the bank and the department. Of course other aspects have come out of the recent FOI requests to the Department of Finance, and it seems there was a depth of concern and questioning expressed in internal department documents that was not tabled with either Alan Dukes as chairman or me as CEO - clearly disappointing but unfortunately not surprising based on my experience dealing with the department over the time I was CEO.
I feel the concerns expressed by certain officials in the department were based on a lack of experience on their part in dealing with such situations. It's not that the Department of Finance people were incompetent, it's simply that their detailed knowledge and experience was not in the corporate finance and debt restructuring or recovery area. The situation was analogous to a heart surgeon needing to have a discussion with colleagues on how best to conduct bypass surgery only to find out he is sitting at the table with a group of well-qualified GPs professing they understood exactly what's needed and insisting that their approach be followed - not particularly helpful. There was conflict around the pace of the wind down and we were continually pressured to increase the pace of the wind down irrespective of the fact that the programme was ahead of schedule and irrespective of the obligation the bank had to comply with the requirements of the 'Commitments Letter' between the State and the European Commission - we were in no position to conduct a 'fire sale'.
The bank's position on this was made clear - we would be happy to increase the pace (although our assessment showed it would be more costly for the State to do so at that time than to continue with the more measured process) providing the minister provided the board with an instruction, which was required in order for the bank not to be in breach of its obligations when being reviewed by the European Commission's Monitoring Trustee.
While the willingness of the board and management to comply with such requests was constant, so was the conflict on this issue as the department never delivered the required ministerial instruction thereby allowing the bank to take that path.
The final point I make here is that any concerns raised with the bank were properly responded to and addressed to what the bank believed to be a satisfactory 'end-point'.
On the occasions where the bank received a further request for clarification or review and needed to refer transactions or issues to the Central Bank/Regulator, this was quickly done and on all occasions the Central Bank/Regulator responded with no issues. If concerns continued in the minds of department officials beyond this, we were not informed.
RQ: There appears to have been some resistance to greater involvement by the Department of Finance in the affairs of the IBRC. Can I have your view on this?
MA: There was never any argument on whether there should or should not be a healthy involvement/interaction between the department and the bank. The need for a relationship framework was put in place under the Anglo Irish Bank Act to govern the relationship, to allow the bank to conduct its affairs on a commercial arms-length basis from the minister and to restrict the involvement of the minister in the bank's affairs to areas of 'public interest' only. Close involvement of officials in the day-to-day business of the bank would have created difficulties for the minister in terms of being considered as a "shadow director" and could have created dangers of extra financial exposure of the State. Those dangers continued to exist right up to the point of liquidation.
RQ: Up until last Thursday, it had been believed that a write-off of some €110m had been involved in the sale of Siteserv to Millington, a company owned by Denis O'Brien. Board minutes from the IBRC dating from March 2012 (which had been misplaced by Department of Finance officials and found last Wednesday evening) suggest the figure written off was actually closer to €119m. Are you still happy that the deal secured by the IBRC provided the best return for the taxpayer?
MA: I am not going into any detail around the Siteserv transaction as it will be the subject of specific review. What concerns me, however, is the fact that the department seems to have 'misplaced' important documents and records reflecting their knowledge of activities at IBRC.
The department received all minutes of IBRC board meetings as far back as 2009. They requested, at times, to attend board meetings as an observer and regularly did, as did the Central Bank. The department was also provided with board packs in advance of board meetings which set out in more detail the proposals to be put to the forthcoming board meeting for decision on various matters and transactions. The department officials held meetings, at least monthly, with various members of the banks management team including the CFO, the Chief Risk Officer and the Head of Recoveries.
These covered detailed matters on finance but also, key aspects of portfolio and individual loan sales. Discussions would have reviewed significant sales under way and progress on such.
The Company Secretarial Department within IBRC will have a full record of all the documents sent to the department, as well as all board meetings where department and Central Bank officials attended. This should provide a thorough checklist when searching the various nooks and crannies in the department where these documents have apparently been stored.
Finally on the Siteserv issue, I find it unacceptable that neither the minister nor any of his officials has referred to the fact that the Central Bank had no issues with the Siteserv case when the documentation was referred to it after the July 2012 meeting with the minister. The department was informed of this.
RQ: You say that much attention was paid by the board and management to establishing new processes and controls to avoid any repeat of past failings. How successful were you in doing this?
MA: The extent of the pre-nationalisation damage required an enormous amount of resources and response programmes that could not be implemented overnight. 2009 and 2010 were spent dealing with immediate issues, organisational and management restructuring, development of longer term restructuring plans and the eventual determination that the bank should be put into wind down for eventual obliteration from the Irish financial landscape.
2011 and 2012 then moved on to a critical body of work that included the sale of the US portfolio (work which actually began in late 2010) and progressive recovery of significant value through to the point of liquidation. The scale of the challenges and timetable agreed with the European Commission was such that restructuring (to some extent), management and execution needed to be run concurrently.
I think the new board and management did an outstanding job. I am happy to stand over the work we did.