Thursday 27 July 2017

Remember how Ireland was ruined by bankers

Never forget September 29, 2008, when Brian Lenihan was fooled into taking away young Ireland's future, says Daniel McConnell

IT was the night that modern Ireland was changed forever. On September 29, 2008, the State decided to guarantee the loans and deposits of the Irish banks, amid fears that the entire sector was on the verge of collapse.

That panicked decision, made by two nervous and ill-informed ministers, Brian Lenihan and Taoiseach Brian Cowen, was in turn delivered as a fait accompli to the rest of the Cabinet late into the night. It led to the downfall of this country.

At the heart of the chaos, the panic was the toxic Anglo Irish Bank, whose dealings with developers have bankrupted this country.

It has been some 29 months since that guarantee was announced. The €85bn IMF/ECB bailout; the State's deep involvement in the Irish banking system; massive transfers of capital; nationalisations; the Nama scheme to rescue the sector from the consequences of its own disastrous lending policies; up to the events of last week -- all stem from the fateful decisions made that night.

It was the night that the mistakes, the debt and the greed of a small group of elite bankers became the problem of every Irish man, woman and child. On that night, the Celtic Tiger died.

Both Lenihan and Cowen have defended themselves strongly against accusations that any relationships they had with bankers led to the Government's decision to offer a near-blanket guarantee to the liabilities of the Irish banks. They repeatedly argued that this decision was taken in the national interest.

But was it considered in the national interest to offer such an extensive guarantee? Messers Cowen and Lenihan have tended to answer that they took this decision based on the best advice available. But we now know that in fact that is not the case.

Now, as we ready ourselves to go to the polls, remember the decision to offer the blanket guarantee was taken against the advice of highly paid experts Merrill Lynch, who were ensconced in the Department of Finance that weekend.

It was also opposed by senior officials within the department itself, who had written months before that such a blanket guarantee "which would expose the Exchequer to the risk of very significant costs (is) not regarded as part of the toolkit for successful crisis management and resolution".

It was an extraordinary event: the rich buccaneering captains of the free market coming cap in hand, begging the State for help.

By the following morning, their private negligence had become a public noose -- one that has all but choked the life out of this country.

In the two-and-a-half years since the €440bn blanket bank guarantee, much has been written and spoken about what happened, how it happened and under what circumstances.

There is now no doubt whatsoever that that particular Monday will always be remembered as the day the Irish people were tricked into the greatest swindle in the history of this State.

More and more detail has emerged bit by bit about the true sequence of events. And the more we know, the more it is clear that the Government was conned by the bank chiefs who came knocking at Government Buildings that night.

Yet many questions still remain. Central to those is the role and actions of Anglo Irish Bank on that most crucial day.

Since the collapse of Lehman Brothers two weeks previously, Irish banks had been under huge pressure because of their over-reliance on cheap international money.

Months before the collapse of Lehmans, a secret document drawn up by senior officials, headed by William Beausang in the Department of Finance, stated clearly that a legally binding blanket guarantee would pose grave risks to the taxpayer.

By the close of business on Monday, September 29, following a mauling on the stock exchange, Anglo was on the verge of collapse. It was about to be placed into involuntary liquidation by a German bank, which wanted its money back. Anglo didn't have the cash. Something needed to be done.

At about the same time, Merrill Lynch executives presented a report to the Government, saying a blanket guarantee "could be a mistake and hit (Ireland's) national rating and allow poorer banks to continue".

Merrill Lynch also said that the liquidation of one of the banks "was the worst thing that could be done -- accelerating trouble for all other institutions".

That report was only received by senior official Kevin Cardiff in the Department of Finance at 6.43pm on the night of the guarantee. This is a crucial point.

Merrill Lynch then warned that the report had been undertaken in a very "short period of time and is based only on conversations" with the three institutions Anglo Irish, Nationwide and IL&P.

It said there was an immediate liquidity issue which needed to be addressed "most notably by Anglo, which may have a net deficit as early as Tuesday, September 30".

Up until recently, it was understood that there had been no contact between Anglo Irish Bank and the Department of Finance, the Central Bank or the Taoiseach over the weekend or in the hours before the crisis talks in Merrion Street. But, as we know now, that wasn't the full story.

Shortly after 1pm on that Monday, Anglo chairman Sean FitzPatrick and CEO David Drumm, who were nervous and desperate, arrived at the headquarters of Bank of Ireland after being granted a meeting with its then CEO Brian Goggin. In his sixth-floor office, there was little chit-chat; they got down to business immediately.

FitzPatrick and Drumm asked for BoI to take Anglo over. This crucial revelation changes the complexion of events on that Monday entirely. After a quick discussion, the answer was a firm no.

Now in a panic, the two men left quickly. They then put the offer to Eugene Sheehy, the then CEO of AIB, the country's largest bank. Again the answer was no. Anglo was out of road. Disaster was imminent.

Watching the massacre of Irish banks on the stock exchange that day, Finance Minister Brian Lenihan and officials in his department were readying themselves for some form of intervention. But what happened next took the Department of Finance by surprise.

Lenihan said: "A request came through from the chairmen and chief executives of the two main banks, Allied Irish and the Bank of Ireland, to meet me and the Taoiseach about their problems."

After the markets closed, with Anglo virtually dead and the rest of the banks decimated, Sheehy and chairman Dermot Gleeson of AIB and Goggin and chairman Richard Burrows of BoI sneaked into Government Buildings, careful not to be seen.

Their request to meet and their collective arrival means they were in contact with each other during the afternoon, once they had both rejected FitzPatrick's offer to take over Anglo.

The two main banks -- normally fierce rivals -- now got together to convince the Government to bail them out. They agreed a strategy: convince the Government to nationalise Anglo, in the hope of giving themselves breathing space.

After 9pm, they met Cowen and Lenihan.

"What surprised me at the meeting was how great the funding pressures were throughout the system. That was the critical issue. The fact was that the funding available to any of the banks in the system was at best a matter of weeks," Lenihan said.

The bankers outlined how precarious their situation was, but they told the Government only what they wanted to tell it. Neither Sheehy nor Gleeson from AIB nor Goggin nor Burrows from BoI made any comment, reference or disclosure of the Anglo Irish approach earlier that day. That has been confirmed by Lenihan, Cowen and the Department of Finance on several occasions.

Lenihan has gone further. "If such a comment was made to an executive of Bank of Ireland, they should immediately report it to An Garda Siochana," he said.

Why did the bankers not tell the Government about the Anglo approach? What were they hiding? Was the question even asked by the Government? If not, why not?

Why, even when they were on their knees, were the banks still so selective in telling the Government about how exposed they were to the property market? Why didn't they reveal how much danger they were in, given the global credit squeeze?

"We were very suspicious about the level of bad debts in the banks linked to property sector, but we weren't in a position to form a judgment on that," Lenihan said.

What is most alarming is that it is clear that Lenihan and Cowen made the biggest decision ever made by an Irish government in an information vacuum. They had no idea what they were agreeing to.

There was another concern too. The banks had form in not telling the Government the full truth -- as shown in the previous Dirt and over-charging scandals and the ICI affair in the Eighties.

"They tend to minimise their exposures, they have to maintain confidence in their system, so they are reluctant to tell you when there is a real difficulty," Lenihan said of the bankers' demeanour that night.

Despite failing to disclose the approach by Anglo Irish Bank earlier in the day, the AIB and BoI chiefs urged Lenihan to nationalise Anglo and Michael Fingelton's Irish Nationwide immediately.

"One of the bankers present suggested that we should examine the option of nationalising Anglo Irish and one other institution," Lenihan said.

That suggestion was quickly met with a fiery and typically bolshie response from Brian Cowen -- the man on whose watch as finance minister most of the worst crimes were committed. "We're not f**king nationalising Anglo," he shouted as he slammed the table.

"We weren't convinced that the message a nationalisation would send out in the circumstances of funding declining in all the banking system would have been a strong message for the country," Lenihan added.

We don't know the full ins and outs of what was said that night. However, only one of two possible alternative conclusions can be reached.

Either the two biggest banks lied and scammed the Government into saving them, deliberately withholding crucial information about Anglo and their own debt problems or they were simply incompetent -- unaware of how bad their own situations were.

They were either liars or fools and neither scenario is an attractive one. Whichever it was, the bankers left Government Buildings that night having spooked the Government into action.

Anglo would not be nationalised immediately. A plan was agreed that AIB and BoI would put up €10bn to keep it going until the following weekend, when it would more than likely be taken into state control and they would get their money back. A blanket guarantee of all deposits and debt totalling €440bn would be introduced.

Other cabinet ministers were called after 1am and presented with a fait accompli, being told the matter could not wait until the morning and that their consent was required immediately.

Green Party leader John Gormley, who had to be woken by gardai from Ringsend, claimed some months back in a radio interview that the plan had actually been agreed the day before, but he has since rolled back on that claim.

In any case, in the short term, the plan succeeded in easing the pressure on the banks but, as we all know to our cost, it has laid a huge burden on all of our shoulders for years to come.

Ultimately, Anglo was nationalised anyway a few months later, in January 2009. All four of the bankers who called into Government Buildings that night are gone and Sean FitzPatrick has been declared bankrupt.

However, despite receiving more than €50bn in taxpayers' money, the attitude of the banks has changed little since September 2008. They are still treating the Government and the people with contempt -- increasing interest rates, taking €50m in bonuses since the guarantee and refusing credit to struggling businesses. The banks continue to hold the two fingers up to Nama, the Department of Finance and the Irish people.

Last November, the Government agreed to plough €17.5bn of the National Pension Reserve Fund into the ever-deepening black hole of the Irish banks.

Then, just before Christmas, because of its own calamities, AIB was effectively nationalised by Brian Lenihan, with the minister affording himself extraordinary legal powers over the banks.

Then, last Tuesday, Anglo Irish Bank announced record losses of €17bn and its chairman Alan Dukes said it and the other banks may yet need another €15bn.

Finance Minister Brian Lenihan announced that he was deferring a €7bn capitalisation of the banks as agreed with the IMF, dumping that poison chalice on to his successor.

Whoever does take over as Finance Minster -- most likely Michael Noonan -- he will have some task in substantively adjusting the bailout deal, when he goes to Brussels for the summit in March. Nama is now too far gone to be scrapped and all of us are paying higher taxes to pay for the mistakes of our banks.

In 2011, with no bankers in jail, no credit in the economy and our finances in crisis, never have the Irish people been so abandoned by those charged with protecting their interests -- the Irish Government.

Remember that when you go to the polls.

Sunday Independent

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