Saturday 21 April 2018

'€6bn fix' was designed to make bank look like less of a basket case

Donal O’Donovan

THE "€6bn fix" as David Drumm called it. The back-to-back deposits that moved between Anglo Irish Bank and what was then Irish Life & Permanent in the dying days of September 2008 were among the oddest features of the banking collapse.

The process of moving money between the banks was cumbersome, but the rationale behind it was fairly basic.

Anglo Irish Bank wanted the world to think it was less of a basket case than it was. One way to do that was to show that it was holding on to an impressive level of hard-to-attract corporate deposits.

That would be crucial when a snapshot of Anglo's finances was due to be taken on September 30 – the day after the call recorded in the latest Anglo tape.

The problem was that the bank had been able to do no such thing. Deposits were flying out the door at a rate of €1.5bn a day in the last week of that September.

The solution was to fake it. From September 26, Anglo Irish Bank began moving cash held in an Isle of Man-based unit out of the bank and into Irish Life & Permanent.

There the cash was described as fairly routine, though unusually large, interbank deposits, which are common among banks but tend to be left for very short durations.

It gets more controversial when the so-called "back-to-back" deposits are moved back into Anglo.

When it came to lodging money back to Anglo, it was done by IL&P's Irish Life Assurance arm.

It meant that instead of the cash returning in the form of unimpressive inter-bank deposits it was made to look as though Anglo was holding on to high-quality corporate deposits.

A variation of the same circular movement between the two banks had been used before, though never on quite the same scale.

However, as the latest tape reveals, by September 2008 the money was being made to wash through the system at a ferocious pace to keep up the facade.

In fact, we have since learned that by September 29, when this latest tape was recorded, the gig was effectively up.

Anglo came up with €2bn on the morning of September 29 to channel through IL&P – along with money that moved earlier in the week that brought the total to €3.2bn, well short of the target.

But as the day ground on, it became clear it couldn't find the full €6bn it needed to flatter the next day's numbers.

As John Bowe remarks, the circular deals were becoming "hard to do".

By the evening of September 29 Anglo was literally running out of cash – and just in time for that crucial end-of-year snapshot of the balance sheet.

Within hours, though, the situation was to reverse completely.

On September 30 Anglo was able to funnel no less than €4bn to IL&P and its balance sheet showed a healthy €7bn of sought-after corporate deposits when the accounting snapshot was finally taken.

So, what had changed? Anglo was saved because September 29 was the night of the bank guarantee – a move that we know brought international deposits pouring back into the stricken bank.

Irish Independent

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