Brian Lenihan was out of his depth
It's December 15, 2008. Ireland has taken the disastrous decision to give a blanket guarantee to all of its banks on the night of September 30, 2008. At first the guarantee worked, as so-called "fast-money" flooded into Ireland's banks as the State guarantee made us appear a safe haven for deposits. Financial Regulator Patrick Neary had briefed politicians about how €65bn had flooded into Irish banks since the guarantee. Ireland's novice Minister for Finance Brian Lenihan hailed the move as "the cheapest bailout in the world so far" flanked by his predecessor Brian Cowen, Ireland's flawed Taoiseach. But only a few weeks later, inside Anglo, the safety of the state guarantee is already unravelling. The global market can see through the fallacy of a small country guaranteeing its bloated banks. Investors are beginning to differentiate and billions are flowing out of Anglo as deposits flee out the door. The smart money no longer believe Anglo or Ireland. The conversation here is between David Drumm, Anglo CEO, and John Bowe, head of treasury – the engine room of the bank. They are discussing going on an investor road show to raise more money. The talk then turns to what Anglo needs to survive and what they must say to Lenihan, an ordinary man thrust into making crucial financial decisions despite having little background in the field.
JB: "How did you get on today?"
DD: "Today was, there's two aspects to today. One was a meeting with Kevin Cardiff [Department of Finance secretary general] at one, which was just fucking horrendous because they're just sort of saying: 'Yeah. Hmmm ... You show us ... ' By the way, they confirmed unequivocally: 'You are of systemic importance. You are included in this capital raising.' There is no doubts about that. 'But what we'd like to see from is we'd like to see, em, evidence that you've got some market support, so and we're going to verify that evidence. We're going to get on the road and get people lined up.'
"And we said: 'Look, we told you that's not going to work, you need to tell us what you are doing.'
"They said: 'Well, get it on a hypothetical basis. And then when you come back, we've a big long process to go through to sort of approve you for capital, including due diligence'."
JB: "Right, okay."
DD: "Which is insulting to the intelligence because they have guaranteed all our liabilities."
JB: (Laughing) "Yeah."
DD: "So we just took a lot of notes and we left, and, em, presented that to the board at two o'clock. And then we said: 'Look, we'll just go on the road and we'll solicit this interest.' Which is what we are doing. And I'm meeting the Minister [Minister for Finance Brian Lenihan] at nine in the morning."
DD: "So, I'll probably punch him [Lenihan]. And I mean punch him, as if to say [to Lenihan]: 'What are you actually doing? Because you are creating an awful lot of uncertainty and, em, can you just, can we move the game where you give us a little bit more clarity than you have given in relation to availability of capital'."
JB: "Well, I think, I think there's a, the bit that I, I dunno, you'll have to judge it, but the bit I'd be saying, if I could, is: 'Look, do you realise that your words, every word is dissected? Do you realise that when you talk about banks from a systemic point of view, that the market, the press, the media, have excluded us? Do you realise that limits have been cut on the back of your words over the weekend?"
DD: "Yeah. I'll, I'll, I will outline that to him, although I have a sense that the Government Press Office would have been busy today, making sure tomorrow's media reflect the fact that Anglo is included – just by virtue of what I was told this morning.
DD: " ... will keep the ball rolling, will tell the media today, during the day: 'No, no, no, no, no. Anglo is included. So you'll find that tomorrow's media will be more, will be less angry toward us."
JB: "Right, okay."
DD: "I can, I won't promise you that. But that's my sense of it."
DD: "Really, what I want to know is: 'What's this about process and due diligence and all this? You're putting the Government guarantee at risk with your delays ... "
DD: "' ... and your lack of action. And what's this about having to go through due diligence? You made that decision on the 29th of September. You've told the fuckin' world we're all solvent. You've made, you're actually, you're pregnant on that.
"'Now, can you protect your hundred billion guarantee of us, by writing a two or three billion cheque and get on with it.'"
JB: "'Which will be the cheapest cheque ... '"
DD: "'You ever wrote ... '"
JB: "' ... you ever have to write on us'."
DD: "Yeah. So my goal tomorrow is to get that through to him: 'Do you understand? Can I teach you just one piece – not in that language obviously – but can I teach you just one piece of banking here? When you have guaranteed somebody's entire liabilities, it's smart to write a very small cheque to stop them being called."
JB: "Yeah ... Yeah."
DD: "'Which bit of that don't you get?"
DD: "Because I don't think he gets it.
JB: "Well the problem is he's trying to be, he's trying to be mean in the way he is, eh, eh, let's say dispensing the government largesse."
DD: "Uh-hmmm ... "
JB: "So, instead of putting an army on the field, which obliterates the opposition and has a low casualty rate, he's sharing it out in small dollops ... "
DD: "And they're being shot to death – every one of them."
JB: "Yeah, yeah."
DD: "That's it. That's exactly what's happening. Well put. They are dying a million deaths."