Ex-CEO's radical Anglo plan was nearing final stages
The cost of saving Anglo Irish Bank could have been reduced by as much as €8.64bn under former CEO David Drumm's radical plan to "burn bondholders" at the end of 2008.
On December 15, 2008, Mr Drumm was planning a radical solution to the crisis at the bank with an overhaul of its balance sheet, according to a recording of a detailed conversation he held with fellow executive John Bowe on that date.
The taped call is the earliest evidence we have of any plans to allow losses at an Irish bank to fall on bond investors – other banks and insurance companies that invest in bonds, a type of loan used by banks and companies.
The plan involved slashing the bank's bond debt and bringing in state or private sector investors to provide €2bn in fresh capital at the same time.
Mr Drumm planned to "burn bondholders" by offering them 50 cent in the euro if they would cancel the rest of what they were owned by Anglo by handing back their bonds in exchange for the cash, according to the call.
It was intended to be a "voluntary" buy-back where bondholders are not pressured to sell except by their own fear of losses down the line if they don't accept a deal.
It would have been a smart way to slash the bank's debt without going through a messy default.
Buying bonds at 50c in the euro means €1bn of bonds could be bought and cancelled for €500m.
At the time Anglo's debts were covered by the government guarantee so the buy-back offer needed to be higher than the true state of the bank justified, but the call makes clear the plan was at an advanced stage.
Mr Drumm told Mr Bowe that both the Department of Finance and the Central Bank were aware of the plan.