Sunday 18 November 2018

John Bowe showed remarkable foresight on the state of the financial system

Peter Flanagan

IT is easy to be outraged at the bravado displayed by John Bowe in his phone conversations with former Anglo Irish Bank executives David Drumm and Peter FitzGerald, but it is remarkable just how prescient his comments on the state of the Irish financial system were.

When he indicates that the €7bn loan the bank was looking for would never be paid back, he was dead right.

Whether Bowe realised it or if he was just careless with his words, the reality was Anglo would never be able to pay back the loans it got from the State.

The taxpayer has not got a single cent returned of the near €30bn it ultimately put into the lender and never will.

Bowe had been involved in negotiations with the Central Bank. Fitzgerald had not been involved in the negotiations and has confirmed that he was unaware of any strategy or intention to mislead the authorities. Mr Bowe denies that he misled the Central Bank.

Anglo ultimately helped bankrupt the State, but its negotiating position with the Government, as recounted by Bowe, worked a dream for the bank.

When Anglo approached the Government first, it sought a €7bn bridging loan. With credit markets frozen in the days immediately before and after the collapse of Lehman Brothers in September 2008, the bank apparently characterised its problem as a short-term liquidity issue. In essence, the bank was still viable and just needed a few quid to keep it going until markets settled down. In reality, the lender was heading for insolvency.

Bowe characterised the €7bn loan as a way to “pull (the Government) in”.

“You get them to write a big cheque and they have to keep, they have to support their money,” he said.

Again, he was absolutely right about this.

If taxpayer funds had been doled out at that point, the chances of the Government letting Anglo go bankrupt would have diminished greatly.

It should be remembered that the Government didn’t put the almost €30bn that ultimately went into the bank in one fell swoop. After nationalisation it went in in dribs and drabs. Every time, the State was in essence throwing good money after bad.

It was the classic gambler’s mentality. When the money lost is so great, you keep betting in the hope the market will turn.

Bowe’s observation that if the initial figure was too high, it “kind of spoils everything” was correct. If Anglo had sought the tens of billions that have gone into it in one go, the likelihood is that then Finance Minister Brian Lenihan would have balked and shutting the bank would have become a realistic option.

It wasn’t just Anglo’s affairs with the State that Bowe seems to have been acutely aware of.

Clearly he knew the wider banking sector was in serious trouble – something the public was only vaguely aware of at the time, if at all.

He was clear-eyed enough to know that his employer was not an “easy sell to anybody” – probably because of the parlous nature of the bank’s balance sheet.

But he also realised that Anglo wasn’t the only Irish lender in big trouble.

He claimed that the “home interest” – a reference to Bank of Ireland and AIB – didn’t have the “financial standing” to buy Anglo.

As we were to discover, that was because the two banks had effectively busted themselves.

And as for his employer’s ultimate fate, Bowe was once again on the money. “It could be breaking it up and selling individual books, it could be nationalisation,” he said.

The bank was nationalised in January 2009, individual loans were transferred to NAMA, while other loan books have been sold off.

The conversation ends with Bowe stating that nationalisation would be a “very slow process”. Bowe seemed to believe that, if nationalised, it would be five years before the State sold it off. In the end it would be only four years.

But by then the bank wasn’t sold off, it was wound up.

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