Friday 23 February 2018

Banking Inquiry: Former Anglo director describes customers' rush to withdraw money when shares collapsed

A workman removing signage from Anglo Irish Bank headquarters at St Stephen's Green in Dublin in 2011
A workman removing signage from Anglo Irish Bank headquarters at St Stephen's Green in Dublin in 2011

Clodagh Sheehy

Anglo Irish Bank staff rushed to usher customers off the street into back rooms to avert a run on the bank after the collapse in bank shares, the Banking Inquiry was told today.

Peter Fitzgerald former Director of Corporate and Retail Treasury at the bank was describing the unprecedented rush to withdraw money when the shares of Anglo collapsed on St Patrick’s Day in 2008.

“We were moving customers that called to our savings branches off the street and into meeting rooms in the back of the building to avoid precipitating a crisis by people seeing a queue outside the bank on St Stephen’s Green”

He explained that the bank had to field thousands of phone calls from concerned customers and they ran the 'very real risk' of not being able to deal with the volume of calls.

The short run on the bank lasted for about four days and 'went broadly unabated'.

An announcement by the Financial Regulator of an investigation into short term selling, he said,  caused the share price to rise again.

After the announcement 'the withdrawals abated and eventually stopped', he added.

Mr Fitzgerald said the collapse of Lehman Brothers six months later on September 15th that year was the “final event that shook the confidence of customers in the safety of their savings.

“It is my view that the bank experienced a full-blown run on customer deposits from that period up to 29 September 2008.”

Since most of the corporate and retail customers dealt with the bank by phone however “this run never fully manifested itself in the public domain”, he pointed out.

Peter Fitzgerald told the Committee that in hindsight the business model of Anglo contributed to its downfall.

It meant that when global liquidity became a problem the underlying structure of Anglo “compounded the stress to a much higher degree” than for other banks.

Anglo had been lauded by the markets as a highly profitable business model with a spectacular balance sheet growth  and put forward as an example to competitors.

“It was difficult to perceive that everyone internally and externally could be so wrong” said the former director.

Mr Fitzgerald  was critical of the Financial Regulator and said the office of Financial Regulation “did not seem to have appreciated the growing funding risks in the Bank  in 2008 until right up to the point that the guarantee was warranted”

This was despite detailed information being sent to it daily by the risk function of Anglo throughout most of 2008.

He believed that the “inherent weaknesses” in the Anglo model “ultimately contributed to the collapse and nationalisation of the Bank in 2009.

He fully accepted responsibility for his part in that failure and its consequences on the Irish State.

“It is something that I will always regret”, he added.

Businessman Sean Quinn’s Contracts for Difference with Anglo Irish bank were among the “factors that seriously compounded the risks” for the bank said Gary McGann.

Mr  McGann who was a non-executive director from  2004-2009 told the committee the build-up of the Quinn CFDs and then the worldwide liquidity collapse had compounded the risks.

Mr McGann stressed that the Financial Regulator routinely had reports from the bank and was fully briefed from the outset on the Quinn CFD’s and the banks efforts to deal with them.

In response to a question from Deputy Kieran O’Donnell he said he did not agree the CFD’s were a catalyst but they were certainly a “strong” factor in the bank’s demise.

Matt Moran, former Chief Financial Officer, Anglo Irish Bank said the Bank’s position was complicated by the rumours of businessman Sean Quinn’s economic interest.

“Some market participants believed that Quinn was under financial pressure. If true, they could seek to exploit his weakness by driving the Bank’s share price lower.”

Mr McGann stressed that  “Looking back, the bank misjudged the risks that built up in the expansion of lending, particularly property lending, in the years up to 2009. “

He explained how it was clear in hindsight that accounting standards, as well as many other factors did not help in identifying and reporting on risks.

He said that on the night of the Bank Guarantee he believed they were dealing a liquidity issue but at no time did they believe they were dealing with a solvency issue.

Financial regulation in this country was “unbalanced with a substantial and quite intrusive, self-confident consumer focus”.

Former Group Chief Executive of Irish Life and Permanent plc, David Went, was heavily critical of the Financial Regulator.

“In general it is my view that the Regulator failed to fulfil its prudential function.”, he added.

While the crisis was due primarily  to a failure on the part of management and boards of banks that “I am sure that different decisions at different times by the Regulator could have reduced the severity of events.”

Mr Went conceded that while IL&P appeared to be well funded at the end of 2006 events subsequently proved its funding model “absolutely inadequate”.

David Gantly, former Head of Group Treasury, Irish Life and Permanent/Permanent TSB told the Committee he believed that his company’s  funding strategy “was balanced and robust”.

The composition of the IL&P’s liquidity “changed significantly between 2007 and September 2008 driven by market developments.

“By late 2007 a significant amount of our short-term funding sources had either dried up or were severely restricted.”

 The final cliff, he added,  was the collapse of Lehman Brothers in September 2008 which he described as “the straw that broke the camel’s back”.

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