Friday 20 April 2018

Banking inquiry: I bought into the feel-good factor - financier Derek Quinlan

Derek Quinlan
Derek Quinlan

Clodagh Sheehy

Financier Derek Quinlan bought into the “feel-good factor” at play in Ireland in the run up to the economic crash and had not seen the crash coming, he told the Banking Inquiry.

Mr Quinlan, whose  “Quinlan Private” (QP) partnership had assets of about €10bn by 2008, said with hindsight it was now clear that the growth of the property market was unsustainable.

Mr Quinlan was one of the faces of the Celtic Tiger.

Now living in London, at the time Quinlan Private put together some of the biggest deals done during the boom including the purchase of London's Savoy hotel and the purchse of the Jury's Inn chain for over €1bn.

He was also one of Anglo Irish Bank's biggest client's.

He personally was “deeply saddened at the fall out from the banking crisis” and its devastating impact on people.

He said he genuinely did not believe that the market was “in danger of collapse” right up to the time of the Lehman crash in 2008.

Mr Quinlan, who stepped down as a director of Quinlan Private in 2009, also told the committee he had not realised that Irish banks were giving long term loans based on short term funds for themselves.

“If I had known this at the time I would not have invested in Irish property”.

He stressed that neither the Irish banks, the Minister or the ESRI had seen the crash coming and had envisaged a very bright future for the Irish economy..

Mr Quinlan, who was one of the highest fliers of the Celtic Tiger, said he personally was a big believer in the idea of Ireland Inc.

The former tax inspector made his first big property investment of €5m in the Square Shopping Centre in Taillight in 1990 and told the committee he estimated he had arranged for €250m to be invested in the IFSC.

He had no details of corporate hospitality provided by himself or the senior management team of QP and did not keep notes of political donations.

 He said he was not personally involved in QP dealing with financial institutions “save for some limited exceptions”  and had retired from QP in 2009 “to concentrate on the deleveraging of my investment portfolio.”

On the advice of KPMG he had moved his home from Ireland abroad “so I could maximise the returns to my creditor banks”

He said Anglo Irish Bank had been QP’s principal banker but it also used other banks.

Mr Quinlan said he had an on-going private commercial relationship with NAMA but “due to the nature of this relationship I do not believe it is appropriate for me to comment on the institution at this time.

Read More: Derek Quinlan's opening statement

Earlier, a former advisor to the late Brian Lenihan has denied he was “overruled” by Taoiseach Brian Cowen on the night of the Bank Guarantee.

Cathy Herbert has told the Banking Inquiry “it sounds strange to me that he would have said he was overruled”.

Ms Herbert stressed that while there was “no doubt” Mr Lenihan was “strongly in favour” of the nationalisation of Anglo Irish Bank on the night, once the Government decision was made for a blanket guarantee he would stand by that.

“It doesn’t sound right to me because he knew how government decisions were made,” she added.

She explained the discussions between Mr Cowen and Mr Lenihan that night were in the nature of a government decision.

Mr Lenihan would have known that once a decision was made “it was his job to go out and defend that decision and execute that decision”.

Read Brian Lenihan's special adviser Cathy Herbert's opening statement here

He would have understood that as a member of Cabinet it was”his duty” to stand by that decision.

Ms Herbert said as a special advisor her main duty was to advise the Minister for Finance on “the communication of complex and difficult government decisions”.

The Minister did not ask her to play any role in the formulation of banking policy to to attend any meetings about decisions relating to the banks.

She said from the knowledge she subsequently acquired it was clear that many government advisers “were hampered in their analysis of the crisis by their unswerving belief that our banks were fundamentally sound”

They were also hampered by “their failure to consider the possibility that their might be a crash rather than a soft landing in the Irish property market.”

In the end, she said, “ the problem for all who grappled to come to terms with the crisis was the speed at which events overtook the solutions being considered.

“Each course of action opened up its own Pandora’s Box creating another set of problems that had to be managed.

On the night of the guarantee she was at government buildings with Mr Lenihan.

She had only spoken to the former Finance Minister at the end of the evening as he was preparing to leave.

"My recollection is that he was worried about whether or not the decision they had taken would be enough to stabilise the banks.”

The advice to government on the night she added was that the banks were fundamentally sound and well placed to ride out what was expected to be a modest correction.

She described the recapitalisation of the banks as “the running sore of the crisis” where every step of progress was “swallowed up by another gaping hole in the banks”.

On the bailout she said he was clearly understood by Government and the Central Bank that the ECB “wanted us to find our own way of addressing our banking difficulties.

“The guiding principle was that no bank should be allowed to fail. That strongly held position by the ECB was a key factor in the decision to guarantee our banks and it was communicated indirectly and, I understand, directly to the government at the time.”

Ms Herbert insisted Mr Lehihan was “utterly scrupulous” in any dealings with property sector key players.

"From the outset, the Government made clear it didn’t want to take over the banking system and I recall the Minister’s anxiety that, for the sake of our reputation, at least one of our institutions would successfully raise private capital as quickly as possible," she said.

Ms Herbert said Mr Lenihan was “suspicious” of the banks.  “It was extraordinary the system in the banks seemed to be terribly inadequate.

“It was difficult for him to know at times whether he was being misled or whether it was just ineptitude…..but yes he was suspicious yes.”

She added that it soon became evident that Bank of Ireland was to be our only hope: in terms of its exposure to bad property lending, it was a blow to discover that AIB was not far behind Anglo.

"The downward spiral of property values and the ever deepening recession throughout 2009-2010 meant that the amount needed to repair the banks kept growing," she said.

"The fact that the banks’ information about their loan book was so poor added to the difficulties.

"It was shocking to discover that they didn’t know that their biggest clients had borrowed from other banks for the same projects: and so “cross-collateralisation” was another banking phrase we all came to understand."

This afternoon Brendan McDonagh, former Director of Finance, Technology and Risk, National Treasury Management Agency and Michael Somers, former Chief Executive, National Treasury Management Agency will give evidence.

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