Friday 25 May 2018

Regulator 'egging Anglo on' over €7bn loan, said Bowe

Executives feared move to boost position with IL&P cash would be viewed as 'market abuse'

Gavin Sheridan and Tom Lyons

ANGLO Irish Bank executives voiced concerns that a move to temporarily boost its balance sheet with €7bn from Irish Life and Permanent (IL&P) could be seen as "market abuse".

But head of treasury John Bowe convinced himself that the Central Bank and Financial Regulator were "effectively egging us on – for Irish banks to help each other".

And he was preparing a document to persuade superiors in the bank that the deal – elements of which were later described as "completely unacceptable" by the Financial Regulator – was normal practice.

Revealing conversations recorded on the Anglo Tapes and published for the first time today show the scramble inside the bank as it veered towards nationalisation in early 2009.

Mr Bowe can be heard in conversation with Fiachre O'Neill, a compliance executive in Anglo, discussing how to explain Anglo's €7bn deal with IL&P in 2008.

It has since been dubbed the "circular loan controversy", and saw billions flow around in a loop from one bank to another, in order to make Anglo's balance sheet look in a stronger position that it actually was.

The conversation reveals an incredible scenario of "IL&P coming to us and saying can you help us over our period end, and we saying can you help us over our period end, the Central Bank and the Regulator effectively egging us on – for Irish banks to help each other".

The Central Bank has strenuously denied that it encouraged or sanctioned this transaction, which Mr Bowe admits was potentially "market abuse".

But even in January 2009, before details about the transaction emerged publicly, Mr O'Neill tells Mr Bowe that he is already aware that the Financial Regulator is asking questions.

"You should be aware that the Regulator has asked us for our legal opinion as to whether there is market manipulation," he said.


Mr Bowe then raises the ante and says: "Market abuse . . ."

Mr O'Neill responds: ". . . or market abuse, in terms of this transaction. Just so you're aware that that's in the background as well."

Earlier in the conversation, Mr Bowe says that the arrival of bank's new chairman, Donal O'Connor, and non-executive directors Alan Dukes and Frank Daly had led to a new-found "crusade on transparency and governance".

He states he believes the new directors were concerned "you did it this way 'cos you get a better rating and was that not misleading the market?"

The Anglo executive also says that when Mr O'Connor heard about the transaction, he reacted very negatively and said "Ah Jesus, the government are going to throw their hands up and say, 'Ah, look we can forget about all this and Jeez this is a mess.'"

But Mr Bowe says he would be "crafting a document" to explain away the €7bn deal with IL&P as something that is "typically done, to boost deposits in all banks coming up to year end".

This transaction is the subject of an ongoing Office of the Director of Corporate Enforcement investigation, although no decision has been made on it yet.

There is no suggestion that Mr O'Neill knew about the IL&P transaction in advance or had any role in it.

The Financial Regulator and Central Bank have also strenuously denied encouraging or knowing about the IL&P deal.

When the deal emerged publicly in February 2009, the Financial Regulator said in a statement: "The authority utterly rejects any suggestion that this would have constituted encouragement of the type of circular transactions that have been referred to in recent reports and statements concerning Anglo Irish Bank and Irish Life & Permanent.

"Circular transactions, unlike normal inter-bank lending, do not provide liquidity to financial institutions," it added.

"The authority views the various issues that emerged in relation to the transactions involving these institutions as completely unacceptable."

Tom Lyons is Deputy Business Editor of the Sunday Independent and Gavin Sheridan has been covering the Anglo tapes for the Sunday Independent

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business