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Friday 19 January 2018

Banks 'lied' about scale of losses in crisis talks

How taxpayers had to pick up €440bn tab for blanket pledge

Michael Brennan

Michael Brennan

IRELAND'S bailed-out banks lied about the scale of their losses in crucial talks that led the Government to guarantee all their deposits.

It was on the basis of this misinformation that taxpayers were left picking up the tab for the €440bn state guarantee scheme.

The top civil servant in the Department of Finance yesterday admitted that the country's banks were "likely to have been dishonest" in their dealings with the Government in the run-up to the blanket guarantee. Department secretary-general Kevin Cardiff said Anglo Irish Bank was "extremely disingenuous" in several presentations to the Government about the strength of its loan book and its capital-raising powers right up until its eventual nationalisation in early 2009.

However, he attempted to qualify his remarks by saying the banks may have been deluding themselves over the scale of their problems.

"I'm not clear if there was downright dishonesty," he said.

"I'm honestly not going to say who I thought was lying to me or not lying to me. But they may have been lying to themselves," he said.

At the Dail's Public Accounts Committee (PAC), Mr Cardiff raised questions about the truthfulness of the information provided by other banks about the state of their loan books.

"There certainly was a sense in which it took a while for reality to dawn in some of the institutions and I think that in some cases that people were likely to have been dishonest or disingenuous and in other cases, people believed in the line they were producing," he said

In a day of dramatic new revelations, it also emerged that:

  • Disgraced lender Anglo Irish Bank was just hours from going under when the Government introduced the blanket bank guarantee scheme.
  • Anglo wanted to take over troubled Irish Nationwide just 10 days before the Government stepped in to save both lenders.
  • The heads of AIB and Bank of Ireland urged the Government to introduce the bank guarantee scheme on the night of September 28.

Mr Cardiff also revealed to the PAC that the nationalisation of Anglo and Irish Nationwide was being considered up until 7pm on the evening of the guarantee.

He said the claims from Anglo -- nationalised four months after the guarantee -- were treated with scepticism.

"And I think it wasn't the only outrageous thing they (Anglo) said or did," he said.

"They were continuously over-optimistic in similar terms for some time thereafter.

"They suggested at different times that they would be able to raise private capital, for example, even into some months after the guarantee."

Mr Cardiff told the PAC the department was sceptical about the presentation.

"We didn't believe they had the kind of prospects that they were suggesting," he said.

Mr Cardiff said he believed the bank knew it was in trouble and was trying to manoeuvre itself into a similar position to Allied Irish Banks and Bank of Ireland in that the Government would see it as too important to fail.

Labour's Pat Rabbitte said Anglo's presentation to the Government in September 2008 "must take the biscuit for chutzpah, sheer hard neck and lying".

He described the bank's presentation about its finances as "outrageous".

Fianna Fail TD Michael McGrath said it was one of the most creative pieces of fiction he had seen.

Labour TD Roisin Shortall said it seemed like the banks were "running rings" around the people who were supposed to regulate them.

Mr Cardiff said attempting to mislead the Department of Finance in Ireland was a sport in some places.

The senior official was being quizzed about the department's thinking and quality of advice in the run-up to the guarantee on September 28, 2008.

It comes just days after government papers from the time revealed advisers from US bank Merrill Lynch warned that the radical protection plan could be a mistake.

Mr Cardiff said it was decided that a swift, all-encompassing approach was likely to get them through the week, but he branded the decision to guarantee the banks as "horrendous" for the Dail to make.

"I was delighted I wasn't a decision-maker," he said.

The senior civil servant said the focus at the time was not on solvency issues but on liquidity.

Mr Cardiff said while they knew there were difficulties, it was not clear at the time that any of the institutions were in such financial turmoil.

The top civil servant said that Anglo had provided a very optimistic presentation of its finances 10 days before the Government's dramatic move to guarantee all deposits in six Irish banks.


He accepted the bank's stance in September 2008 -- around the time the lender wanted to buy troubled Irish Nationwide -- was outrageous.

The now state-owned finance house was represented at the meeting by then-boss David Drumm, who gave a presentation of its business model to the Department of Finance just over a week before the blanket €440bn protection.

At the meeting, Mr Drumm insisted that Anglo was "highly profitable", had "continuing strong cash-flows" and its loan book remained "strong" with just 0.52pc of its loans classed as impaired (not performing).

Meanwhile, Mr Cardiff also said an investigation could be launched into revelations in yesterday's Irish Independent that a multi-million euro loan extension was given by Anglo Irish Bank to a French property company co-owned by its disgraced former chairman Sean FitzPatrick.

The company, SCI Saint Roch, was allowed to increase its borrowings from Anglo on January 21, 2009 -- the same day the bank was taken into state ownership.

Mr Cardiff swent on to say that the loan deal may fall within the scope of the Commission of Inquiry into the banking crisis.

Irish Independent

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