Wednesday 11 December 2019

Transactions between the banks in 2008 masked reality

'The criminal trial that’s just finished up in Dublin went under the radar for a lot of people'. Photo: PA
'The criminal trial that’s just finished up in Dublin went under the radar for a lot of people'. Photo: PA Newsdesk Newsdesk

Q: I get confused between the various cases, what was this Anglo trial about?

A: You are not alone. The criminal trial that's just finished up in Dublin went under the radar for a lot of people.

Four once senior Irish bankers faced a number of charges connected to so called "back to back" payments - a circular flow of money from Anglo Irish Bank to the old Irish Life and Permanent (IL&P), and then back to Anglo at the end of 2008.

The sums involved were huge - €7.2bn - but the State argued that the transactions had no real substance. It was in some ways a case of the old Father Ted line about "the money only resting in my account."

However, prosecutors claimed that the trades were put together to mislead outsiders - including existing and potential investors, lenders and depositors - by making it look like Anglo Irish Bank was in better financial shape than it really was.

Q: How did that supposedly work?

A: Banks often lend and borrow from one another. One lender can often put cash on deposit with another, sometimes for a long period, but often for brief periods. In a healthy market cash can often pour in one door and out another, and juggling the flows is an important internal function.

When a bank publishes details of its financial position - for shareholders or regulators - it has to pick a single point in time and that snapshot is generally seen as a good guide to the overall health.

The case against the former bankers was that money was moved in and out of Anglo Irish Bank specifically to flatter that point-in-time snapshot. Prosecutors said transactions between the two banks in 2008 had no commercial substance. That meant they were a deliberate effort to mask reality.

Q: Why does that date ring a bell?

A: That was the pit of the Irish banking crisis - confidence in banks was at an all-time low. We now know that money was flying out the doors of various banks during the late summer and early autumn of that year, most notably from Anglo Irish Bank. It only ended when all of the banks were guaranteed at the end of September that year.

Q: If things were so bad, was it not a good idea to present things in the best possible light?

A: The so called Green Jersey approach - where various institutions might pull together in a last ditch effort to prevent a crisis - was very much part of the climate of the time.

But any attempts to mask or downplay the scale of the issues ultimately made no difference because the real damage had been done long before. It also made it harder for those with real interests in Anglo Irish Bank, from the State and taxpayers to shareholders who were later wiped out, and bondholders who lost money, to understand the risks they were taking.

Q Did any of the accused make money on these deals for themselves?

A There was never any question that the transactions would directly or dishonestly benefit any of the individuals charged. The alleged conspiracy was really about saving Anglo, however temporarily. Arguably of course, propping up the broken banking system would have benefited some of those accused, by keeping them in well-paid jobs.

Irish Independent

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