Department of Finance secretary general Kevin Cardiff lifts curtain on Government bank decision, writes SIMON CARSWELL

THE APPEARANCE of Department of Finance secretary general Kevin Cardiff at the Dáil Committee of Public Accounts (PAC) filled in some of the gaps left following the publication of documents on events leading up to the bank guarantee last week.

But around the crucial decision to chose a blanket bank guarantee to protect the six domestic institutions on the night of September 29th/30th, Cardiff deferred the key questions to the policymakers.

“Why did you go the whole hog?” asked Fine Gael TD Jim O’Keeffe, covering €11 billion of risk investors’ subordinated debt in a full guarantee.

“I am not the Minister, nor the Government – that was a policy decision,” replied Cardiff.

He gave background to the guarantee, describing “a rapidly evolving crisis” on the day it was chosen – Monday, September 29th.

Merrill Lynch, advisers to the Government, had recommended an emergency fund of €20 billion and the nationalisation of Anglo Irish Bank and Irish Nationwide Building Society – as outlined in the departmental records.

While a blanket guarantee would be “the most impactful” solution, this posed serious risks, they said.

By the Monday evening, the banking meltdown across Europe had reached the point that saving one bank wasn’t an option, said Cardiff.

“A significant decision had to be taken on that day and not in relation to one institution.”

There had been bank collapses across Europe that day, he said, referring particularly to the government rescue of Belgian bank Fortis. A Belgian government official called it “Fortis Day”, he said.

“Obviously we each have our own scars”, he said, “ours, I’m afraid, are somewhat deeper”.

The Irish banks, but particularly Anglo, had endured “a calamitous day” on the stock markets. Anglo had run out of cash and would not have been able to operate legally the following day, he said.

The US Congress voted down the Tarp toxic asset plan for its banks, which would have created yet more volatility for the Irish banks.

“All this was adding up to a picture that had changed,” he said, “as bad and all as it had been at the weekend, it was changing further”. This pushed bank-specific solutions – such as nationalising one of the banks – off the agenda.

“By the end of that day, you had to really consider whether that would be your preferred option if there were multiple institutions in liquidity difficulties,” Cardiff told the committee.

“You would have had to consider whether a swifter approach, a quicker approach, a more all-encompassing approach would be likely to get you through the next week,” he said.

Had Anglo received special funding of €4 billion, it may well have needed more subsequently.

The solution facing Government that night had to be “the most assertive” – “none of them easy, none of them right,” he said.

“On that evening I was delighted I wasn’t the decision-maker because it was a horrendous decision for anyone to have to make,” said Cardiff.

Asked by PAC chairman Bernard Allen when the department first had doubts about the competency of the financial regulator, Cardiff said that, in September 2008, they realised the regulator didn’t have sufficient understanding of each bank.

They found it necessary to employ Irish Nationwide’s own financial advisers Goldman Sachs and accountants PricewaterhouseCoopers to advise them, he said.

Asked why the department had not spotted that Anglo and Irish Nationwide had not just liquidity but solvency issues too, Cardiff said the commercial property market had not started to “nosedive” until the latter half of 2008.

They had not ignored solvency issues but they had no information to suggest the problems would be “as catastrophic as it turned out to be” – “the crisis was deeper and worse than anyone anticipated”.

The department had relied on information from the regulator who had depended on information from the banks, he said.

Cardiff said that he felt Anglo knew it was in trouble in September 2008 and that while the two big banks, AIB and Bank of Ireland, were regarded – like big financial institutions around the world – as being as too big to fail, Anglo felt that it was not in this position.

The bank’s presentation to the department on September 18th that it had compelling long-term prospects received “a sceptical response”, said Cardiff.

Allen said Anglo had shown “absolute deceit” by telling the department on September 18th, 2008, that it had no problems and then asking for €7 billion on September 22nd “to keep it going”.

“Not only should alarms bells have been ringing but the sprinkler systems should have been going,” he said.

Anglo Fallout

Finance Department's Secretary General Denies 'inept' Allegations

DEPARTMENT OF Finance secretary general Kevin Cardiff rejected suggestions that his decision not to refer the €7.5 billion Anglo Irish Bank-Irish Life & Permanent transactions to the Minister for Finance when he first learned of them was "inept".

The secretary general told the Committee of Public Accounts (PAC) he felt the circular deposits over Anglo's September 2008 year-end were an issue for the financial regulator when he was informed of them in October 2008.

"There is nothing inept about seeing an issue and trying to explore whether it was a problem or not," said Mr Cardiff, in reply to questions from PAC chairman Fine Gael's Bernard Allen.

Mr Cardiff said he couldn't recall when the Minister was told about the transactions.

There "wasn't a red flag" raised on the transactions, he said, which were contained in a PricewaterhouseCoopers (PwC) report.

The size of the transaction was not the issue, he said - if the €7.5 billion had been properly raised, it would not be an issue.

"It certainly seemed to be the appropriate thing to do - to pass a regulatory issue to the regulator."

The Minister later said he hadn't read the passage in the PwC report and that he was told about the transactions several months later. The deposits did not emerge publicly until early 2009.

Mr Allen said he found it incredible that the chain of events had occurred without "the controlling hand" of the department.

Mr Cardiff said people had been working hard at the time to ensure that the financial system remained stable.

He told the committee earlier that he had attended six to 10 meetings a day over a four to six week period in the autumn of 2008 at the height of the financial crisis.

He was responding to a question about which other department officials attended a meeting with Anglo's then chief executive David Drumm on September 18th.

He couldn't recall who else had attended that meeting, he said. Simon Carswell