ANALYSIS:Pressure for a full inquiry now appears unstoppable
BRIAN COWEN’S remarks in the Dáil show that the Government and the Financial Regulator knew of fevered efforts behind the scenes to stabilise Anglo Irish Bank six months before the decision last year to guarantee the liabilities of the entire Irish banking system.
Although those extraordinary manoeuvres are now the subject of multiple regulatory inquiries involving Anglo and other institutions and individuals, the Government chose the guarantee option when Anglo’s troubles came to a head in September. While we now know more about what Cowen knew then, the full extent of the information available to the Government and the questions it asked remain very unclear.
That there was a Bill on the table that night to nationalise the bank illustrates the depth of the its known woes at that time. Amid scandal last month, Anglo was finally nationalised.
With hindsight and the backdrop of relentless controversy it is easy to say now that Anglo’s prospects of survival in September were remote at best. The reality within was glaringly at odds with the confident talk of former chairman Seán FitzPatrick and former chief executive David Drumm. What is more, covert efforts – efforts that the Government was aware of – to shore Anglo up through a series of convoluted transactions served to hide its problems from the public and the markets.
Besides Anglo’s concealment of the true scale of directors’ loans, the bank had two big problems.
The first was that billionaire Seán Quinn had accumulated as much as 25 per cent of the bank through contracts for difference (CFD), derivative instruments that can be used to build a stake in a company without making any public declaration. The second problem was a dangerous loss of deposits.
From Mr Cowen’s remarks, we now know that the Government essentially on side in respect of the effort to deal with the Quinn stake. At the time, the Regulator was accepting legal advice provided to Anglo’s own directors about the legal standing of the transactions. It was a fateful decision.
The existence of the CFD stake weakened Anglo by exposing it to attack from short-sellers making bets that its shares would drop. To resolve the issue Mr Quinn and his family formally bought 15 per cent of the bank.
To prevent a loss of confidence caused by the sale on the open market of the remaining 10 per cent at a time when its shares were already under pressure, Anglo assembled a group of 10 wealthy business people and lent them money to buy the shares.
Cowen knew about the effort – but not the identities of individuals concerned, he said – and was aware that the Regulator had accepted assurances from Anglo that the disposal of the 10 per cent interest was legal.
The Regulator said it accepted Anglo’s legal advice that the unwinding of the stake “was in full compliance” with all legal requirements based on information in its possession at that time. Investigations now arise from “new information” coming to light in relation to the manner in which loans were provided to fund some of the share purchases.
Meanwhile, Anglo was confronted with a serious loss of deposits. On Friday we learned that Irish Life Permanent (ILP) lodged €750 million with Anglo at the end of the first half of its fiscal year last March. Deposit slippage in the following six months, in advance of the State guarantee, was such that Anglo needed to source almost €8 million from ILP before the end of the second half of its fiscal year. The deeply unorthodox structure of those transactions, some of which were made with the security of the State guarantee, last week cost the ILP chief Denis Casey and two of his lieutenants their jobs. Much remains unexplained in these disturbing affairs. The onward grind towards a full inquiry – be it by the High Court or in some other forum – seems unstoppable.
