The picture emerging from the recording of a private telephone conversation between two Anglo Irish Bank executives shows how a failing bank sought to hoodwink the State into getting a bigger bailout than it let on it needed.
Until yesterday it had been known that Anglo had sought €7 billion in liquidity from the Central Bank during private meetings in the days after the collapse of US bank Lehman Brothers in mid-September 2008. But there has been nothing as blatant on record emerging from within the bank to show that Anglo itself knew at the time this wouldn't be enough to stem the run on its deposits.
The request came at a time when the bank was haemorrhaging corporate money, up to €1 billion a bad day in deposits. Anglo urgently needed cash from somewhere to tide it over.
The deviousness in Anglo's strategy in talks with the Central Bank and Financial Regulator is articulated by John Bowe, the bank's head of capital markets who accompanied Anglo's then chief executive David Drumm in crunch meetings with the Central Bank as the banking crisis deepened. He worked in Anglo's treasury department, where telephone calls are recorded, as required by market rules.
Asked on the call by Peter Fitzgerald, then head of Anglo's retail funding, where the €7 billion figure came from, Bowe said: "Just, as Drummer [David Drumm] would say, picked it out of my arse."
“The reality is that, actually, we need more than that. But you know the strategy here is you pull them in, you get them to write a big cheque and they have to keep, they have to support their money,” Bowe told Fitzgerald.
He explained the plan further: “If they saw the enormity of it up front they might decide, they might decide they have a choice. You know what I mean? They might say the cost to the taxpayer is too high. But . . . if it doesn’t look too big at the outset . . . if it looks big, big enough to be important but not too big that it kind of spoils everything.”
'In for a penny'
The strategy to get the State to an "in for a penny, in for a pound" position on Anglo was part the bank's attempts throughout the month of September 2008 to force the State authorities – be it the Central Bank or the Government – to back the bank publicly. The bank believed this would to give Anglo a much-needed confidence boost in the financial market, on which its survival depended.
Anglo obsessed over this at that time. Rivals AIB and Bank of Ireland, as the country's biggest banks, were regarded by the market as "systemically important" and considered too big to fail. The other smaller banks did not have that same implicit Government support.
Part of Anglo’s strategy in September 2008 was to secure State backing, however small. Ask for too much and the bank risked scaring the State off. Ask for a smaller amount – and secure it – then the bank would have that much-needed support and the positive signal it would send to the market. Get the State on the hook and then Anglo could “creep up” the amount it needed, as Bowe said.
The plan outlined by Bowe in the call involved a €7 billion bridging loan supported by a promissory note but, as Bowe himself said on the call, the reality was the bank would “never” repay the loan.
Pat Neary, the then chief executive of the Financial Regulator, is said by Bowe on the call to be eager for the bank to put assets "in play" – meaning loans held by the bank that could be used as collateral for the Central Bank loan – and to make sure the loan they were requesting would be enough to tide them over.
Mocking
Bowe's mocking of Neary was typical of Anglo executives at the time. Drumm and his fellow executives had grown frustrated at Neary's bumbling response to the deepening banking crisis in the countless meetings and telephone calls held with the Central Bank and Financial Regulator.
We have known for some time that €7 billion was never going to be enough to stem the run on Anglo in September 2008. A report from accountants PricewaterhouseCoopers, released by the Department of Finance in February 2009, showed that within 10 days of the Bowe-Fitzgerald call the bank was down €10 billion in deposits and heading for a black hole of €12 billion in its cash reserves.
But it is the tone of the call and the brass-neckery of Anglo’s secret strategy that is most shocking and another piece of evidence justifying a comprehensive banking inquiry to piece together the full jigsaw of the crisis.
Tragically for a public picking up the tab, the Fianna Fáil-Green government went further than even Anglo’s secret strategy envisaged when it guaranteed the entire domestic banking sector almost two weeks after this private call.
The private conversations that led to that decision would be even more revealing.
Simon Carswell is Washington Correspondent and author of Anglo Republic: Inside the Bank that Broke Ireland