Dramatic bank-crisis scramble revealed

ANALYSIS:RECORDS RELEASED by the Department of Finance reveal the dramatic back-room scramble at the height of the financial crisis in late September 2008 to quantify the scale of the run on the Irish banks, which of the banks would run out of money first, and when.

The documents – released to the Public Accounts Committee – show how in the run-up to the Government bank guarantee on the night of September 29th-30th, the department was desperately trying to get a grasp on the potential losses of the banks.

PricewaterhouseCoopers (PwC) estimated on Sunday, September 28th that Anglo, Irish Nationwide and Irish Life Permanent (ILP) could have about €5 billion in bad debts under a “stressed case”, but an accelerated run-off of their loan books would give rise to “significantly higher levels of provisions”. This sum has since reached €40 billion – almost all due to Anglo and Nationwide.

While there were fears about bank losses, the run on deposits was the more pressing concern.

Senior department official Kevin Cardiff was told by e-mail at 8.40pm on Monday, September 29th – hours before the Government chose the guarantee – that Anglo had run out of cash. PwC said Anglo had lost €1.1 billion in deposits from institutions and €700 million from other banks. It had borrowed €900 million from the Central Bank, was out of reserves and had “over €2 billion” due the next day.

Irish Nationwide was in better shape, losing just €17.5 million in deposits in Ireland and €10 million in the Isle of Man. Strangely, PwC said the figures were based on “representations” and that they hoped to get “harder figures” the next day. The figures – provided just minutes before senior bankers from AIB and Bank of Ireland arrived for emergency talks at Government Buildings – were enough to ensure immediate action.

The day before, September 28th, PwC told officials that Anglo would be €128 million in the red on September 30th on the basis that it would not be able to roll over €1.5 billion in interbank deposits. They warned that by October 24th, Anglo faced a shortfall of €4.9 billion or “worst case”, €9.8 billion, and this would rise to €7 billion and €11.9 billion if Anglo did not sell some of its mortgages in a covered bond.

PwC advised that a contingency fund of up to €1 billion was required for Irish Nationwide by December to cover lost deposits.

For the first time, the department released more detailed records showing that ILP was also leaking deposits. PwC advised officials to have contingency plans, assuming ILP lost half its corporate deposits, leaving “[ILP’s] cash position very tight by Friday [October 3rd]”.

The weekend before the guarantee, PwC said Anglo management believed the bank had €30 billion that could be used as collateral for loans or sold on to investors as securitisation.

PwC also said on September 27th that €1.9 billion or 35 per cent of corporate deposits were “under the control of Irish Life Assurance”. This was noted by Government officials. The controversial €7 billion deposits with ILP, which flattered Anglo’s books at its year-end three days later, began on September 26th and unwound within days.

A report for Nationwide by Goldman Sachs, dated September 21st, said it had lost €868 million in 16 days following an erroneous report that it was in insolvency talks. Two days earlier, chief executive Michael Fingleton wrote to the department’s secretary general, David Doyle, saying: “If the society could resolve its liquidity problems . . . brought about by the destruction of confidence in the last 10 days, then we can continue to operate as a viable . . . institution.”