Credit unions the only Anglo bondholders the Government has faced down
Money that could not be lent out during boom was moved for safety to banks
David Drumm and Sean Fitzpatrick of Anglo Irish Bank in 2006. In 2005 the bank’s tracker bond seemed like a prudent and safe investment. Photograph: Alan Betson
Why did the State wreck itself to save Anglo Irish Bank, adding the millions to the billions and prayer to shivering prayer? Why did the present government meekly accept that the promissory notes issued to Anglo must be paid at all costs? Because, in the end, it was a matter of principle. A state doesn’t default on its debts, even when they are the debts of a sleazy and demented private bank.
Except that even this is not true. There is one group of Anglo bondholders who are being royally burned. Are they some cabal of oil sheikhs, so rich that they’ve forgotten their little punt on that mad little Irish bank? Are they Russian oligarchs dozing on the sundecks of their yachts in the Med? No. They are the only Irish financial institutions that haven’t disgraced themselves: the credit unions. The one set of Anglo bondholders that Michael Noonan is bravely facing down are the small, decent voluntary organisations that might represent some kind of antidote to the ruthless greed of the banking system. The State that cringes like a seven stone weakling before multi-billionaires who gambled on Anglo is coming over like Charles Atlas with the credit unions who took the same punt.
During the boom years, when the banks were begging people to take loans, credit unions were left with cash they couldn’t lend out. So they had to put this money into banks. The Central Bank regulations said that they should spread it around different A-rated banks. Up popped A-rated Anglo Irish Bank in 2005 with a custom-made tracker bond. It seemed like a prudent and safe investment: the capital invested was 100 per guaranteed and returns were promised to be at least 12 per cent and potentially as high as 47 per cent. These returns were to be generated by Goldman Sachs. Anglo Irish and Goldman Sachs - what could possibly go wrong? There was a note in the small print that “in the event of Anglo defaulting, the investor’s capital will not be guaranteed” but in 2005 that was like saying that if aliens landed on Earth, all bets were off. Presumably, the very same note was in the bond contracts signed by billionaire speculators.
The bonds were to mature on September 30th 2013. Sixteen credit unions around the country put between €15 million and €20 million between them into the bonds -a pittance to masters of the universe (though a nice little earner for Anglo at fees of 3.2 per cent of the total sum invested) but a lot of money for ordinary working people and their communities. And, then, of course, Anglo went wallop.