Kallakis trial sheds light on workings of AIB during 2008 crisis

Its not clear if Gleeson was referring only to the Kallakis situation or to the wider crisis that was gripping the bank.

It is important to remember that the Kallakis issue surfaced in mid-2008 and the bank moved against him in September of that year, just as the credit markets were freezing up and the Irish banks were being shut out. In a matter of weeks the whole world seemed to have woken up to the fact that Ireland’s finances were a mess and its banks’ balance sheets were riddled with rotten property loans. What was not clear, but soon became apparent, was that the government was woefully unprepared and out of its depth.

AIB, like every other bank, was trying to put the best possible gloss on its situation – both to the markets, but also to the regulator and the government. Announcing that it had a massive problem with a €1 billion UK property portfolio in late 2008 would not have been a good move.

The evidence of another AIB employee is particularly enlightening. Donal O’Shea, the second in command of the bank’s UK commercial lending operation in 2008, cut to the heart of the matter when he told the court that “if we had gone straight to the market we would have taken far bigger losses ”.

Instead, the bank quickly put together the deal with Green, which it should be remembered was subsequently queried by the Central Bank.

O’Shea’s comments seem to point towards a bank that either was desperately trying to cover up its problems in late 2008 or had not really faced up to the extent of them.

Either way it seems reasonable to presume that neither the government nor the regulator had the full picture regarding the Kallakis portfolio and by extension the scale of the problems at AIB. And given the extent to which the government was relying on the views of the banks themselves – and their accounts – in late 2008, you can understand a bit better how they walked themselves into the blanket guarantee.

The rest, as they say, is history.