Anglo’s failure to enforce loan policy a ‘serious mistake’

Anglo Irish Bank's former head of lending in Ireland has told the Oireachtas banking inquiry a board decision in 2006 not to take on new development loans was not broad enough to avoid the impact of the subsequent property crash.

"In early 2006, the Anglo board decided . . . to change its lending policy, reflecting the concerns we held about the acceleration in asset values and the growing intensity of competition," Tom Browne told the committee.

“A decision was taken that no new clients with development funding proposals would be entertained. The bank would exclusively deal with existing customers where a deal carried an acceptable risk.”

Mr Browne said rivals then began targeting its customers. The policy change was a move by Anglo to curtail its exposure to a segment of the market that had begun to “overheat”, he said.

“On reflection, the motivation for this policy change was entirely correct. However, the policy itself was seriously flawed because it did not go far enough,” Mr Browne told the inquiry.

“We continued to support our existing bigger clients who continued to be active in the market, which led to large exposures with a concentrated number of clients.”

With hindsight, Mr Browne said a failure to enforce the policy rigorously, along with the shortcomings in the board decision, was a “serious mistake”.

Consequences

“The consequences of this mistake became very clear when the property market in Ireland collapsed, resulting in very significant losses for the bank,” he said. “The bank should not have defended its position with its biggest borrowers against the intensive competition in the marketplace to the extent that it did.”

He said this led to “unacceptable exposures” to a relatively small number of customers, and the concentrated risk profile put the bank’s loan book at “unacceptable risk”.

Mr Browne told the committee that in the 10 years to 2005, Anglo had grown from being a “small player” to one with a significant market share and businesses in the UK and the US.

He said this was driven by a long-standing client base, many of whom had become big players in the property market, development and investment sectors.

This growth led to a significant intensification of competition in the Irish market.

AIB established win-back teams to attract back customers who had gone elsewhere or customers who were multi-banked.

Mr Browne also referenced Bank of Scotland (Ireland), ACC and Ulster Bank as competing "very aggressively" to win market share. This led to an "avalanche of credit" in the Irish market, he said.

Mr Browne said by the time he left Anglo in 2007, there was no indication of any funding stress on the balance sheet of the bank.

Northern Rock

However, issues which subsequently emerged at UK bank Northern Rock highlighted that Anglo’s funding was “not sufficiently wide, deep or stable” to underpin the loan book.

He said it also subsequently emerged that Seán Quinn had a large holding in Anglo through contracts for difference, something that was to create significant difficulties for the bank. Mr Browne said he had no knowledge of Mr Quinn’s holding via CFDs at the time of his departure.

“I deeply regret my own role in the building of the loan book to what became an unsustainable and overconcentrated scale,” he said.

Mr Browne left Anglo in September 2007 to set up a corporate finance practice called Le Bruin.