Noonan accuses Taoiseach and Minister of ignoring advice

POLITICAL REACTION:THE TAOISEACH and the Minister for Finance have been accused of ignoring advice against providing a blanket guarantee to Anglo Irish and other banks in the crisis that arose in the financial sector two years ago.

Brian Cowen and Brian Lenihan were sharply criticised yesterday by Fine Gael’s Michael Noonan, who said documents released to the Public Accounts Committee by the Department of Finance showed they were told by Department of Finance secretary general David Doyle, five days before the guarantee was announced, that the banking system potentially faced not just a liquidity but also a solvency crisis.

“The very next day, Merrill Lynch’s top advisers, hired by the Government at great  expense  to advise on the crisis, recommended against a blanket guarantee at a meeting attended by the Finance Minister,” Mr Noonan said.

He added: “The new  facts rubbish the images conjured by the Taoiseach and Finance Minister of a Government being bounced in the early hours of September 30th into the catastrophic decision to offer a blanket guarantee to Anglo Irish Bank on the basis of poor advice by the ill-prepared Financial Regulator.”

However, speaking to reporters yesterday, the Taoiseach outlined a very different scenario.  “There were a number of options actually set out by Merrill Lynch.”

Mr Cowen said: “The guarantee decision made on the night in question was about ensuring that there was sufficient funding for the banking system, and that policy decision proved to be the correct one, in meeting that objective.

“Some months later, as you know, there was a nationalisation of the Anglo Irish Bank [which] was proved necessary because of corporate governance issues that clearly arose as a result of the investigations and the diligence that was being done subsequent to that date.

“But it is important also to point out that one of the conclusions of Prof Honohan in his report in relation to all of this was that he doesn’t believe that there was any substantial difference in terms of the outcome, whether it was nationalised on the night in question, or subsequently in January,” Mr Cowen said.

Asked about Merrill Lynch’s view that a blanket guarantee would be a mistake, Minister for Finance Brian Lenihan said the advisers outlined a number of options, including that Anglo Irish Bank’s subordinated debt – funding provided by investors in return for a risk premium – be included in the guarantee to show it was a systemic institution.

The Government paid €7.3 million in fees to Merrill Lynch, including €5 million in 2009, for its advice on the banking crisis between September 2008 and June 2009.

Mr Lenihan said the Government had to seek professional advice, otherwise he would have been accused of corruption.

A Labour member of the Public Accounts Committee, Róisín Shortall TD said: “There is no evidence in the documentation to suggest that alternatives to the blanket guarantee were properly considered in spite of the very expensive advice being sought from advisers, such as Merrill Lynch.

“The PAC now intends to examine all of the issues leading up to the guarantee.

“Many of the principal players [John Hurley, Governor of the Central Bank; the Financial Regulator, Patrick Neary; and the Secretary General of the Department of Finance, David Doyle] are now retired but it is the intention to call these individuals to appear before the committee to account for their stewardship and the role they played in key decisions taken during the summer and autumn of 2008.”

Sinn Féin’s finance spokesman Arthur Morgan said: “The information supplied by the banking system in the run-up to the guarantee was falsified and the banks dramatically over-estimated the value of their assets.

“The mis-information and inaccuracy of forecasts surrounding these assets tainted the considerations of officials in the run-up to the guarantee.

“The result of these false truths is that the taxpayer has been exposed to a litany of debt for generations to come.”

Mr Morgan added: “The privileged position of the banking sector in Ireland was upheld by this Government and their officials, to the detriment of the ordinary people of this State.

“The Government took on a bank guarantee scheme, making citizens liable, on the pretence of banking reports on the assets, which were grossly over-exaggerated.”