Anglo bankers believed they could force an outcome at expense of State
Leaked recordings reveal bankers thought they could fool regulators
The strategy was to hit the ball back into the regulator’s court. “The game has changed now because really the problem now is at their door,” Drumm told Bowe. “Because if they don’t give it to us on Monday they have a bank collapse.”
In the end the strategy failed, forcing Anglo chairman Seán FitzPatrick and chief executive Drumm out of desperation to doorstep Central Bank director, economist Alan Gray – who they knew had the ear of taoiseach Brian Cowen as an adviser – at his offices in Dublin the following week to impress upon him the seriousness of the crisis and the need for an urgent solution to save the bank.
The Central Bank procrastinated for more than a week but did eventually provide some short-term support to Anglo – in the order of a loan of about €1 billion – to tide the bank over on Monday, September 29th when it ran out of cash. Ultimately, the government stepped in with the blunderbuss approach to try to stem the run on Anglo with the €440 billion guarantee for the wider banking system, a gamble the government lost.
Patrick Honohan, now governor of the Central Bank, explored the reasons why the Central Bank chose not to provide a large emergency loan to Anglo in late September 2008 – a possible short-term solution to the banking crisis – when he investigated the causes of the banking crisis in his May 2010 report.
He concluded that if an emergency loan was given to Anglo, the Central Bank may have been forced to provide emergency loans to the entire banking system, which would have been damaging for the entire system, and that the Central Bank was uncertain whether an emergency loan to Anglo, whether publicly disclosed or detected, would “boost or detract” from market confidence.
The Central Bank was also seriously concerned about the potential open-ended size of emergency loans and the associated risks for the regulators, he said. So the regulator may well have been aware of the potential outcome in the bank’s strategy devised by Bowe in the earlier call – that Anglo could demand a certain amount of support from the Central Bank, namely €7 billion, get the State on the hook and then “creep up” the amount demanded from the Central Bank as the bank required it.
The most revealing aspect of the series of leaked telephone recordings, published in the Irish Independent this week, is the belligerent tone and expletive-ridden aggression of the conversations and what they say about Anglo’s culture – that these bankers believed they could play with the regulators and pull the wool over their eyes to force an outcome at the expense of the State.
The tenor of Drumm’s conversations and his behaviour also show how the chief executive sets the tone in the bank and this is reflected in how his underlings spoke.