Anglo bankers believed they could force an outcome at expense of State
Leaked recordings reveal bankers thought they could fool regulators
The aggressive stance taken by Anglo Irish Bank chief executive David Drumm with regulators, which emerges in the latest tape recordings of conversations within Anglo at the time of the 2008 bank guarantee, shows a banker under increasing pressure to save his institution and resorting to desperate tactics as the bank edged towards collapse.
Drumm’s conversations with the bank’s head of capital markets John Bowe, recorded on Bowe’s telephone line in Anglo’s treasury department, took place against the background of a run on the bank’s deposits and almost daily meetings with the regulator to respond to the deepening crisis of September 2008.
US bank Lehman Brothers had just gone bankrupt sending the financial markets into a tailspin as corporate depositors – big companies spreading large cash deposits around various banks – decided that Anglo was too risky a bet and sought the return of their money as the deposit terms matured.
The conversation between Drumm and Bowe on September 19th, 2008, is focused on how, at Anglo’s next meeting with the Central Bank and financial regulator, the bank can increase the pressure on regulators to agree to lend €7 billion to cover the amount of deposits lost, though – as Bowe himself acknowledged in a telephone call the previous day – the amount was likely to be higher.
One aspect of the detail within the conversations that has been lost in the coverage of these new recordings is that during the telephone conversations the Anglo bankers were discussing a €7 billion liquidity bailout to help the bank fund itself, they did not consider at the time – either due to incompetence or self-delusion or both – that a capital bailout to cover losses on loans was necessary.
As far as the bankers were concerned they were just dealing with a run on their deposits, not a black hole in their loan book, and were trying to get the regulators to act.
The €29 billion bailout of public money that the Government is pumping into the bank was eventually provided for bad customer loans.
The September 19th call shows the “Drummer” acknowledging that it was just a matter of days before the bank would run out of money.
Meetings between all of the Irish banks and the regulators became more intense following the collapse of Lehman Brothers on the weekend of September 14th-15th.
That week’s discussions between Anglo and the regulator marked a turning point as the crisis deepened for Anglo in particular.
For the first time, Anglo had requested a specific sum of cash in liquidity support from the Central Bank – backed by loans on the bank’s books and a promissory note as collateral. This, the bank believed privately at the time as the tapes show, would turn the tables on the regulator forcing the Central Bank and financial regulator to consider making a big call.
‘We need the moolah’
“Get into the f***ing simple speak: ‘We need the moolah, you have it, so you’re going to give it to us and when would that be?’ We’ll start there,” Drumm tells Bowe about the strategy that they would pursue in their next meeting with the Central Bank and the financial regulator.
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.
Drumm’s salty language, Bowe’s mischievous reciting of the German national anthem, the disregard for the government and the regulator’s wishes that the bank guarantee not be abused and the ribbing of regulators Pat Neary and Con Horan during the telephone calls was typical of the gallows humour and desperation within Anglo during its final weeks and months. Two months earlier when Rabobank in the Netherlands declined a frantic request from Anglo to take it over, Drumm disparaged the Dutch bankers in a private email to a colleague, describing them as “windmill-lovin’ clog-wearin’ MOFOs”.
Two weeks before the September telephone calls, Drumm sent an email out to staff inviting them to his “Back To School Doombuster Party” early that month to try to lift their spirits and put up a brave front. “The stock markets are down,” he wrote in the invite to staff. “They say the economy is in recession. It rained most of the ‘summer’. The holidays are over. This is Anglo so there is only one thing to do – party!” A hefty bill was incurred on food, drinks and entertainment for a party reminiscent of the last days of Rome.
Almost five years, putting €29 billion of public money into Anglo and biting austerity later, the sick jokes still emerging in this painful tragi-comedy are very much on the Irish people.
Simon Carswell is Washington Correspondent and author of Anglo Republic: Inside The Bank That Broke Ireland