‘So, [the loan] is bridged, until we can pay you back . . . which is never’

Banker laughs at making repayments and mimics voice of Financial Regulator

Tue, Jun 25, 2013, 01:36

The most striking aspect of the September 2008 taped conversation between two Anglo Irish Bank executives, published yesterday, is the tone. In the conversation, head of capital markets John Bowe is telling director of retail banking Peter Fitzgerald about a visit Bowe and others had made to the Central Bank in which they had informed officials that Anglo was running out of money and needed €7 billion in public funding.

The taped conversation is peppered with outbreaks of laughter. Bowe’s almost light-hearted tone when saying that the money being looked for was designed to get the Central Bank on the hook, after which it would be easier to get more public support, which most likely would be required, is the most striking fact articulated by the banker on the tape.

Fitzgerald, whose retail banking arm needed to fund withdrawals that were taking place at an alarming rate, asked where the €7 billion figure came from. Bowe responds: “Just, as Drummer [chief executive David Drumm] would say, picked it out of my arse, you know.”

Big cheque
He later goes on to say that the bank is facing a liquidity problem (ie it has cash-flow problems) and needs money to buy time. “And that number is seven [€7 billion]. But the reality is that actually we need more than that. But you know, the strategy here is, you pull them in, you get them to write a big cheque, and they have to keep, they have to support their money, you know?”

Fitzgerald: “Yeah, yeah, yeah. They’ve got skin in the game and that’s the key.”

Bowe said that if the Central Bank knew the “enormity of it upfront, they might decide, they might decide they have a choice. You know what I mean? They might say the cost to the taxpayer is too high. But if it doesn’t look too big at the outset . . . If it looks big, big enough to be important, but not too big that it kind of spoils everything . . . Then I think you have a chance. So I think it can creep up.”

That senior bankers dealing with a crisis that was threatening the wellbeing of a whole country were speaking in such terms is striking in itself.

Financial regulator
But what is almost equally striking about the tapes occurs when Bowe tells Fitzgerald about what happened when the then financial regulator, Patrick Neary, joined the meeting.

At this stage, according to Bowe, he had just given the officials his view of the prospective catastrophe facing the Irish economy. If Anglo got into difficulty, he said, it had more than 100,000 lump-sum Irish depositors. “And I said, ‘Take it that the other Irish banks will not be able to raise any wholesale funding . . .’ ”

By that he meant that if Anglo got into trouble, other Irish banks would not be able to refinance the funding they had from the wholesale markets.

“So I said, ‘Bank of Ireland, their balance sheet is €200 billion, and 45 per cent of that is wholesale, so let’s call that €90 billion. And let’s say that 60 per cent of that is rolling in the next 12 months, so that’s €54 billion – take it that that won’t roll’.”

He suggested a funding difficulty of a similar scale would exist for AIB. “So I said that’s what you’re protecting . . . and so anyway that sort of got everybody’s attention.”

It is at this point in the tape that Bowe begins to recount to Fitzgerald what the financial regulator said when he joined the meeting. Bowe puts on a special voice, mimicking Neary for Fitzgerald’s benefit. The tone reeks of disrespect. “C’mere lads, I just want to have a word with ya . . . yeah Jesus . . . so look, c’mere, have you actually got assets, decent assets . . .”

Listening to the tape at this point, it is hard not to suspect that Bowe believes the Central Bank is all at sea, overwhelmed by what is happening and what it should or shouldn’t do. It does not follow that his assessment was correct, but it may be an interesting insight into attitudes within Anglo in 2008. Bowe makes plain his view that the Central Bank, despite its misgivings, will have to support Anglo as the alternative is too awful to contemplate. “It has to happen,” says Bowe. “It has to happen, because if it doesn’t happen we’re going to hit a wall in the next week.”

Bridging loan
The two bankers discuss the fact that the money being sought is to be a “bridging loan”. Bowe: “So, it is bridged, until we can pay you back . . . which is never.” Both men laugh at this point.

At the end of September, 2008, the Cowen Government, during a night of crisis in Government Buildings, with most ministers not in physical attendance, decided to guarantee the deposits of the Irish banks, including Anglo.

Later that year it emerged that Anglo chairman Sean FitzPatrick had undisclosed loans from the bank, and by early 2009 Anglo was nationalised. It, along with Irish Nationwide, was merged into a State-owned body called the Irish Bank Resolution Corporation, which was liquidated earlier this year. Fitzgerald was the State-owned body’s head of corporate affairs up to that point. Bowe was head of corporate development with the IBRC until April of last year.