Watershed moment in Irish banking crisis as accountancy giant is sued
Analysis:This is the first time an Irish bank has put the spotlight on its external auditors
The legal action taken by the former Anglo Irish Bank against its one-time auditors, the accountancy firm Ernst & Young, has come out of the blue and marks a watershed moment in the Irish banking crisis.
This is the first time an Irish bank has turned on its external auditors over their conduct before the financial crisis and, in Anglo’s case, in the run-up to the nationalisation of Ireland’s leading lender to builders.
The details of the case against one of the “Big Four” accountancy firms are sketchy so far. High Court records reveal little other than the bank’s solicitors are McCann FitzGerald.
The bank won’t elaborate beyond confirming that the case has been taken and that it relates to “legacy issues” relating to Ernst & Young’s role as auditors to Anglo prior to its nationalisation in January 2009.
Even Ernst & Young doesn’t have the full details of the suit yet.
Irish Bank Resolution Corporation, the new name for Anglo, didn’t send the firm a statement of claim, the record outlining its case. This would normally follow after a defendant entered an appearance to the proceedings in response.
Ernst & Young had simply been notified by the State-owned bank on Tuesday evening that it had issued legal proceedings against it. The firm said that it had not been formally served legal papers or received the statement of claim, and so could not comment.
The timing would suggest that the bank’s move comes to beat a six-year limitation period of December 5th which, if missed, would have blocked the action. The accounts for the bank for the year to September 2006, signed off on December 5th of that year, appear to be a key part of the bank’s legal claim.
Certain civil actions are barred by law after six years. This would suggest that the action centres on the failure to spot the hidden loans of former Anglo chairman Seán FitzPatrick over eight years. The bank concealed the full extent of FitzPatrick’s loans by moving them off its books over Anglo’s accounting year-ends using short-term loans each year from Irish Nationwide.
The disclosure of this and the full extent of his loans in December 2008 was the final nail in Anglo’s coffin. The bank was nationalised weeks later and in February 2009 Ernst Young withdrew its December 2008 audit report on Anglo’s September 2009 financial statement and issued a new audit report.
By the following August, rival Deloitte had replaced Ernst & Young as the bank’s auditors.
The subsequent deepening of the banking crisis and the property crash sent the cost of the Anglo crash soaring to €29.3 billion.