ANALYSIS:The Government knew about shenanigans at Anglo Irish Bank yet still decided to bail it out, writes VINCENT BROWNE.
EAMON RYAN may be comforted by the news of the Garda raid on the Dublin offices of Anglo Irish Bank yesterday. It may bolster his smiling confidence that the State will pursue the 15 or so vandals, each of whom owe the bank in excess of €500 million, for “every penny”.
Were he still just a Green Party TD, the “every penny” smiling remark might be merely amusing but that a Government Minister, even a Green Minister, is still so crazily delusional gives further reason for alarm over who is supposedly running the show at such a perilous time.
The PricewaterhouseCoopers (PWC) report released on Friday last states (health warning: the literary quality of the PWC report may do in your head): “The bank has a number of very large exposures with approximately 15 relationships in excess of €500 million. The size of these exposures increases the risk profile of the bank. However the bank considers that in all cases they are supported by diverse portfolios of assets, underpinned by material contractual cash flows and with significant personal/corporate recourse.”
What is this “approximately” 15 “relationships”? Exactly how many “relationships in excess of €500 million” and by “relationships” does it mean customers and by how much “in excess”? In the very next paragraph of the PWC report we got on Friday: “We [PWC] understand from management that a number of the bank’s larger customers are experiencing short-term cash flow difficulties at present and are in the process of disposing of non-core and in some cases trading assets.”
Such are the language skills of PWC that one has to guess whether there is any connection between the paragraph that contains this remark and the paragraph immediately preceding it. If there is a connection then we know the “approximately 15 relationships” are in some trouble.
If these “approximately 15 relationships” are now experiencing cash flow difficulties, what does the bank’s confidence mean that these “are supported by diverse portfolios of assets, underpinned by material contractual cash flows and with significant personal/corporate recourse”? What it means is damn all. The guff about “underpinned by material contractual cash flows” is meaningless. If the State gets back one in every five pennies of the €7.5 billion-plus owed by these “approximately 15 relationships” we will be lucky.
But there is another issue arising from this PWC report and it is what the Government – or rather Brian Cowen and Brian Lenihan – knew on the night of September 29th last, when they took the decision to guarantee the €450 billion loans and deposits to six financial institutions, including Anglo Irish Bank.
Friday’s document reveals that PWC gave its first report on Anglo Irish to the Government on September 27th, having been working on it from September 18th. During that time the PWC people had visited Anglo head office in St Stephen’s Green and had talked to all the heads of the departments at the bank.
They read the minutes of meetings of directors, meetings of the audit committee and meetings of the asset and liability committee for the period from January 1st, 2008 to September 19th, 2008. They obtained a sectoral breakdown by ranking for customers’ loan balances, the top 50 for Ireland and the UK, and the top 20 for the US. And a whole raft of other information.
So they got a great deal of information about Anglo-Irish Bank by September 27th and, presumably, they included this information in the report Cowen and Lenihan got before they made their decision on September 29th. Certainly the two Brians were informed that Anglo was in trouble cash-wise. There had been a €10 billion reduction in corporate and retail deposits and there was a forecast of €12 billion negative cash flow by October 17th.
In other words, Anglo was in deep trouble and the two Brians were being asked on September 29th either to let Anglo go under or support it. It was clear that if Anglo were to collapse there would be a run on the other banks and were AlB and/or the Bank of Ireland to go, then the economy would be devastated, business would cease. Alternatively, if Anglo were to be rescued there would be pressures to rescue the other banks and financial institutions as well.
It seems to me there were the following options open to them: (a) let Anglo go and give a guarantee to support AIB and Bank of Ireland on the grounds that they are systemic to the Irish economy or (b) give a blanket guarantee to all the financial institutions, including Anglo.
By then they must have known at least about some of the shenanigans that had been going on in Anglo and yet they decided to bail it out at what they must have known would be a massive cost to the Irish public (it is public money that is involved in all this – the characterisation of this as “taxpayers” money is loaded with ideological baggage).