Anglo’s failure and the banking meltdown left an indelible mark on the body poitic

The background

Many thought Anglo Irish Bank had broken the mould in Irish banking until the financial crisis of 2008. The crisis shattered a model that, for a time, had made its bankers, borrowers and shareholders very rich.

The Dublin bank that started out helping people buy televisions and washing machines had by the middle of the last decade become the favoured lender of builders and developers, and the third largest bank in Ireland, cheer-led by the financial community, shareholders and many in the Irish media.

As property values soared in the cheap and easy-lending club called the euro area, Anglo and its clients, some of the club's wealthiest members, epitomised the get-rich-quick culture of the Celtic Tiger era. They were the swashbuckling businessmen (they were almost entirely men) exuding an air of invincibility that came with running and being customers of the best bank in the world as it was named at the shrine of global capitalism, the Davos economic summit, as late as January 2007.

Rivals wondered how Sean FitzPatrick’s outfit managed to grow more profitable year after year. Around 2004 they stopped wondering and tried to catch up, taking on the same risks as Anglo.

While FitzPatrick had steered the ship in a particular direction, his successor as Anglo chief executive David Drumm put the engines on full throttle, speeding the bank towards the rocks of the 2008 crash.

The story in the media

The story of Anglo's collapse started slowly and ended quickly, as the crisis deepened dramatically after September 2008. Anglo's daily share performance served as a guide to its demise.

In the six months to March 2008, Anglo’s share price, for the most part, declined slowly along with other European banks as the growing US mortgage crisis spread into global financial markets.

On St Patrick’s Day 2008, investors targeted Anglo, wiping almost €1 billion off its value in a day as the markets wondered which European banks might be as exposed as struggling Wall Street banks.

The bank limped on for several months, going on the offensive, but by September the failure of US investment bank Lehman Brothers led money-market lenders to believe their money wasn't safe in any vulnerable bank, especially a one-trick property lender like Anglo in a declining market like Ireland's.

Anglo tried to woo other banks into shotgun marriages that might protect them. To stem the outflow of deposits, the government first raised the guarantee on everyday savings from €20,000 to €100,000. When that didn’t stop the run on Anglo, it introduced a blanket guarantee on September 30th, 2008 covering a staggering €440 billion in deposits and other liabilities at the six Irish banks.

That morning astonished reporters were briefed about all-night meetings among government officials and with the two big banks AIB and Bank of Ireland, but it was Anglo that had caused the panic.

The unprecedented guarantee tied the future viability of the State to the state of the banks. A week before Christmas, a late-evening call from Anglo’s spokesman revealed that Sean FitzPatrick was resigning over tens of millions of euro in loans he had hidden at the bank. Drumm left a day later.

Anglo continued to bleed cash, forcing the Government to nationalise the bank in January 2009. Within weeks, other shocking details emerged from Anglo – a share manipulation scheme involving 10 borrowers buying shares to reduce a stake held by businessman Sean Quinn and the transfer of €7 billion in deposits back and forth with Irish Life & Permanent to make Anglo look healthier than it was.

The crumbling property market had, by September 2010, pushed the cost of filling the hole at Anglo, to €29 billion and possibly €34 billion. Unconvinced that the Government had a handle on its banking problems – or that the State could afford the bailouts due to a hole in the public finances arising from the property crash and recession– the European Central Bank applied intense pressure.

The IMF and EU stepped in with a €67.5 billion bailout programme, from which the country is only now about to exit.

The impact

Anglo’s failure and the meltdown in the other banks left an indelible mark not just on the business landscape but on the Irish body politic and the public consciousness as the country struggled to deal with the €64 billion cost of the crisis.

The banking debacle pushed business news onto the front pages and to the top of radio and television news bulletins, forcing finance journalists to report to a far wider audience than ever before and explain the inner workings of complex financial markets as simply as possible.

Except for a few notable commentators who spoke out, the business media were criticised by some for not sounding alarms about the time bomb ticking in the banks during the boom. Chastened by the crisis, reporters will inevitably ask more questions when it comes to scrutinising financial information in future.

In general, reporting on the crisis involved turning around breaking news and in-depth analysis stories on sudden announcements, often in the evenings after the markets had closed, in a short space of time. It was frenetic but exhilarating – adrenalin certainly helped us record the worst crisis in the State’s history.

Simon Carswell was Finance Correspondent between 2007 and 2012 covering the Irish banking crisis. Author of the 2011 bestselling book, Anglo Republic: Inside The Bank That Broke Ireland, he was named National Journalist of the Year by the National Newspapers of Ireland in November 2011 for his coverage of the crisis. He is now Washington Correspondent of The Irish Times