Anglo and IL&P in dispute over €7bn transaction

A MAJOR dispute has developed between Anglo Irish Bank and Irish Life Permanent (IL&P) over the nature of the €7.45 billion in transactions passing between the two banks last September and how they were treated by Anglo in its accounts.

In a statement, IL&P said the transactions were collateralised deposits into the bank, meaning they were backed by deposits placed with ILP by Anglo.

However, Anglo responded saying in a statement that its multi-billion euro “inter-bank placements” with IL&P over a week in September were “not cash collateral for deposits” from IL&P.

The difference is significant because if it is proven that the bank misrepresented the transactions in its accounts as customer or corporate deposits when they were actually inter-bank deposits, then the nationalised bank and ultimately the State could be exposed legally for fraudulent reporting.

The Financial Regulator is investigating whether Anglo misrepresented the transactions in an effort to artificially prop up its deposit levels and give a false picture of financial strength at its financial year-end on September 30th.

Categorising the transactions as customer or corporate deposits enabled Anglo to disguise dramatic deposit withdrawal levels at the bank during September.

The Financial Regulator said that the transactions were “completely unacceptable” and that its investigating officers have been asked “to complete their work as a matter of extreme urgency”.

The regulator said it had encouraged inter-bank lending between Irish financial institutions at meetings over the past year, but “did not at any time focus on other types of deposit arrangements”.

The regulator said the money transfers were “a very different type of transaction to a normal inter-bank arrangement and by its nature had no beneficial effect in terms of providing liquidity.”

IL&P had said it believed it was the “policy objective” of the Central Bank and regulator that Irish banks work to support each other.

The regulator’s authority (board) rejected any suggestion that this “constituted encouragement of the type of circular transactions” at Anglo and IL&P.

The authority said that it was working with the director of corporate enforcement in its investment and would “take all actions necessary and involve other authorities where appropriate”.

The contradictory statements between Anglo and IL&P emerged as IL&P chief executive Denis Casey bowed to growing pressure and resigned, following the departures of finance director Peter Fitzpatrick and head of treasury David Gantly.

Mr Casey stepped down hours after the IL&P board, including two Government-appointed directors, declined to accept an offer of resignation from the banker.

ILP said in a statement that the board “expressed its strong disapproval of and disappointment with some of the specific measures used to support Anglo Irish”.

Minister for Finance Brian Lenihan said that Mr Casey’s resignation was “an essential first step in repairing the reputational damage done to the Irish financial system by this transaction”.