10 borrowers owing €17.7bn to banks ‘very significant’ surprise

Findings labelled as hopelessly optimistic by Cowen were based on valueless guarantees

A review of the State’s six pillar banks which found 10 borrowers owed a combined €17.7 billion in September 2008 came as a “very significant” surprise, the Oireachtas banking inquiry has heard.

Denis O’Connor, a partner with PricewaterhouseCoopers, told the committee the firm was hired by the financial regulator at that time to examine potential problems and liabilities in the banks.

The review found that, in the worst-case scenario, the six institutions could lose €10 billion. The cost subsequently transpired to be €64 billion.

“The top 10 borrowers had loans of €17.7 billion with the six guaranteed banks, and that was before any additional borrowings they had in Ulster Bank or Bank of Scotland Ireland,” he said. “For all of us the surprise was very significant.”

Mr O’Connor said the scope of PwC’s work did not include reviews of smaller developers or of actual mortgage lending.

Heavy exposure

“Our reports highlighted the very large exposures that the banks had to a small number of developers and the very high level of asset concentration in property.”

The inquiry was told PwC received €2.4 million for its report into the expected losses at the banks. Its findings, described as hopelessly optimistic by former taoiseach Brian Cowen, were based on personal guarantees which proved to be valueless and on equity that was not equity.

“Nobody expected the recession that evolved over the next number of years at that point in time,” Mr O’Connor said.

“People thought there would be a ‘soft landing’, as everybody was forecasting. There were a few exceptions, but those people really were exceptions.”

His colleague, Aidan Walsh, who also appeared at the committee, said the banks believed their view of the problems was “unbelievably pessimistic”.

Mr O’Connor also described attending meetings held days before the bank guarantee was introduced. Up to 30 people attended the discussions around September 23rd or 24th, 2008, days before the guarantee was agreed by the then cabinet.

Mr O’Connor said the nationalisation of Anglo Irish Bank was discussed but was not the inevitable outcome.

“I was at meetings in the Department of Finance where there were about 20 people where everything was being discussed,” Mr O’Connor said. “The guarantee was one of them but they were discussed more or less in total general terms - there was no specifics discussed at the meetings I was at.”