The “big four” audit firms all attended a meeting with the financial regulator eight months before the bank guarantee to discuss concerns about bank liquidity.
Former KPMG managing partner Terence O’Rourke and partner Paul Dobey gave evidence to the banking inquiry on Thursday as its hearings on the role of external auditors to the banks continued.
Mr Dobey told the inquiry all four of the main audit firms – Deloitte, PricewaterhouseCoopers, KPMG, and Ernst & Young – attended a meeting with the regulator in January 2008 to discuss the banks.
“We were concerned generally as a firm in relation to the financial stability matters in 2007,” he said. “On January 10th, 2008 we met the Financial Regulator. That meeting was initiated by me through the institute.
“We talked about opinions, growing concern around valuation issues, we talked about hard to value securities, we talked about risk management ... we talked about what was going on in relation to liquidity in the system generally.”
Asked whether collectively the companies had concerns, Mr Dobey said: “Yes, the regulator had concerns. We had concerns. It was a very uncertain time.”
Liquidity and solvency
KPMG was auditor of AIB, which received a State bailout of €21 billion. Mr Dobey, who was the firm’s lead partner on the audit from 2005 to 2008, said they had “significant concerns” in relation to both the liquidity and the solvency of the bank in its 2008 audit.
“In 2007, there were issues in relation to the liquidity position of the bank,” he said. “We asked AIB to prepare a detailed paper setting out what liquidity it had available to it. The conclusion from that paper was that AIB had some €30 billion of liquidity available to it. Therefore we were satisfied that we didn’t need to go any further, and we didn’t.”
Mr Dobey also said KPMG discussed the liquidity of AIB with the Central Bank and the government in 2009.
“We were concerned in 2009 about liquidity and we spoke to the deputy governor of the Central Bank around the availability of ELA [emergency liquidity assistance] and we got assurances in relation to that matter,” he said.
“We were also concerned about the capital of the bank and solvency, if I can put it that way. The government had agreed to put capital into the bank of €.3.5 billion. That came in in Q2 [second quarter].
“We weren’t sure if that was enough. We spoke to the assistant secretary general of the Department of Finance in February 2009 to get assurances that if more capital was required it would be made available.”
Mr Dobey said audits provided by KPMG related to “the true and fair view” given by the financial statements and did not address the effectiveness with which management or the board of AIB conducted its affairs or the appropriateness of its risk appetite. “That responsibility rested with the management and boards of AIB,” he said.
Mr O’Rourke – who is a non-executive director of The Irish Times Ltd – said: “We were not inept. We did a very high-quality audit of AIB - I can assure you of that.”
Sinn Féin finance spokesman Pearse Doherty asked whether the firm wished to “apologise to the Irish people”.
“Of course it was regrettable the crash occurred,” said Mr Dobey. “Of course it is terrible for the Irish people what they were facing into. But I don’t believe it was a result of our audits or the financial statements that the crash occurred.
“If you’re apologising, you’re apologising for making a mistake. We don’t believe we made a mistake.”
