Banking inquiry: ‘no evidence of solvency issue’ before guarantee

Neary says meetings with Seán Quinn were ‘unannounced’ and ‘unexpected’

Former financial regulator Patrick Neary has said 'sorry' for not taking sufficient measures to prevent the banking collapse in Ireland in late 2008.

 

The former financial regulator Patrick Neary did not believe that any of the domestic Irish banks were insolvent on the night of the bank guarantee in September 29th 2008.

Speaking to the Oireachtas banking inquiry this afternoon in relation to events surrounding the guarantee, Mr Neary said this view was based on the regular returns being supplied by the institutions to the Irish Financial Services Regulatory Authority, which he led at the time.

He said the view was reinforced by work undertaken at the time by external consultants in reviewing the banks’ loan books and capital adequacy.

“There was no evidence that there was a solvency issue in any of the institutions on the night of the guarantee,” he said.

Mr Neary added that there was “some surplus capital [available to the banks] in the system” on the night of the guarantee.

Informal Meetings

Mr Neary told the committee about his meetings with David Drumm, the then Anglo Irish Bank chief executive, in September 2007 and businessman Seán Quinn in January 2008.

He said the meeting with Mr Drumm was “informal” and they discussed the regulator’s level of knowledge of so-called contracts for difference (CFDs). Mr Drumm informed the regulator that there were rumours circulating that Mr Quinn held CFDs in Anglo.

He described the meeting with Mr Quinn as “unannounced” and “unexpected” and considered it a courtesy call given that he was chairman of Quinn Insurance at the time.

Mr Quinn told Mr Neary that he had “gone long in financials” but the regulator never asked him which bank he had invested in or what percentage shareholding he had accumulated through CFDs.

When asked by Fine Gael’s Kieran O’Donnell why he had not asked specific questions of Mr Quinn given what Anglo had told him about the build up of a large stake in the bank through CFDs, Mr Neary said: “At that time I failed to link the two.”

He had earlier told Fianna Fáil’s Michael McGrath that he believed if Mr Quinn had a “material” position in any Irish bank it would “pop up” on their share register in line with disclosure rules. He said the problem with CFDs was they were bought and sold below the radar and were not required to be disclosed to the stock market.

Mr Neary said he didn’t think it was appropriate to ask Mr Quinn about his personal investments. “It was his own business,” he said.

Mr Neary said he didn’t realise the link between the two until Anglo’s share price collapsed in March 2008 and details of Mr Quinn’s holding began to emerge.

He said it wasn’t clear to the regulator at the time that the €2 billion in loans extended by Anglo to Mr Quinn were to support margin calls on his CFDs.

Initially, it was thought the loans were working capital for Quinn Group, Mr Quinn’s diversified business group.

Northern Rock

Replying to a question from Sinn Féin’s Pearse Doherty, Mr Neary said the financial troubles experienced by the UK’s Northern Rock bank sent a “chill down everybody’s spine at that stage”.

Mr Neary said it “triggered heightened awareness” of potential problems in the Irish financial system but he couldn’t recall any root-and-branch inspection of Irish banks on foot of what happened at Northern Rock, which resulted in depositors queuing at branches to withdraw their funds.

On October 2nd 2008 Mr Neary went on RTÉ’s Prime Time current affairs television programme and said that all of the Irish banks were well capitalised.

Mr Doherty asked him why he made that statement given the detailed information he had on the institutions at the time and the fact that the bank guarantee had been issued only days earlier.

Mr Doherty reminded Mr Neary that the State was forced to pledge € 10 billion within 70 days of his TV appearance to recapitalise the banking sector.

“On the night, given the information at my disposal I fully believed in the statement I made,” he said. “That was my belief and it was stated honestly as my belief.”

Mr Neary said developments in other jurisdictions resulted in a change of view within the markets and his judgment changed.

Departure from IFSRA

In relation to his departure from IFSRA in January 2009, Mr Neary said that given the events of the previous months he felt his position in the authority “was going to be difficult” and that it “might have been better” to retire.

Mr Neary is reported to have received a pay-off at the time of € 630,000 and a pension of € 114,000. He said his salary and pension were in line with civil service guidelines at the time.

On whether the payment he received on departing from IFSRA was appropriate, Mr Neary said it was the authority “agreed” to pay him.

“I don’t have any more to say on the matter.” he said.

Asked by Fine Gael’s John Paul Phelan if he felt vilified by media commentary around his stewardship of IFSRA, Mr Neary said: “It was a difficult period for my family and myself.”

He was also asked if he could understand the anger felt by taxpayers and shareholders about the collapse of the banking sector and the cost to the State. “I most certainly can and I regret that very much.”