Government asked AIB and BoI to help save Anglo

 

ALLIED IRISH Banks (AIB) and Bank of Ireland (BoI) were asked during crisis talks on the night the Government bank guarantee was introduced in late September 2008 how much they could provide in liquidity to Anglo Irish Bank, according to well-placed sources.

During emergency discussions with the Government and senior regulatory officials, both banks consulted their treasury departments shortly after talks began late on Monday, September 29th.

Both heard from their treasury units within hours and determined that they each could provide €5 billion in loans to keep Anglo float.

The two banks believed that the loans to Anglo, which had haemorrhaged deposits during September 2008 at the height of the financial crisis, would be only temporary and that Anglo would be nationalised the following weekend.

Nationalisation was regarded as impossible midweek while markets were open, as it would affect the other listed institutions.

AIB and BoI both sought assurances from the Government that night that the €10 billion would be repaid that Friday ahead of the Government’s expected nationalisation of Anglo.

The following day, neither bank was contacted by the Central Bank, the Financial Regulator or Anglo in relation to the loans of €10 billion, or received any explanation as to why the loans weren’t needed.

Following the Government’s announcement of the system-wide deposits and funding guarantee early on September 30th, deposits flooded into the Irish banks.

Five months later it also emerged that Irish Life Permanent (ILP) provided €3.45 billion in temporary loans to Anglo on the day of the guarantee – in addition to €4 billion loaned by ILP to Anglo earlier that week – and that the two had also supported each other with liquidity earlier that year. The €7.45 billion in loans are now being investigated by gardaí.

Last week Labour leader Eamon Gilmore called on the Taoiseach to publish all advice on which the decision was made to include Anglo in the guarantee.

In response, Mr Cowen said that the decision to guarantee the six domestic institutions was in line with advice provided that night by the Central Bank, the regulator, and senior officials of the Department of Finance and the National Treasury Management Agency.

Documents supporting that decision would be made available to the inquiries being carried out into the banking crisis, he said.

The country’s two largest banks sought to become involved in the emergency talks on that night of September 29th-30th, 2008, after the collapse of US bank Lehman Brothers froze the wholesale money markets, sparking a chain of bank rescues across the globe.

On Monday, September 29th, Irish shares fell the most in a quarter of a century. Anglo was the worst hit Irish bank, dropping 46 per cent, and was facing full collapse the following morning after the US Congress rejected a banking bailout deal overnight.

The two banks entered the talks that evening after they requested, through contacts at one of the banks, to discuss the intensifying crisis facing the banking system.

Banking sources differ on what the two financial institutions wanted at the meeting. Sources with knowledge of AIB’s position on the night said the bank sought no support for itself but pressed that the Government needed to act to prevent Anglo’s collapse.

The sources claimed that the senior bankers in attendance – Dermot Gleeson, then chairman of AIB, and then chief executive Eugene Sheehy – were told the State had prepared a guarantee scheme that could protect the entire system but that they would have to ask the Government for it.

BoI, which was represented by then chief executive Brian Goggin and governor Richard Burrows, argued for Anglo to be nationalised and the other institutions guaranteed, according to sources familiar with its position that night.