Neary tells inquiry banks put 'gloss' on accounts

FORMER FINANCIAL regulator Pat Neary has told one of the investigations into Anglo Irish Bank that it was not surprising banks would carry out transactions to put “a gloss” on their published accounts. Mr Neary also told investigators he was never shown in advance a balance sheet for Anglo for the year ending September 30th, 2008, by anyone at the bank.

The investigations are examining the €7 billion in deposits placed with the bank by Irish Life and Permanent (IL&P) over the bank’s 2008 financial year-end. The deposits masked the heavy losses of deposits during September 2008 when the global banking crisis led to a run on Anglo.

They made the bank look healthier than it was when it reported annual results.

The regulator has consistently maintained it never approved the Anglo-IL&P transactions. The bank is being investigated by the Garda Bureau of Fraud Investigation, the Office of the Director of Corporate Enforcement and former comptroller and auditor general John Purcell, who was appointed by the Chartered Accountants Regulatory Board (Carb) to examine the role played by chartered accountants.

Mr Neary, who stepped down as regulator in January 2009, has told Mr Purcell’s investigation it was common for banks to draw on lines of credit from other banks “to put as good a gloss as you could on your accounts”, showing they had access to funds and making their balance sheet look bigger.

He was being questioned about so-called “balance sheet management” by banks for their accounts.

He said he knew nothing of a suggested practice in banking where it was regarded as tolerable that banks could borrow up to 10 per cent of the value of their balance sheet to make their accounts look better.

He rejected suggestions that he was shown Anglo’s balance sheet for the September 2008 year-end in meetings with the bank about 10 days before the end of the month and gave it his blessing.

A subsequent investigation by Anglo’s lawyers claimed that the bank’s finance director Willie McAteer told the former regulator in mid-September 2008 that it was planning to “manage” its balance sheet before the end of its financial year, to which Mr Neary is claimed to have replied: “Fair play to you, Willie.”

Another senior figure at the regulator, Con Horan, who was prudential director at the time, has told Mr Purcell’s investigation that this expression may have been used in meetings between the regulator and Anglo but he could not recall the exact circumstances. Mr Horan said the banks were “pulling out all the stops” to improve their funding after outflows of deposits during September.

Anglo executives maintain the regulator was told beforehand the bank would be taking in short-term deposits before the end of the bank’s financial year end. The complaints committee of Carb appointed Mr Purcell in February 2009 to investigate issues relating to directors’ loans and other matters at Anglo. Mr Purcell is investigating possible breaches of the institute’s bylaws and rules of professional conduct. He is examining the role of Anglo chairman Seán FitzPatrick, chief executive David Drumm, Mr McAteer and ILP finance director Peter Fitzpatrick.

He is also looking at the role of accountancy firm Ernst and Young, who were Anglo’s auditors.

A Carb spokesman said Mr Purcell would submit a report on the four accountants before the end of the year and on Ernst and Young in the new year.