Inside the bank that broke Ireland

 

Before Anglo Irish Bank became a byword for financial failure, it was the swaggering success story of the Celtic Tiger. In
an exclusive extract from his new book, Anglo Republic, Irish TimesFinance Correspondent SIMON CARSWELLdetails the bank’s backroom culture, lavish spending and ruthless silencing of criticism when it came under attack in March 2008

ON MARCH 13TH, 2008, Merrill Lynch published an explosive analysis of the most aggressive lenders in the UK commercial-property market. The report started a few fires at Anglo Irish Bank.

The London-based analyst who wrote it, Phil Ingram, had based his report on a simple straw poll of commercial-property valuers. It was more anecdotal than scientific, but the answers showed that the Irish banks had piled into the UK property market, applying the same loose credit standards that they had at home. The valuers cited Anglo as among the most aggressive lenders.

Ingram’s report noted that the UK commercial- property bubble was bursting and that banks were going to lose money. He said banks that were “late arrivals to the party” had taken “more risk for less reward” and were expected to take the biggest losses. Anglo, one of those late arrivals, was cited as the bank with the biggest credit risk. It had grown its UK loans significantly over the previous two or three years as it expanded aggressively outside Ireland.

Anglo’s chief executive, David Drumm, was hopping mad about the report. He contacted Kevan Watts, who managed Merrill Lynch’s operations in Asia and had had some recent dealings with Anglo, to complain. Drumm told him that Ingram’s study was sloppy and cynically biased towards the position Merrill Lynch’s trading desk had taken on Anglo. (Investors generally were being advised to sell out of bank stocks at this time.)

Later that day, one of my contacts at Anglo told me that Merrill Lynch was withdrawing the report. I contacted Merrill Lynch, to check; a spokeswoman told me that Ingram’s report had been released “before being edited” but that it would be reissued with “no material change” in its findings.

In the March 2011 issue of Vanity Fair Michael Lewis referred to the Merrill Lynch report in an article on Ireland’s economic crisis. Lewis reported that Ingram’s bosses had “hauled him into meetings with in-house lawyers, who toned down the report’s pointed language and purged it of its damning quotes from market insiders, including its many references to Irish banks. And from that moment everything Ingram wrote about Irish banks was edited, and bowdlerized by Merrill Lynch’s lawyers. At the end of 2008, Merrill fired him.”

MERRILL LYNCH and the other leading investment banks had bigger things on their minds that week than the sensibilities of Anglo Irish Bank. On Monday, March 10th, 2008, rumours began to circulate around a nervous Wall Street and the wider financial markets that Bear Stearns, an 85-year-old institution and the United States’ fifth-largest investment bank, was having difficulties repaying its lenders.

Bear Stearns had $18 billion in cash, but this didn’t reassure the panicked markets. Breathless reports on the business channel CNBC suggested that it could be the first big American institution to fail in the crisis arising from the securitisation of US subprime debt. Other banks stopped lending to the bank, in effect causing a run on it.

The following weekend the US Federal Reserve stepped in with an orchestrated rescue: its rival JP Morgan would buy it in a deal that valued Bear Stearns at just $236 million, or 1.3 per cent of its value a year earlier. The news startled Dublin traders, though few yet believed that an Irish bank would end up in the cross hairs of frazzled investors.

The next Monday was St Patrick’s Day, and Ireland’s main stockbroking firms had skeleton staffs working, because March 17th is usually a very sleepy day of trading. Not in 2008, however. That morning the influential Lex column, in the Financial Times, suggested that investors should examine three key areas in banking. The first was liquidity: do banks have enough to meet their day-to-day repayments and avoid insolvency? The second was capital: have banks set aside enough to cover potential bad loans and investments coming down the tracks? The third was asset quality: just how bad are their loans and investments?

“Even minor prejudices gain significance in a panic sell-off,” wrote the anonymous columnist. “For example, nobody wants to have anything to do with banks with commercial property exposure (Anglo Irish Bank and HBOS) or buy-to-let lending (Bradford Bingley).” The singling out of Anglo, the only Irish bank mentioned by Lex, was akin to marking the bank’s door as among the most contagious in a financial plague. Traders in Dublin watched their screens in horror as Irish banks’ share prices nosedived in the first three hours of trading.

They had never seen anything like it. The bank stocks were flashing red, signalling dramatic falls. Anglo’s share graph was descending almost vertically.

“We were caught in the headlights,” says one Dublin trader. “There were only a few of us in the office that day, and when we saw the share prices fall we were like, ‘What the f**k is happening?’ There was no Irish news flow that day, because it was St Patrick’s Day, and there were no Irish investors in the market. This was international investors, particularly in London, and the hedge funds were making a strong statement about what they thought about Anglo and Ireland.”

Rumours began to circulate that Lehman Brothers was not far off becoming the next big Wall Street bank to collapse. Worryingly, from an Irish perspective, Lehman held about 5 per cent of Anglo stock. Were the US bank forced to dump this holding, Anglo would come under even more pressure.

Anglo’s share price dropped 23 per cent before ending the day down 15 per cent, at €6.96 – some distance off its €17.53 peak, in June 2007. Almost €1 billion was wiped off the value of the bank in a matter of hours – about €1.6 million for every minute of trading that day. Investors had made a strong statement about what they thought of Anglo. Suddenly, the bank found itself on an unwelcome global stage, facing even more questions around its financial health.

Its senior managers were shaken by the catastrophic collapse in the share price. But rather than ask whether investors had legitimate concerns about the bank’s exposure to property or about its funding position, Anglo executives went looking for a bogeyman. They believed they were the victims of intense bad-mouthing in the market and a one-day short-selling raid by hedge funds.

THEY ALSO SUSPECTED that hedge funds had got wind of the scale of a bet that Seán Quinn had been placing on Anglo: the businessman, who was also one of the bank’s main borrowers, had been secretly amassing a stake in Anglo by investing in the bank through CFDs – contracts for difference. CFDs, a form of investment based around the movement of a company’s share price, had become hugely popular for investors looking to turn a quick profit in boom-time Ireland. The investor has to pay only a small deposit, known as the margin, and borrows the remainder of the cost of the shares from the broker-dealer. If the stock rises, the investor can sell the CFD and pocket the increase. The risk for Quinn was that if the underlying shares fell in value he would have to cover the losses – the dreaded “margin call”. The risk for Anglo was that as the brokers who sold Quinn the contracts retained the shares, they could lend the stock out to hedge funds that wanted to profit by shorting Anglo – making their own bets that the bank’s share price would fall – so prolonging its vulnerability.

As the St Patrick’s Day disaster unfolded, Anglo’s board held a conference call to consider the day’s events. One nonexecutive director suggested that they should plan what to do if depositors started to queue outside the head office, on St Stephen’s Green, and there was a run on the bank. It was even proposed that the management team should have rope barriers ready to corral depositors demanding their money.

With images still fresh in people’s minds of queues outside Northern Rock’s branches the previous September, Peter Fitzgerald, who was in charge of customer deposits, was instructed to come up with a contingency plan in case the same thing happened to Anglo. Staff were told to be at work at 6am the next day to manage any gathering crowds; customers were to be kept off the street in front of the bank at all costs.

The bank’s management were even worried that some hedge funds would try to boost their profits by planting people at Anglo branches to encourage queues, so putting further pressure on the bank. Staff were primed to “smoke them out” by demanding identification and account details from those in line. Paranoia seemed to be getting the better of Anglo’s executives.

A further conference call was held at 1pm the following day. Just three directors were in Anglo’s boardroom for it: finance director Willie McAteer and nonexecs Anne Heraty and Ned Sullivan. On the phone were chief executive David Drumm, chairman Seán FitzPatrick, head of Irish business Pat Whelan, head of UK operations Declan Quilligan and nonexecutive directors Lar Bradshaw, Fintan Drury, Michael Jacob and Gary McGann. Another nonexecutive director, Noël Harwerth, couldn’t participate.

Drumm did most of the talking. He told the board that the bank was receiving an unusually high number of calls from concerned depositors in light of the share-price collapse the previous day and the negative commentary about the bank. He confirmed that the bank had lost some deposits as a result.

The directors discussed whether a public statement from the State’s top banking authorities about “the robustness of the Irish banks” would allay fears. The board felt this was a good idea, and agreed that the bank should ask to meet the governor of the Central Bank of Ireland, John Hurley, and the head of the Irish Financial Services Regulatory Authority, Patrick Neary.

Next on the agenda was Seán Quinn. The minutes of Anglo’s board meetings never mentioned Quinn by name, referring instead to “a large CFD position connected to the bank’s shares”. The bank was afraid that a leaked minute of the meeting could confirm market rumours about the issue.

At the second meeting that Tuesday, at 3.30pm, the board considered several options for dealing with Quinn, who would be facing stiff margin calls from his broker-dealers in the wake of the big drop in the Anglo share price. Holding two board meetings in one day was highly unusual but warranted given the trouble facing the bank. The board decided that the best plan was to find a long-term shareholder to acquire the stock supporting Quinn’s CFD position.

DURING THESE panic-filled days, Fintan Drury got a phone call from Seán FitzPatrick. The Anglo chairman asked the nonexecutive director – a friend of Brian Cowen, who was then minister for finance – whether he should call Cowen to tell him about Anglo’s problems. Cowen was away in the Far East, on a St Patrick’s Day ministerial trip.

Cowen’s ministerial diary over the period he was at the Department of Finance – September 2004 to May 2008 – shows 12 appointments with Drury. This was a significant number, given that Cowen met the governor of the Central Bank 17 times over the same period and officials from the Financial Regulator seven times, including just two meetings with Pat Neary.

Some of the meetings may be explained by the fact that Drury occasionally helped Cowen to write his speeches, including the eulogy Cowen gave at the graveside of former president Patrick Hillery on April 16th, 2008. It was a landmark speech for Cowen, who had just been elected leader of Fianna Fáil and was due to take over as taoiseach within a few weeks.

After the St Patrick’s Day Massacre, Drury thought it might be worthwhile for FitzPatrick to talk to Cowen. Drury rang Cowen to ask whether he would take a call from the Anglo chairman. Cowen called John Hurley, the governor of the Central Bank, to see whether Hurley had any objections. Hurley didn’t, so FitzPatrick phoned Cowen on his mobile. He told him about the collapse of the bank’s shares and said he believed it was connected to the shareholding Quinn had built up.

As he later told the journalist Tom Lyons, FitzPatrick told Cowen that “what was really happening was that pressure was coming from the shorters, these guys, the hedge funds, trying to get Quinn”.

THE ANGLO BOARD met again at noon on Wednesday, March 19th. The board discussed the announcement of an investigation by the UK’s banking regulator, the Financial Services Authority (FSA), into rumours about and short selling of shares in HBOS, the big UK bank formed by the merger of Halifax and Bank of Scotland, whose price had plunged 17 per cent the previous day. Like Anglo, HBOS had an enormous exposure to property.

The FSA wanted to discover whether hedge funds had orchestrated the share-price declines by spreading rumours about the bank. Anglo believed that something equally sinister was at work in the Irish market and wanted the Financial Regulator to investigate and punish those responsible.

The board also discussed an article in that day’s Irish Timeswhich questioned the bank’s funding position, linking concerns about deposits to the huge share sell-off. “The bank was cursed by the general lack of trust in the banking sector, fears that deposits were walking out the door and rumours that troubled US investment bank Lehman’s was placing a 2.4 per cent stake in the company with a third party,” Laura Slattery had written.

“Even, as one dealer said, if there was ‘probably not’ any truth in any of it, the sickness in the financial system following the collapse of Bear Stearns is enough for investors, from institutional giants to small-time fund managers alike, to cut Anglo out of the picture, while hedge fund managers took the opportunity to short the stock.”

Slattery’s report was painfully accurate for Anglo. It touched a nerve with the board, particularly the reference to lost deposits, which the directors believed could trigger further withdrawals. For a bank, it’s a vicious circle: reports about customers withdrawing deposits lead to more customers withdrawing deposits.

Responding to concerns raised at the Wednesday board meeting about the bank’s deposits, Drumm said Anglo’s funding remained solid: despite withdrawals, the bank could still meet repayment demands on deposits.

Drumm told the board about a meeting he had had with John Hurley and Pat Neary that day. (The bank was in contact with the Central Bank and Financial Regulator by phone every day, sometimes several times, after the share-price collapse.) They had discussed the board’s concerns about short selling in the bank’s stock, he said. The board agreed to ask the investment bank Morgan Stanley to see whether there was enough appetite in the market to find a long-term investor to take Seán Quinn out of the picture.

Anglo was concerned that every share a broker-dealer held to back Quinn’s contracts for difference could be lent to short sellers looking for a quick profit. Quinn’s 215 million CFDs made the bank highly vulnerable. At one point in 2008, at Anglo’s urging, Quinn asked his CFD broker-dealers not to lend out the underlying shares on his CFDs. His requests were ignored: his brokers could do as they liked with the stock; they were in business to make money, not to protect Quinn’s position.

On Thursday, March 20th, Anglo’s board met again by conference call at 2pm. The directors agreed that they needed to push the Financial Regulator to protect the bank from what they believed were speculators making big money betting against it. Later that afternoon Drumm called Hurley and pleaded with him to release a statement on the health of the banking system, to avoid a run on Anglo’s deposits. Hurley told Drumm that the Central Bank was considering all options.

The following day was Good Friday, the start of the four-day Easter-holiday weekend. Drumm told Hurley that if the Financial Regulator didn’t do something at once then there could be a major run on deposits when the bank reopened the following Tuesday. Unusually, Hurley agreed to run past Drumm a draft statement the Central Bank was going to issue. Happy with it, the Anglo chief executive asked the Central Bank governor to release the statement as quickly as possible.

The first statement came later that day from the Financial Regulator. “The Financial Regulator is concerned that false and misleading rumours circulating in financial markets in recent days are connected to unusual trading patterns in Irish shares,” it said, adding that the office would be examining “certain transactions in this regard”.

Then Hurley issued his own statement, in which he “strongly” supported the Financial Regulator’s actions in relation to “investigations into trading in financial shares over recent days”. He also said, “The Irish banking sector remains robust and has no material exposures to the sub-prime market.”

The interaction between Drumm and Hurley shows how close the relationship was between the bank and the State. Drumm had pleaded with the governor for a statement to protect the bank’s share price; he’d got two.

The strong statements from Dame Street hit the mark: Anglo’s share price jumped 14 per cent, to €7.85, on the Thursday. Short sellers in the bank rushed to buy long in the stock, in a move known as short covering, to protect themselves. All told, Anglo lost €1 billion in deposits over the week of the St Patrick’s Day Massacre, but the two statements stopped a further haemorrhage of funding from the bank – for the time being.

On Good Friday, March 21st, with the stock markets closed, FitzPatrick and Drumm went to the Central Bank to meet Hurley, Neary and Con Horan, the prudential director at the Financial Regulator, to discuss the flow of deposits out of Anglo. Hurley was particularly concerned about what the bank was going to do the following Tuesday, when it reopened its doors. Drumm assured him that senior staff would be in the branches at 6am, to watch for any sign of a line forming and to bring people inside if necessary to prevent images of queuing depositors appearing in the media.

The reporting of the St Patrick’s Day Massacre and the bank’s difficulties over the previous months was a source of much frustration to the bank. Drumm believed that media reports were encouraging depositors to withdraw their money; he even suggested to Hurley that he should call the editors of the national newspapers to explain the gravity of the situation facing the banks and the country at large, though Hurley never did so.

Later on Good Friday, Anglo’s finance director, Willie McAteer, drove to Neary’s house in south Dublin to go through what the bank believed were the margins on Quinn’s CFD positions and the effect of the share-price losses on Quinn. The Financial Regulator wanted to familiarise itself with the Quinn issue after the “bear raid”.

PRIVATELY, DRUMM told colleagues that he didn’t believe the Financial Regulator’s investigation into the alleged rumour-mongering would go anywhere. But he wasn’t really concerned about an investigation. He just wanted some public statement from Dame Street that would stop the avalanche of rumours that was driving down the share price.

The previous autumn Anglo had clashed with Davy over the bank’s view that the stockbroking firm was “talking down” its shares. In the early months of 2008 Anglo had another broker, Merrion Capital, in its sights. The bank had received reports from the property developer Seán Mulryan, who had an account at Merrion, that an investment adviser there had been rubbishing Anglo.

The adviser, Ken Costello, reportedly told Mulryan that there had been a small run on Anglo, with about €30 million or €40 million being withdrawn, and advised him to get his money out of the banks. “They’re f***ed – the Irish banks are f***ed,” Costello reputedly said. Clients liked Costello’s straight-talking manner – he generated good business and was one of the best-paid people at the firm – but Mulryan didn’t agree with his assessment. He told Costello that he knew Anglo had plans to raise money in the US and that the bank would be fine.

Merrion had never been a great supporter of Anglo, believing the bank was overexposed to property. Merrion’s CEO, John Conroy, had been at an investment conference in New York some years earlier at which Seán FitzPatrick sat alongside the heads of two other public companies during a panel presentation on Irish businesses. If you want to buy the Celtic Tiger, forget about these two other companies and buy Anglo, FitzPatrick told investors. His two fellow Irish executives were furious, and Conroy was stunned by FitzPatrick’s chutzpah.

Drumm and other executives at Anglo knew Costello of old. He had worked in the bank’s wealth-management division but left in 2002.

Costello’s would not be the only departure from the division. During subsequent years there were always tensions between investment advisers in Anglo’s private bank and the lenders in the main bank. The lenders feared that if the advisers encouraged the bank’s big customers to invest in a project that failed, their lending relationship with the bank might be ruined. “If you were in lending at Anglo, everyone outside that area was regarded as second-class citizens within the bank,” says a former executive.

FitzPatrick got on to Conroy. He wanted Costello fired; he also tried to smear the broker, claiming erroneously that Costello had been fired from Anglo years before for fraud – an allegation he later withdrew and apologised for making.

In response to FitzPatrick’s charge that Merrion was undermining Anglo, Conroy argued that the firm was simply taking the same negative view of the bank that the market had taken – and that was reflected in the falling share price. Conroy believed Costello was simply relaying market concerns to Mulryan.

On March 26th Pat Neary called Conroy. He reassured him that the Financial Regulator was not targeting Merrion in particular with its investigation but asking all stockbroking firms whether there were any unusual share trades in Anglo or whether any rumours about the bank had been received or passed on since the start of March.

Neary’s staff also looked into the activities of Seamus Murphy and Ronan Hurley, traders at Davy whom Anglo had targeted the previous autumn for advising clients to sell its stock. The Financial Regulator asked for e-mails and other communications from Murphy and Hurley. Davy handed over everything. It had nothing to hide. The firm gave the investigators details of the investors who had bought and sold the stock and showed that no brokers were doing their own dealing. The evidence proved that there was no conspiracy against Anglo.

There was a sense among stockbrokers that Anglo and the Financial Regulator were too close. A letter that Drumm told Anglo’s lawyers Matheson Ormsby Prentice to send Merrion, threatening it with legal action over Costello’s comments to Mulryan, and demanding a retraction, was copied to the Financial Regulator. Neary insisted that his investigation was separate from Anglo’s representations, but Conroy was unconvinced.

The Financial Regulator and Anglo wanted to find out if Merrion was spreading, or was the source of, a rumour that Merrill Lynch had withdrawn a $2 billion credit line from Anglo. The rumour, which was incorrect, appeared to originate from instant messages that brokers and their customers had sent via their Bloomberg newswire terminals. It had started with a US fund-management client messaging a broker at Merrion to ask about Merrill Lynch pulling a credit line from an unnamed bank. The message was then circulated within the firm and to outside investors and other brokers. At some point in the forwarding of the message, an instruction to hold Anglo stock – meaning to neither buy nor sell it – was added, leading people to believe that Anglo was the bank in question.

Anglo filed a complaint in the high court in London in which it claimed that an employee of the London stockbroking firm Mirabaud Securities, part of a private Swiss banking group, had sent an e-mail on February 29th, 2008, saying, “Anglo-Irish, ML pull a $2bln credit line? Rumor.”

The bank wanted the names of everyone who had sent or received the e-mail and a copy of all communication between Mirabaud and other parties between February 25th and March 7th that year. Anglo was trying to trace the e-mail back to its original author, believing that there was a major conspiracy against the bank. Nothing ever came of Anglo’s complaint.

The Financial Regulator did not find a jot of evidence to show that Merrion or Davy had spread rumours about Anglo or profited on the back of them. Conroy was incensed. The firm spent the equivalent of two weeks’ work by eight people, worth about €50,000, with a further six-figure sum paid in legal fees to one of Dublin’s biggest law firms, William Fry, to defend itself against Anglo’s suspicions. It was a huge management distraction and didn’t help Merrion’s reputation either.

Merrion’s chairman, Ray Curran, and FitzPatrick met and agreed to bury the hatchet. Drumm was furious, believing that FitzPatrick had caved in and that Anglo should have sued Merrion, to send a signal to the wider market.

Ken Costello could have chosen his language with Mulryan more carefully, but this was how some brokers spoke. “They were swimming against the tide and going against the culture at the time,” says a source with intimate knowledge of the episode. “Anglo was one of the darlings of the Celtic Tiger, and if you went against them they would come out fighting.”

Costello’s, and Merrion’s, view of Anglo would eventually be vindicated, although, as the source says, “It took nine or 10 more months to show Anglo for what it was.”

AS ANGLO’S share price fell, the bank continued to supply Seán Quinn with “working capital” facilities to enable him to meet his margin calls. The board approved the loans, and the Financial Regulator was notified.

An internal report compiled almost two years later shows the rapid growth of Quinn’s borrowings from the bank as the value of his bet on its share price fell further and further. Over six days around the St Patrick’s Day Massacre Quinn drew down €367.5 million – an average of €60 million a day – to meet the mounting losses on his contracts for difference, according to the Anglo report. He borrowed €67.5 million on Friday, March 14th, followed by €20 million and €220 million in two loans on St Patrick’s Day and €60 million the day after that. As March 17th was a bank holiday in Ireland, a UK branch of Anglo provided the loan that day. (In June this year Quinn’s finance director, Dara O’Reilly, would testify during a court case involving the bank that as Anglo’s share price fell and Quinn’s own resources became “extremely limited”, O’Reilly would call the bank and give a “rough calculation” of how the margin call had been determined. Documents were then drawn upthat purported to show the loans were for “property development”, O’Reilly testified; once signed, the loans could be transferred. “When I rang the bank on a very frequent basis in 2008, it was very clear it was for margin calls,” he told the court.)

On March 18th Liam McCaffrey, the chief executive of Quinn Group, wrote to Michael O’Sullivan, the Anglo lender who managed Quinn’s account, about the €220 million drawdown.

The letter was astonishing. Writing on behalf of Quinn, McCaffrey effectively signed over potential control of the Quinn Group, a business he had built up through hard graft over 35 years.

In return for the latest loan, Quinn agreed to hand over the share certificates in the main company at the apex of the Quinn Group corporate pyramid. It covered the ownership and ultimate control of his many businesses. He was putting his life’s work on the line.

In truth, Quinn had no choice. He had to meet the margin calls, and the only way to do this was to borrow more and more from Anglo. He also offered personal guarantees in his name and the names of all his children to cover the new loans, as the bank had requested.

“I can confirm that as additional comfort in relation to the security on this facility the Quinn family are prepared to support their personal guarantees by giving Anglo Irish Bank Corporation plc physical custody of their shares in Quinn Group RoI Limited,” McCaffrey wrote.

While the added security helped, Anglo was still in a weak position. Besides its debt to Anglo, Quinn Group owed €1.3 billion to a syndicate of Irish and UK banks and investors, and the debts were structured in such a way that the syndicate was ahead of Anglo in the queue to be repaid.

The St Patrick’s Day Massacre had come close to breaking Anglo; it had taken the intervention of the Central Bank and Financial Regulator to halt a sell-off of shares that could have sparked a fatal run on the bank.

Anglo believed that any public disclosure of Quinn’s shareholding and a disorderly unwinding of his investment in the bank could cause the same sort of chain reaction – and it could not necessarily count on the regulators to turn the tide a second time. The Quinn situation had to be resolved.


This is an edited extract from Anglo Republic: Inside the Bank that Broke Ireland, by Simon Carswell, which will be published by Penguin Ireland on Tuesday, €16.99

The drinks – and the golf balls – are on us: Anglo’s wine and dine culture

Every bank used hospitality to drum up new business and reward loyal customers during the boom years, but Anglo had a unique approach. In the early 2000s, the bank put up a select group of about 25 customers and their wives in a hotel in Paris before taking them on the Orient Express to Venice, where they spent another night before flying home. The Belfast businessman Peter Curistan, who developed the city’s flagship Odyssey Centre, and Paddy Kelly were among those who went on the all- expenses-paid trip.

Bill Barrett, an Anglo lender who was one of the bank’s best generators of new business, rising to become director of banking and head of Anglo’s Irish operation, would often say that if the bank was charging a customer a €1 million arrangement fee – which was not uncommon – then it had to give something back. This was a question not of fairness but of good business: during a boom, when every bank was clamouring for the business of the top developers, Anglo believed that generous entertainment encouraged customers to return again and again.

“You couldn’t just offer them tickets to see Manchester United play,” says one senior Anglo executive who was involved in a number of foreign trips arranged by the bank. “Many customers had their own private jets and helicopters, and some of them would even have had boxes at Old Trafford and other Premier League grounds. The guy who owed you €5 million was easy: you brought him over to Old Trafford. But for the larger borrowers you had to offer them something different . . . Otherwise they just wouldn’t come. You can’t exactly take Seán Mulryan to see Arsenal play; he could probably buy the club.”

According to Anglo documents relating to 2008, the bank paid €21,000 for Manchester United tickets and €19,000 for Chelsea season tickets; €42,000 to take clients to see Ireland’s rugby Six Nations away games and €26,000 for tickets to two home games; €9,000 to take clients in the US to Boston Red Sox baseball matches. Ten-year premium rugby tickets for the then-unbuilt Aviva Stadium in Dublin cost the bank €140,000.

The overnight trips helped the bank find out more about a customer. “It gave you an opportunity to see them outside of the usual daytime business meetings: how they behaved if a good-looking waitress walked by or how they held their drink. It was a good way to see how the customer behaved and whether you could trust them with a loan,” says the former Anglo executive. The trips could also create connections among the bank’s clients. One Anglo banker recalled seeing two rival developers agree a property transaction over drinks on one such junket.

ONE OF THE MOST EXPENSIVE fixtures in Anglo’s entertainment calendar was the annual golf trip to Ireland for the bank’s US customers. This dated back to 2001, when David Drumm, as head of its US operations, brought a dozen or so Americans over. It was seen as a good way to build up business in a new market.

The trip usually took place over the June bank-holiday weekend at west-coast courses, such as Ballybunion and Waterville, in Co Kerry, and Doonbeg and Lahinch, in Co Clare. Anglo eventually chartered a full-sized jet rather than pay business-class airfares. Putting the customers on a single Anglo flight gave the bank access to them for the duration of the transatlantic crossing.

In later years, some Irish developers were invited to join the US customers on the golf course. The bank decided to fly the US clients to Ireland on a scheduled flight rather than on a chartered plane for the June 2008 trip. The Aer Lingus tickets cost the bank €104,000, and the clients stayed at the five-star Aghadoe Heights Hotel, in Killarney, at a cost of €103,000. Anglo also bought silver cufflinks from a Dublin jeweller as souvenirs; they cost €7,000.

Banking and golf went hand in hand at Anglo. In 2001 the Sunday Business Postasked Seán FitzPatrick, who was the bank’s chief executive at the time, about his favoured sources of personal finance information. “For information, one of the best sources is FT.com,” he said. “For analysis, read the Economist. But for the real McCoy, you can’t beat the 19th hole on the golf course.”

In September 2007, FitzPatrick questioned David Drumm, his successor as chief executive, on the merits of promoting Pat Whelan to replace Tom Browne as head of lending in Ireland. The reason for his doubts was simple: Whelan didn’t play golf. He subsequently got the job anyway.

Many Anglo customers were not just avid golfers but developed or owned courses: Paddy Kelly at Tulfarris, Co Wicklow, and Carton House (with the Mallaghan family), in Co Kildare; Joe O’Reilly at Killeen Castle, in Co Meath; Gerry Gannon, who co-owned the Ryder Cup course the K Club, in Co Kildare; and Seán Quinn, who had another Ryder Cup course, the Belfry, in England, and the Slieve Russell, near his home in Co Cavan.

Anglo had bankrolled the development of about 30 courses. FitzPatrick himself invested in a Hungarian golf course after he stepped down as chief executive in 2005.

In the year after the nationalisation of the bank, the new management installed by the government discovered the bank had spent a fortune on golf paraphernalia and other trinkets to give to customers on its junkets. The total expenditure on such items came to a whopping €1.38 million between 2006 and 2009, more than €200,000 of it on golf balls alone.

AS AUTUMN 2008 approached, Drumm wanted to lift the spirits of staff whom, he felt, were feeling the brunt of negative comment about Anglo in the media and the general pessimism about the economy and the property market. Drumm decided to organise a party. He e-mailed all the bank’s staff in Ireland on July 22nd. “Dear colleague, the stock markets are down. They say the economy is in recession. It rained most of the ‘summer’. The holidays are over. This is Anglo so there is only one thing to do – party!”

Drumm invited staff to join him on the evening of Friday, September 5th, for food and drinks at the Mansion House in Dublin for what he called the Back to School Doombuster Party. There would be a live band to entertain them until late, he said.

The party cost the bank €80,000, excluding accommodation for staff who travelled from the bank’s regional offices for the night. The drinks bill alone was €24,000, which included €31 bottles of Prosecco, €30 bottles of Pinot Grigio and €24 bottles of Merlot.

The bank had already spent €272,000 on Christmas staff parties in Dublin, London and Boston the previous December and €229,000 on three Christmas parties for clients, in addition to €87,000 on Christmas hampers and wine for customers.

But this new expenditure was at best peculiar at a time when the bank was struggling to fund itself and to convince the markets that it was not going bust.