THE SATURDAY INTERVIEW: DR MICHAEL SOMERS After two decades running the National Treasury Management Agency, Dr Michael Somers defends the agency and the salaries he and his staff were paid
MICHAEL SOMERS does not strike you as having been, until last year, the highest-paid public servant in the land. Conservatively dressed, Dr Somers could certainly pass as a 46-year veteran of the public service, but his outspoken views on the Government’s bank-rescue plan, particularly the establishment of the National Asset Management Agency (Nama), mark him out as a maverick among the ranks of State officials, who traditionally prefer quiet retirements.
As chief executive of the National Treasury Management Agency, the State body that manages the Government’s borrowing requirements and ever-growing debt mountain – €87 billion and rising – Dr Somers oversaw the establishment of the agency, in 1990, and managed the organisation for 19 years until his retirement last November.
The agency’s headquarters in Dublin are akin to Ireland’s war rooms at present, given international concerns about the State’s ability to save the banks and cover the cost of Anglo Irish Bank: the sum involved is spiralling towards €30 billion; Dr Somers believes the banking bailouts could reach €40 billion.
As guardian of the country’s debts, the agency is fighting to maintain Ireland’s financial credibility in nervous bond markets as the Government borrows €20 billion a year to bridge the gap between what it collects in taxes and the cost of running the country.
For almost two decades Dr Somers was the agency’s commander-in-chief, travelling as far afield as Japan to meet bankers and investors, telling them what a great country Ireland was, how the country posed no risks and how they would get their money back on any loans they had provided or would give to Ireland.
At the first sign of any negative news about the State he would drop everything and jump on the first plane to New York, to explain the problems directly to the omnipotent credit- ratings agencies that determine how interest much the Government pays on its borrowings.
“We explained exactly what was going on, on the basis that there was no shocks, no surprises. They got to trust us as a result of that,” he says.
Now a Government-appointed director at Allied Irish Banks, Dr Somers is getting to see the inside of the crashed car and monitoring the difficult salvage job after initially being one of the State paramedics at the scene of the crash.
The agency played a key role for the Government in helping to manage the fall-out from the banking collapse, raiding one of the organisation’s four internal subagencies, the €20 billion National Pension Reserve Fund for the €7 billion bailout of AIB and Bank of Ireland. (The National Treasury Management Agency is now in charge of five State agencies and manages the Government’s banking functions.)
The sale of AIB’s family silver – its prized Polish subsidiary, Bank Zachodni WBK – is “most unfortunate”, he says, and “a heavy price to have to pay” to cover the losses on the bank’s property loans. “AIB’s problems are minuscule compared with the Anglo problems, and they are manageable.”
Dr Somers doesn't believe that a single bank, Anglo, can bring down a country – a question posed by the New York Timeslast month – but "it can do an awful lot of damage to a country". He was "absolutely shocked" when he discovered the billions in loans Anglo had provided to a small group of developers.
The agency has a tough task, he says, convincing investors they would be repaid any money invested in Irish Government debt, given the uncertainty around the cost of Anglo. “It is a hard message to sell. Anglo is the big unknown: it needs to be sorted, and sorted fast. We are not getting good press.”
Seven months after the bank guarantee the Government decided to house another new organisation, Nama, under the agency’s roof, a decision that rankled with Dr Somers and over which he expressed serious misgivings before a Dáil committee in May 2008.
Another issue that has displeased Dr Somers is the constant demand for the disclosure of details of his pay at the agency.
The matter has reared its head again, with the Department of Finance revealing his €1 million pay package as the agency’s chief for 2008 following a ruling by the Information Commissioner after a request from the Sunday Times under the Freedom of Information Act.
Dr Somers challenged the department’s decision, but the commissioner has forced the department’s hand. Dr Somers says he had no intention of taking the matter farther, to the High Court, to halt the disclosure. “It is open to the Minister to reveal this information.”
He traces the issue back to 1990, when the agency was set up by the then minister for finance, Albert Reynolds, outside the Civil Service. It was structured this way to compete with the private sector, paying well over Civil Service rates to recruit the right people to deal with the complexities of bond markets.
The debt burden on the State was huge at the time, and while it took some “hard swallowing”, he says, Reynolds accepted he had to “pay up” to attract highly competent people.
“I had to get the best in – there were vast amounts of money here. You couldn’t afford any mistakes in there, and in the 19 years I was there, there were no mistakes,” says Dr Somers. “And the State never ran out of money: there was never a question mark over the viability of the State when I ran the show.”
Dr Somers was asked “endless times” about how much he and his staff were paid. He refused, he says, claiming this would have increased the agency’s pay bill, as employees on individually negotiated deals would have sought more, to match their colleagues’ pay.
“I came under enormous pressure from some people to be paid more. I never gave away any money unless I really felt I had to.”
Pay levels were set against the private sector, and he had to compete with private firms that would have poached his staff. His own pay was set annually by two internal committees and signed off by the minister for finance. “If it got into the public arena, it was going to cause a lot of headlines . . . I wasn’t being paid anything like what the bankers were being paid, but I was being paid more than what was being paid in the Civil Service. This is where the envy factor comes in.”
Dr Somers says he received a bonus of €403,000 for 2008 on top of a salary of €565,000 – he initially said €576,000 but later corrected this figure – and a stipend of more than €30,000 as a commissioner of the pension reserve fund. He was entitled to a bonus of up to 80 per cent of his salary under his contract, he says, and is now entitled to a €250,000-a-year pension.
He stresses that he could have retired 20 years ago at the age of 49 on a lucrative State pension after seven years at secretary-general level in the Civil Service. He says he had “several job offers at any one time” and “endless approaches” during his time at the agency, one of which offered “considerably more” pay.
So why did he stay and take flak over the pay issue? “I was having fun, I suppose.”
Jealousy among senior civil servants was “a factor” in the constant pressure on the agency pay issue, Dr Somers says. He concedes that the agency may have become a victim of its own success, charged by the Government with setting up challenging new State bodies.
During his time at the agency Dr Somers was asked to set up the State Claims Agency, which defends lawsuits taken by 4,000 people who are suing the State at any one time; the National Development Finance Agency, which manages public-private partnership deals for State bodies; the reserve fund to cover the cost of the State’s post-2025 pension and social- welfare bill; and, most recently, Nama.
He didn’t want the State Claims Agency – “I knew nothing about it, and it wasn’t a sort of financial-type operation; the expertise we had in-house was financial.” The National Development Finance Agency brought the agency “into the building business”.
Dr Somers says other public agencies and Government departments may have been antagonised by the National Treasury Management Agency when it was chosen to set up and run businesses that the Government felt could not be handled by the Civil Service – all done on undisclosed pay levels.
“There is an element of that, but that is their fault. Why don’t they convince people that they can do it?” he asks. “We were in the firing line. If we had made a balls of it, we would have been killed. We weren’t an agency that was dispensing welfare benefits: we were an outfit that had to take decisions and huge risks on behalf of the State all the time.”
Dr Somers says he set up the treasury management agency free from the interference of the Department of Finance. As secretary general of the Department of Defence from 1985 to 1987 he saw that the Army had reported directly to the minister for defence, not through his department, and he copied this structure at his new agency.
“I knew the way the Civil Service operated: it is a dead hand on everything [it deals] with . . . I came from the inside, so I knew what it involved.”
AS A STUDENTat St Mary's in Rathmines, near his home in Dublin, Dr Somers wanted to become an engineer but was advised by a dermatologist to steer clear of metals after contracting an unexplained rash in his late teens.
He landed a job at the Department of Finance in 1963 and established the widows’ and children’s State pension scheme, encouraged by the head of the department, TK Whitaker, and the minister, Charles Haughey.
In 1969 Whitaker brought him to the Central Bank, where he “learned the theory of credit, money supply and how it all worked”. From there he was reassigned to the Department of Finance to a role forecasting tax yields to develop five-year budgetary plans. Here he learned more about how the State borrowed.
In the mid 1980s he applied for some of the top Civil Service jobs – secretary general at the departments of Labour and Defence.
He secured the top job at Defence. “It was a boy scout’s dream,” he says, meeting Soviet air-force colonels and travelling to visit Irish troops in Cyprus and Israel. In 1987, with the public finances in disarray and the State’s borrowing costs soaring, he received a phone call from Haughey, who was then the taoiseach.
“Charlie said to me: ‘What are you doing over there playing soldiers? We have got financial problems.’ ” The management of the State’s mounting debts was also in disarray, which led the Government to establish the National Treasury Management Agency.
Dr Somers dismisses the suggestion that the agency is a law unto itself, given its structure. “That was an awful lot of rubbish: it was immediately accountable,” he says. Pay was the only subject off limits to public scrutiny, he says. He defends his record at the agency, saying he lived the job 24 hours a day, entertaining foreign delegations – sometimes at his own home, at his own expense – and there was “no cock-up, no mess” at the organisation.
“It was the only body left standing when everything else collapsed: I am referring to the banks. The Central Bank and the regulator didn’t cover themselves in glory either. We did our job with a staff of 168, and we had enough money to see the State through all its problems. We built up the pension fund: that was available to recapitalise the two main banks, and there was never any question about the State’s solvency.”
The agency got it right by spending “a lot of time agonising” over the risks, he says. One such threat the agency spotted early on was Anglo Irish Bank. Dr Somers says that “years ago” Jim Farrell, then an executive at Citibank and chairman of the board of the Financial Regulator since May 2008, first raised concerns about Anglo’s banking model. “The problem with Anglo was that they didn’t have a deposit-collecting base. The main banks had branches all over the country, and people saved with them . . . We felt that there wasn’t a tradition with Anglo.”
The agency spread about €20 billion held in cash for the State around 100 banks worldwide. While the limit for AIB and Bank of Ireland was capped at €300 million each, the agency would place a maximum of €40 million with Anglo. “That was a principle we followed: no unnecessary risks. We have to take a lot of necessary risks; we are not going to take any unnecessary risks. That was an unnecessary risk, and I wasn’t going to take it.”
Dr Somers doesn't believe he should have shared his concerns with the Financial Regulator or the Department of Finance. The significance of the agency's appraisal of Anglo has been overplayed, he says, most notably by the Irish Timescolumnist Vincent Browne. "I was not staying awake at night wondering why I had or had not put more money into Anglo. It was not something that concerned us."
In hindsight, though, should he not have raised his concerns elsewhere, given the mess the country finds itself in now over Anglo? “No, because I didn’t know enough to say anything to anybody, and if I had said it they would have said: ‘Would you ever go and mind your own business? This is a very successful institution – what are you on about?’ It would not have mattered if I had said something to Cowen. What could he have done?”
Dr Somers did raise concerns about the surge in bank lending during the frenzied property boom, as credit growth far outstripped economic growth. He said he mentioned his concerns informally to a senior official at the Department of Finance two or three years ago.
“I told him that this was going to end in tears, and he said: ‘You are not listening to the governor of the Central Bank. The banking system is robust. It has been stress-tested – what are you on about?’ ” The response didn’t surprise him. “That would have been the reaction to a lot of things I would have raised: ‘Mind your own business.’ ”
DR SOMERS SAYSTHE delusion around the Irish economic story began the day Ireland joined the euro. "We joined a German club, and we decided to continue playing by our own rules. The Germans went in for low pay rises and low cost rises. We continued with high pay rises and high cost rises and we got completely uncompetitive." Building 90,000 homes a year was "ridiculous" when the UK was building twice that for a population 14 times the size.
As for the Government’s banking measures, Dr Somers believes there was no option in September 2008 but to guarantee all deposits at the banks. But he says he would “need a fair bit of convincing” to say it was necessary to cover the bondholders at the banks as well.
Dr Somers was uncomfortable about handing over so much money to the banks through Nama to remove their toxic loans, but now, as an AIB director “on the other side of the fence”, he has to “struggle with myself” over his concerns about the State loans agency. “I started out on the basis that I wouldn’t give those [banks] a penny: they created this mess, let them go and solve it.”
Dr Somers is reluctant to tread on political ground on whether the Government should revise Nama, given the workload in transferring 15,000 loans, the effect of the loan discounts on the banks and the capital holes the State is having to fill, particularly at Anglo.
“Projects should always be kept under constant review to see are they achieving the objectives that they were set up to achieve – and if they are not, have another look at them.
“The risk with Nama is it can become an end in itself rather than an objective to be achieved. As I saw Nama it was to take toxic assets off the banks’ balance sheets so they could start lending again. But what seems to have happened is that with the haircuts the bank capital has been hit so hard that, instead of lending again, they are out trying to rebuild their balance sheets.”
On a more upbeat note, Dr Somers says the €20 billion in the pension reserve could meet half the cost of the “bank disaster”, which showed the State “didn’t blow the whole of the boom”. But he doesn’t shirk from what the country has endured or that it has had to raid the €20 billion war chest he helped to amass.
“That is tough. But we have an immediate problem that we have got to get out of. When we get out of it, it is going to be a question of building up a war chest again,” he says.
“This is like the aftermath of a war: you are left with a lot of debt after a war, and that’s where we are.”
Dr Michael Somers A life in finance
BORNDublin, 1942
EDUCATEDSt Mary's, Rathmines, and UCD
QUALIFICATIONSCommerce degree, master's degree and PhD in economics; all night-time study
FAMILYMarried to Deirdre; two sons and two daughters
INTERESTSRugby, travelling to a holiday home in the south of France and driving around Europe
CAREER
1963Joins the Department of Finance under minister Charles Haughey and head of department TK Whitaker.
1969Brought to the Central Bank by Whitaker.
1971Returns to Finance, working on tax yield forecasts for five-year budgetary planning and State borrowing
1977Joins the new Department of Economic Planning and Development
1985Becomes secretary general of the Department of Defence
1987Taoiseach Charlie Haughey calls him back to Finance to become secretary of national debt management at the department
1990Appointed chief executive of a new State organisation, the National Treasury Management Agency, which was assigned responsibility for the State's borrowings and debt management, reporting directly to the then minister for finance, Albert Reynolds
2009Retires; joins the board of AIB as a Government-appointed director
