A decision Lenihan had struggled to avoid proved inevitable

 

ANALYSIS:The level of knowledge shared by much of the Cabinet about Anglo Irish Bank’s fortunes is slender at best

BETWEEN MEETING the Japanese emperor and visiting Toyota this week in Japan, Taoiseach Brian Cowen was never able to get far from the subject of Anglo Irish Bank.

The bank and its woes have occupied much of his time since he took over as Taoiseach, and it consumed more this week in calls with Minister for Finance Brian Lenihan and senior officials.

The decision to nationalise was taken at a mid-afternoon Cabinet meeting on Thursday, but secret moves had been under way for days.

Ministers had received calls at noon to be ready to take part in an incorporeal meeting, where decisions are taken quickly by telephone, although some were not immediately told the reasons for it.

The procedure is used sparingly and only when speed is of the essence, although eight Ministers must take part for a decision to be valid.

However, the plan for an incorporeal meeting was dropped, and little more than two hours later Ministers were asked, if possible, to get to Government Buildings.

Some were unable: Mary Harney was in Helsinki to see how the Finns have dramatically reduced asthma death rates, while Dermot Ahern was in Prague for an EU meeting of justice ministers. Batt O’Keeffe, Willie O’Dea and Mary Hanafin were also unavoidably detained elsewhere.

The text of the legislation needed had been agreed by Lenihan and Cowen before the meeting, although Ministers were briefed on the Taoiseach’s views.

Chaired by Tánaiste Mary Coughlan, the meeting heard Lenihan’s proposal, and the reasons for it, and discussed it from 3pm until 5pm.

While all of that was going on, the Government only then informed the board of Anglo Irish of its decision, and that it was withdrawing its offer to invest €1.5 billion in preference shares in the company, Government sources have told The Irish Times.

The preparation of the draft legislation necessary to nationalise the bank had been under preparation for days in the Department of Finance, building on work that had been done at various times since last September.

However, the circle of those in the know was kept very small: Cowen, Lenihan and key officials in both of their departments.

The legislation appears to have been redrafted substantially on occasions, since it was first decided that borrowers who also happened to be shareholders would not be entitled to compensation for their lost shareholding until their borrowings were lower than their shares.

In fact, it was this point that Lenihan spoke about at Thursday night’s press conference, making it clear that compensation would not go to those who should not get it.

However, the final text of the legislation, which was not ready in time for the press conference, goes much further. In the final days, the wording was toughened so that borrowers owing more than €20 million will not be able to take out any deposits held with the bank until their borrowings are lower than the amount on deposit.

Borrowers owing more than €20 million who have less than that sum in savings will not be able to withdraw any money.

The level of knowledge shared by much of the Cabinet about Anglo Irish’s fortunes, and the consequences for the country as a whole, is slender at best.

The alleged lack of communication is something that irks some Ministers, and the irritation has displayed itself before – a fact which has, in turn, annoyed the Minister for Finance when they have, as he sees it, complained behind his back.

To date, Ministers have not received a briefing on how much of Anglo’s €73 billion worth of loans are already deemed to be bad debts, or are likely to end up being described as such in time.

While the formal decision to nationalise Anglo had not been taken before Cowen left for Japan last weekend, he was fully aware that it might have to happen while he was abroad.

In Tokyo yesterday, nearing the end of his week-long trade mission visit, Cowen said: “In relation to the timing, we decided to make this move yesterday [Thursday].

“I had been in close touch with the Minister for Finance, monitoring this situation, even since the time before Christmas and indeed in the last few days particularly.”

The decision to take the bank into the State’s hands was one that Lenihan had done everything possible to avoid, but, in the end, the accumulation of bad news spelled the end of the bank’s existence as a private entity.

Lenihan had a clear picture of the bank’s bad debt situation once his department’s own due diligence assessment largely tallied with an earlier one done by PricewaterhouseCoopers.

However, a large number of sources insist the Government did not act out of fear that depositors were about to flock to take out their savings, although some corporate clients have done so over recent weeks.

That fact, however, combined with a belief that Anglo’s credit rating was about to fall further, led Lenihan to decide that the plan to invest €1.5 billion in preference shares would not deal with the problem, sources insist.