Finance Correspondent Anglo's corporate cleaner
Depending on who you ask, the man charged with solving the Anglo debacle is either a hangover from the Seán FitzPatrick regime or the most qualified person for the job
THERE WAS a moment at an Oireachtas committee hearing on Tuesday when former Fine Gael finance minister Alan Dukes, one of the Government’s directors at Anglo Irish Bank, put it in very simple and stark terms – the population will pay “a big cost” to rescue the banks.
“There are 4.25 million people in the country who are the only ones that will bear it sooner or later,” said Dukes, sitting next to the bank’s executive chairman, Donal O’Connor, the man charged with solving the Anglo debacle.
“The question is what we can do to minimise that cost. A part of minimising that cost will be to spread it over the longest possible period that allows us to work out the problem,” he said.
Earlier, O’Connor had said repeatedly that if Anglo were to be liquidated it would bring forward the cost.
O’Connor explained that overseas depositors and investors who have provided three-quarters of the €50 billion in funding at Anglo would withdraw a significant amount of this if Anglo were to be wound up. If that happened, the State would have to step in, he said.
The following day, the Taoiseach said winding up Anglo could expose taxpayers to a €60 billion liability. Opposition leaders described the bank as “rotten” and a “financial cesspit”.
THE PROBLEM ATAnglo is gargantuan. Like all banks, it fed avariciously at the property trough during the boom years, but Anglo was far hungrier than its rivals.
Since 2004, the bank’s loans tripled to €72 billion – 80 per cent of which was secured on property, be it office blocks or green-field sites earmarked for development but now worth little more than agricultural value and suited only for cattle. Another complication is Anglo’s small base of large clients – the top 20 customers owe €14 billion, or an average €720 million each.
Late last month, O’Connor announced that Anglo had lost €4.1 billion in the half year to the end of March. This was the largest loss ever recorded by an Irish company and wiped out the bank’s shareholders’ funds – the cash held in reserve to protect against losses. This has forced the State to act. It has so far pledged €4 billion to replenish the bank’s reserves, but O’Connor says more capital may be required. This will likely run to billions more. The bank has already written off €4.9 billion, primarily on bad Irish property loans, and expects losses to rise to €7.5 billion by 2011 and possibly even €11 billion.
O’Connor was criticised at the committee hearing last Tuesday over the way in which he was appointed as a non-executive director of Anglo in June 2008 at the request of then chairman Seán FitzPatrick and then appointed as chairman in December when FitzPatrick resigned.
He was also criticised because he was a member of the board last December, when the bank said impaired and problematic loans totalled €2.5 billion. This has since risen to €23.6 billion.
The committee questioned whether the figures provided by the old guard were “pure fantasy” or whether the economic deterioration and property crash had really been that severe.
Independent Senator Shane Ross said O’Connor was “as much of a legacy of the FitzPatrick regime” as the non-executive directors who resigned from the bank after it was nationalised in January. O’Connor replied that the Minister for Finance, Brian Lenihan, had requested he remain on the board of the bank – “that is the job I was asked to do”.
Frank Daly, the former head of the Revenue Commissioners and a Government-appointed director at Anglo, jumped to his defence, saying the criticisms of him were “invidious” and he was “appalled by some of the personal attacks” on O’Connor.
A source closely aligned to Anglo says: “It’s all very well for Shane Ross to say that Donal is part of the old guard, but there isn’t exactly a queue of people for this job. Donal’s job is to effectively work out what is the least worst option for the taxpayer.”
O’Connor has the unenviable task of trying to recover tens of billions in soured property loans during the State’s worst economic crisis. He must also assist in three investigations, including inquiries by the Garda Fraud Squad and the Director of Corporate Enforcement. These investigations arise from the scandals over hidden multi-million euro loans to his predecessor, FitzPatrick, unusual share transactions to protect the bank’s stock and the short-term deposits of €7.5 billion into Anglo that made the bank appear healthier than it was.
He must manage 1,700 staff, many of whom have lost large sums of money in the bank’s shares and face an uncertain future, and liaise regularly with Lenihan, his officials, the Financial Regulator and the State’s new “bad bank”, Nama.
A NATIVE OFMonaghan, O’Connor ventured into accountancy in 1972, joining Craig Gardner – later PricewaterhouseCoopers (PwC) – after graduating from UCD. He worked for the firm’s London office in 1978 and in San Francisco in 1979-1980 before becoming a partner in 1983 and senior partner in 1994. He was instrumental in the 1998 merger that created PwC – the largest accountancy firm on the island, with an annual fee income of €355 million and a staff of about 2,000. He served two spells as managing partner before retiring from the practice last September.
He is married to Vera and has two sons and two daughters; his youngest is currently sitting their Leaving Cert. His sister-in-law is Marianne Gunn O’Connor, well known literary agent to writers such as Cecelia Ahern and Pat McCabe. He lives in south Co Dublin and is a keen supporter of Manchester United, noting match-dates into his work diary well in advance, and Irish rugby.
“He eats work,” says a former colleague. “He is a super team player, fearless and has the highest integrity – Donal is as straight as they come. He will have no problem dealing with [Anglo]. He was on the global board of PwC where he was responsible for running a global practice.”
O’Connor’s Monaghan connections have brought him into contact with Eugene McCague, chairman of legal firm Arthur Cox. He is close to PwC partner Feargal O’Rourke, a cousin and confidant of Brian Lenihan. O’Rourke was sounded out by the Minister before he appointed O’Connor to run Anglo in February.
O’Connor and O’Rourke tried to broker a settlement between DCC and Fyffes over damages arising from the insider-dealing litigation between the companies. PwC is auditor to DCC, and O’Connor was involved in behind-the-scenes attempts to head off the action by Fyffes.
He has a track record of managing corporate clean-ups. One of the biggest jobs of his 36-year career at PwC was running Icarom, the firm created by the State in 1985 from the Insurance Corporation of Ireland (ICI) when it bought the failed subsidiary of Allied Irish Banks. The State bailed out the bank and prevented its collapse under the weight of unknown and huge liabilities at ICI.
O’Connor worked on Icarom from the outset and was appointed its administrator in 1995. The role has given him 24 years’ experience of liaising closely with the State on a wounded business. Icarom sold off ICI’s life and general insurance businesses, raising €173 million, and has collected more than €300 million on the firm’s deals with other insurers.
O’Connor believes the State will be left with a profit once the administration is complete, but that could be years away. “See if you can repeat the trick at Anglo,” says a former associate.
A career accountant, O’Connor has experience auditing banks during his time at PwC. He was the firm’s partner in charge of the independent audit of Bank of Ireland from 1991 to 1997. In 1991 he was asked by Pat Molloy, the bank’s chief executive at the time (and, since Wednesday, its governor), to help clean up another mess – its failed investment in US bank First New Hampshire Bank, which suffered heavy losses following the collapse of the local property market. O’Connor’s audit work at the bank gave him “a deep insight into the banking sector at a level that really equips him for Anglo”, says a former colleague at PwC.
Molloy’s successor at Bank of Ireland, Maurice Keane, was appointed a director of Anglo in January by Lenihan, to provide banking expertise to assist O’Connor and the other directors.
Anglo Irish Bank is the toughest assignment of his career. “There’s no doubt it’s a hospital pass,” says one of his friends, but former colleagues say he isn’t fazed and describe him as “intellectually curious” about the journey ahead at Anglo.
It will be a long road. Anglo is in essence a “zombie” bank, closed to new business and focused on recovering loans. It was suggested at Tuesday’s committee hearing that Anglo was on “intensive care and on life support”, but O’Connor believes it has a viable future. Sending out the message that the bank is still in operation gives O’Connor options – he can sell parts or all of the bank, or merge the bank into a larger banking group.
While taxpayers may be far from comfortable with the prospective multi-billion euro bill facing them at Anglo, O’Connor has declared himself determined to minimise the cost to the State.
CV: Donal O'Connor
Who is he?Donal O'Connor (58), the executive chairman of Anglo Irish Bank and the man charged with cleaning up the multi-billion euro mess at the nationalised bank.
Why is he in the news?He told an Oireachtas committee on Tuesday that winding down Anglo would lead to the withdrawal of tens of billions in deposits from the bank, leaving taxpayers on the hook for vastly more than the €4 billion pledged so far by the State.
Most appealing characteristic:Former colleagues praise his ability to absorb complex financial detail while still being able to see the bigger picture.
Least appealing characteristic:He has been criticised for being part of Anglo's old guard as he was appointed to the board of the bank a year ago.
Most likely to say:"What's in the best interests of the taxpayer?"
Least likely to say:"Don't worry about repaying your €500 million loan, Mr Property Developer - the taxpayer is picking up the bill."