Questioning may have focused on €7.5bn ILP deposit


THE GARDA investigation into Anglo Irish Bank is assessing three key issues, including the hidden directors’ loans to former chairman Seán FitzPatrick and the secret share transaction which supported the bank’s stock at a time of severe volatility for the institution.

According to Garda sources, the third strand of the investigation – deposits of €7.5 billion into Anglo from Irish Life Permanent (ILP) in September 2008 – was the focus of questioning by gardaí of Mr FitzPatrick over the 24-hour period in Bray.

The focus on the multibillion euro deposits is likely to lead to the Garda questioning other former executives at Anglo and ILP.

The ILP deposits into Anglo in the days leading up to the bank’s 2008 financial year-end at September 30th flattered Anglo’s balance sheet. The deposits, which were massive in the context of the bank’s €100 billion balance sheet, were withdrawn days later, benefiting the bank on the day when its auditors, Ernst Young, had to assess its financial performance.

Placing short-term deposits is known more commonly in financial circles as “a bed and breakfast” transaction owing to the overnight nature of the arrangement.

The lodgements masked the massive loss of deposits from Anglo during September 2008 when the collapse of US bank Lehman Brothers created a financial tsunami that threatened the world’s largest financial institutions. The crisis undermined the stability of Irish banks, most notably Anglo, which had an over-exposure to the property sector.

It later emerged that Anglo lost €10 billion during the month, including €5.4 billion in just one week, and was facing a cash deficit of €12 billion by mid-October. That was until the Government introduced the bank guarantee on the night of September 29th-30th.

Earlier that week ILP lodged €3.45 billion into Anglo, and a further €4 billion after the guarantee was introduced – the same day Anglo’s auditors captured its performance for its annual results.

When Anglo published these financial results in early December 2008, the bank showed only a slight fall in customer deposits despite the massive haemorrhaging of funds that September.

The ILP deposits – when they were publicly revealed in February 2009 – led to the resignations of ILP chief executive Denis Casey, finance director Peter Fitzpatrick and head of treasury David Gantly.

This was not the first time the banks supported each other. In an internal Anglo e-mail dated April 2008, a senior executive advised the bank to lend to ILP in another deal “to acknowledge past assistance . . . and to position us for future potential arrangements”.

ILP later apologised for the September 2008 deposits, saying they were a mistake, though the firm had claimed they were part of the so-called “green jersey agenda” where the Financial Regulator and Central Bank encouraged Irish banks to lend to each other.

The regulatory authorities claimed they did not have advance knowledge of the transactions.

Anglo’s treatment of the €7.45 billion in deposits from ILP is also the subject of inquiries.

It emerged in February 2009 that the €7 billion had originated with Anglo. The bank provided a loan for this amount to ILP, which in turn used a non-banking subsidiary, Irish Life Assurance, to place the money back with Anglo.

ILP said this was a normal “inter-bank” transaction backed up with collateral, while Anglo characterised it as a customer deposit from a non-banking entity.

Treating the money as a customer deposit allowed Anglo to mask the scale of the deposits lost in September 2008 when its annual results were published two months later.

Given the complexity of the matters under investigation, it could be some time before the Garda inquiry concludes.