MINISTER FOR Finance Brian Lenihan came under intense political pressure last night, following his admission that he only learned about the transfer of €7 billion to Anglo Irish Bank last month, even though his department informed the Financial Regulator about the issue last October.
The disclosure overshadowed last night’s unveiling of the Government’s bank recapitalisation scheme by the Minister.
Mr Lenihan said the Opposition was “fixated” on what part of a report on Anglo he had read, when the most important business was the recapitalisation plan for Allied Irish Banks (AIB) and Bank of Ireland.
Under its terms, the Government will provide €3.5 billion for each bank in return for preference shares with a fixed dividend of 8 per cent payable in cash or ordinary shares.
The Minister will appoint a quarter of the directors of each bank and will also get a quarter of ordinary voting rights at board meetings.
Mr Lenihan announced that both AIB and Bank of Ireland had accepted that the pay of senior executives will be curtailed.
Total remuneration for senior executives will be cut by at least 33 per cent, no bonuses will be paid for these executives and no salary increases will be made for 2008 and 2009. Fees to non-executive directors will be cut by at least 25 per cent. However, the Government is not insisting on any immediate resignations from the banks’ boards or senior management in the deal.
The two banks have reconfirmed their commitment last December to increase lending capacity to small and medium-sized businesses by 10 per cent and to increase loans to first-time buyers by 30 per cent in 2009.
Mr Lenihan said the Government would complete “a short, sharp due diligence” of the banks before investing the €7 billion, which will come from the National Pension Reserve Fund and borrowings.
The Minister did not unveil any insurance scheme or “bad bank” plan to remove the banks’ toxic property assets but said the Government would examine proposals to reduce risks associated with property loans.
He said the State would be undertaking “a very expensive operation” if it created a bad bank or insurance scheme to remove toxic assets.
Earlier, Mr Lenihan told the Dáil that information about the transfer of €7 billion from Irish Life and Permanent (IL&P) to Anglo was contained in a report by PricewaterhouseCoopers to his department last October. He said his officials had then referred it to the Financial Regulator but had not informed him about it.
Stressing that he only learnt about the issue last month, he said the money transfer was not identified as a risk factor in the 720-page report. “I did not read the report in its entirety but focused on the risk factors outlined therein.”
He added the Taoiseach had not been given a copy of the report. “It was not circulated to the Taoiseach or to other Ministers. I returned any copies I received because I was conscious of the confidential character of the information involved.”
The Opposition claimed last night that Mr Lenihan’s credibility had been undermined by his admission.
“I am not calling for his resignation on the back of this even though the red lights are flashing,” said Fine Gael deputy leader Richard Bruton. But he said he was astounded that the Minister had not read the full report, and added that the Dáil was in shock at the disclosure.
Labour Party leader Eamon Gilmore said: “It beggars belief that the Minister did not read the PricewaterhouseCoopers report, even if one accepts that he was very stretched on time during the period concerned. It is unbelievable that he would not have read the section of the report about Anglo Irish Bank.”
Mr Lenihan told the Dáil that he had read extensive parts of the report on the six Irish-owned banks which his officials thought of fundamental importance, after it was presented to his department last October.
“I wish to make clear, in respect of the PricewaterhouseCoopers report, that it listed a number of risk factors. This was not a risk factor listed in the report,” said Mr Lenihan.
Questioned further on the matter at last night’s press conference, Mr Lenihan said he had read “several drafts” of the PricewaterhouseCoopers examination of the potential bad debts of Irish banks. Each draft was over 700 pages long. He said civil servants “briefed me on the salient elements as they saw fit” but he “wasn’t in a position to read the entirety of some of the drafts”.
He said: “No decision taken by the Government was affected in any way by the fact that I did not read page 129 of the report, because my officials read page 129 of the report.”
Fine Gael leader Enda Kenny described Mr Lenihan as a man of integrity, but added: “There is a lesson here for everybody. The Minister did not read the full report but the politics of his ministerial office should have put him on alert when his officials told him a section of this report should be referred to the regulator . . . alarm bells should have gone off at that stage.”