Cliff Taylor: what do we know about the bank bailout?

The crisis was dire and the clean-up has been messy. It was always going to be. One of the key issues has been that a lot of it has not been transparent.

We know that we poured €64 billion into the banks to fill a big hole – and we can judge the overall result of this – but we don’t know where this money went. What bondholders got paid off? Who got their loans written down and on what basis? What decisions were made on selling bank assets and why?

A lot of the big decisions during the clean-up have been made inside a kind of black box – we are asked to judge the outcome and not ask questions about what went on inside.

This does not mean either that anyone did anything wrong or that a noticeably better overall result could have been got for taxpayers by doing things differently, but it means we have simply no basis for judging how the calls were made.

The judgment in the case of Denis O’Brien versus RTÉ this week will help to keep the box closed. No details of the basis for this decision can be published, though we may see parts of the judgment published next month.

Wider consequences

Further legal action in the case may also follow. Without detail of the judgment, it is impossible to assess its wider consequences in any depth. So for now let’s pull back and look at the overall picture of the clean-up.

Take Nama, for example. When it was established in 2009 to take on the big property developers’ loans from the banks – at a discount of more than 55 per cent – we were assured by Brian Cowen and Brian Lenihan that the developers would be pursued for all that they owed, not just the reduced value at which Nama took on the loans. This was rubbish. There was no way that the builders were ever going to be able to afford to pay all the money back.

Financial hole

Now what we know suggests that, overall, Nama has done a reasonable job. Warnings that a further financial hole would appear in its finances have proved unfounded. It sought to maximise the amount it recouped from borrowers, a process overseen by the comptroller and auditor general.

However, we don’t know the price at which it took on individual assets and what it sold them for. Nor do we know what arrangements it reached with the developers it agreed to work with, beyond glimpses that have emerged in court cases.

The detail is “commercially confidential”. When a developer “exits” Nama, we have no idea how much the “get-out-of- jail-card” cost. We do not even know what the “norm” is in dealing with such cases in terms of how much of the original debt is parked or written off, beyond what we can deduce from the overall data.

The same applies to dealings the banks have with borrowers on the rest of their loan books – the bit not transferred to Nama, including big business borrowings such as Denis O’Brien’s.

In the case of IBRC, there is a further twist as, in addition to dealing with borrowers, it has also been selling down its assets, sometimes involving deals with existing borrowers.

In some cases banks have written off chunks of debt to borrowers as part of deals – and in others they haven’t. It is all wrapped in confidentiality agreements and non-disclosure clauses.

A mix of commercial confidentiality, data protection rules and “the law” has been used as an explanation by politicians and bankers as to why we can’t be told anything.

I don’t know where exactly the line should be drawn here between privacy and disclosure. Given the amount of our cash poured into the banking hole, this blanket refusal is convenient, but is it reasonable? Why shouldn’t we know who the bondholders are?

Why shouldn’t we be told the basis on which Nama, the IBRC and the banks have struck deals, even if individual details are protected? Or perhaps the public will accept that it is all pragmatic and as growth returns it will all be slowly forgotten.

The overall bias of the State and the laws as interpreted by the courts are towards keeping everything under wraps. Even watching the banking inquiry at work, or some of the other investigations into what went wrong during the crisis, the legal caution and the nervousness in terms of discussing and disclosing details related to individuals or firms is remarkable.

Political dangers

In this environment, our insight into the clean-up and the inside of the black box is likely to be occasional and fleeting. Perhaps the inquiry now under way into all IBRC transactions involving a write-off of more than €10 million might tell us something. The media will continue its work, albeit with one eye on the courts.

One of the political dangers is the perception, rightly or wrongly, that certain classes of people have sailed through the crisis, while others remain stuck.

The context is that restructuring of debts for smaller borrowers has remained slow, even as major property-based loans have been dealt with via Nama and many borrowings related to big businesses have been restructured.

Because the mortgage and SME loans were left in the “surviving” banks, the restructuring of these loans has happened much more slowly and the recently published mortgage arrears strategy will only do so much to address this.

Meanwhile, more and more ordinary mortgage and SME borrowers will find themselves brought to court by their lenders – and are unlikely to benefit from reporting restrictions as they face the music.