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David Drumm might be staring at a wall of his prison cell in Mountjoy right now and wondering why.
Facing at least four of his six years in jail that he was sentenced to last Wednesday (with enhanced remission), Drumm must, in retrospect, be stewing over why he ever bothered to hoodwink depositors and investors in Anglo Irish Bank at the height of the financial crisis.
The Dubliner is likely to spend the same amount of time in jail as he spent running the bank that has taken his freedom and yet the financial chicanery he engineered that put him there did nothing to help the institution he intended to protect.
The dishonest and fraudulent scheme that he, as the bank’s chief executive, authorised, directed and was actively involved in to manipulate Anglo’s books and make its customer deposits appear €7.2 billion stronger than they actually were ultimately came to nought. His stated intention behind the transactions was to save the bank and that failed, abysmally.
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It was the other side of the ledger – a loan book that bet big on property – that brought Anglo down. The judge was quick to stress in sentencing him that the €7.2 billion fraud in September 2008 was not the cause of the bank’s collapse – and she was right: Drumm and his fictional rotating deposits scheme – or “the dance” as his co-conspirator John Bowe, Anglo’s de facto head of treasury, called it – did not help Anglo.
In fact, the bank’s continued decline into 2009 after the moment of his conspiracy to defraud in September 2008 and false accounting in December 2008 – the two counts he was convicted of – eventually exposed his dishonest acts and the Garda National Economic Crime Bureau traced his steps.
This goes to explain Drumm’s belief, and that of the many around him in Anglo and the wider Irish banking sector, that the storm was bad but that it would pass quickly.
Circulating deposits
Had the bank survived, the circulating deposits flying from Anglo to Irish Life & Permanent and back again might have remained – as they are still on some stock exchange websites – unquestioned in Anglo’s published annual accounts to September 2008, inflating the bank’s customer deposits by 16 per cent to €51.5 billion.
For investors in a going-concern bank, it would have been a very nicely dressed window for the market and the wider public at a point in time, a pretty sight to encourage investors to come inside and part with their cash.
But it did not survive and, as US oracle-investor Warren Buffett suggested, the retreating tide exposed the naked swimmers.
So what other motives could have driven Drumm to do it?
While the Dublin Circuit Criminal Court was told repeatedly that nobody gained or lost money from his conspiracy, a point the jury and the judge deemed irrelevant in convicting and sentencing, Drumm’s own personal fortune was wrapped up in the success or failure of his efforts to keep the bank open.
His multimillion annual salary and bonuses from Anglo sustained him in a luxurious lifestyle. He borrowed heavily from the bank to buy property in Ireland and the United States on the strength of the value of his shares in the bank.
Drumm is a creature of the institution he grew out of
In an alliance of financial symbiosis as the bank entered a death spiral in 2008, Anglo needed Drumm and Drumm needed Anglo. He had a vested personal interest in keeping this bank going.
This may explain the panic that gripped Drumm as heard in the now-notorious conversations recorded on Bowe’s treasury line in September 2008 and played to the jury during his trial.
‘F-cking clowns’
The expletive-drenched bravado in the lines Drumm rehearsed with Bowe for their next-day meeting with the financial regulator and the Central Bank (“those fucking clowns down on Dame Street”) shows what he felt was at stake. His plan to “keep asking thick questions: when is the cheque coming?” and to “get into the fucking simple speak” did not just reflect his view that he had to save Anglo but they had to help him save Anglo.
In the end, they did not and the task, as he saw it, fell to him. He took the “green jersey agenda” the regulators had suggested to him months earlier, encouraging Anglo and the other Irish banks to help each other, and brought it to another level.
“Mutual assistance is a far cry from unlawful acts,” said Judge Karen O’Connor in her ruling sending Drumm to Mountjoy.
Still, her sentencing came with a sideswipe at the regulators: “Inaction, weakness and ineptitude on the part of the financial regulatory authorities provides no excuse for a scheme of this nature,” she said.
Those first words stood out in Court 19 at the Criminal Courts of Justice last Wednesday. Had Drumm done nothing after those Dame Street meetings, he might only have been accused of those things too. Drumm and the regulators would have shared the opprobrium they have been subjected to for almost a decade, but he would likely be still living and working near his home in Boston, free of criminal taint, with only the reputation of the man who was in charge of Ireland’s third-largest bank when it ran aground.
Drumm’s criminality
But he went further, into criminality.
Drumm is a creature of the institution he grew out of. Anglo was a maverick bank, built up by riding roughshod over convention, breaking moulds, lending more and more quickly than rivals.
“Why go around a corner on four wheels when you can go around on two?” said one ex-Anglo banker of a more senior former colleague and the lending risks he took. The statement captures the buccaneering, risk-taking culture that, in the years when the betting was predictable, paid off handsomely for Anglo.
A turn in the market exposed those risks.
Hubris and incompetence are not crimes, however, which is why we require our financial regulatory authorities to show action, strength and skill to protect against and indeed get out ahead of those risks.
Where those traits were missing, Drumm stepped in and took matters into his own hands. He will have years in quiet solitude to ruminate on what his lawyer described as a “huge error of judgment”.
Many others will reflect for years on the errors of others in this sorry, costly saga and wonder how they went unpunished.
Simon Carswell is Public Affairs Editor of The Irish Times and author of Anglo Republic: Inside the Bank that Broke Ireland