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Thursday, November 05, 2009
POLITICAL and other spin doctors know how to manage a crisis. The critical factor is to hang on. They believe virtually all news media cycles are "nine-day wonders".
This means that if you keep your head down and survive the whirlwind, the rat pack will move on to another story, once they have no fresh angles. Tony Blair and Alistair Campbell use the litmus test of this period to determine the fate of ministers. If the controversy extended beyond a full week the office holder usually had to resign.
Recent examples of media storms that endured related to ministerial expenses and FÁS management. The ongoing nature of the revelations and criticism of John O’Donoghue and Rody Molloy made their positions untenable. Their resignation was the only way to lance the media boil. Their justified fate starkly contrasts with the total lack of accountability with the former management of Anglo Irish Bank. By comparison with Sean Fitzpatrick, Lar Bradshaw and David Drumm — O’Donoghue and Molloy were juvenile offenders.
It is almost a year since the implosion of Anglo Irish. The time frame of the media cycle allows the public to forget. From a peak market valuation of €13bn, all shareholders’ funds were wiped out. Anglo’s share price peaked at €17.31, becoming worthless on the date of nationalisation. The taxpayer is likely to have to fork out up to €10bn to clear up the mess. NAMA is scheduled to take €28bn of their €70bn loan book. These property bets were disastrous.
Fitzpatrick, Bradshaw and Drumm resigned last December. While Bernie Madoff shares a cell with a child molester, our three amigos are playing golf. We were promised five inquiries into the reasons for the Anglo collapse and the pursuit of any wrong doing internally. Those bodies were: the ODEC (Office of Director of Corporate Enforcement); the ISEQ (Irish Stock Exchange); The Garda Fraud Squad; CARB (Chartered Accountants Regulatory Board and the Financial Regulator. Their focus was to probe breaches of company law, banking regulations, fiduciary responsibilities to shareholders, the role of Ernst and Young as auditors and any infringement of statute law.
What has happened since? No findings have been made. No charges preferred. Not even a file sent to the Director of Public Prosecutions. This is intolerable. The credibility of these investigations has to be questioned. The prima facia evidence is overwhelming and straightforward. Sean Fitzpatrick presided over directors’ loans of €179m from Anglo. His own loans are speculated to be between €87m and €122m. These liabilities still exist while the bank has a negative net value. Section 194 of the 1963 Companies act prohibits a director from borrowing more than 10% of the capital value of their company.
For eight consecutive years Fitzpatrick concealed his loans with Anglo by temporarily transferring them to Irish Nationwide Building Society at each financial year end. This meant they were not revealed on the bank’s annual accounts. This "bed and breakfast" facility was provided by our old friend Michael Fingleton. He has not repaid his €1m bonus of last year despite Irish Nationwide being insolvent and requiring NAMA to take over €8bn of its loan book. Senior management in Anglo, including Drumm, had extensive personal loans from their own bank. We have no information on whether these will ever be repaid. Apparently, they are not being serviced.
Anglo was a magic bank. It skyrocketed from being worth €5ml in 1985 to €13.3bn in 2007. The most fundamental question is whether there was financial deception and the bank operated share support schemes. This is a serious corporate crime. The Enron Corporation was found guilty of share price manipulation, with senior management imprisoned. Where is the "black box" of the Anglo plane that crashed? Temporary inter-bank lodgements of €5bn from IL&P were misrepresented on their accounts as customer deposits.
Mystery surrounds Sean Quinn’s involvement. He is reputed to have lost €1.5bn in Anglo shares. A statement, issued by representatives of Quinn referred to: "no impropriety"; that they always repaid their debts and the Quinn involvement in Anglo shares related to Quinn family rather than Group investments. They did not clarify whether €1bn of finance was provided in the summer of 2008 and for what purpose. Was Anglo bank cash ever used to purchase Anglo shares? Was the Regulator misled? What caused the record €3.25m fine by the Regulator on Quinn? Why was the largest bank client, reputed to owe €3bn, allowed become a shareholder up to 28%? The Financial Regulator sought the unwinding of the Quinn stake. 15% had to be transferred.
If this stock was dumped on the market in July 2008, the share price could have gone into a tail spin. Instead Fitzpatrick and Drumm arranged to place the stake with select Anglo clients. These are known as the "Maple Ten". Anglo cash of €451m was used to buy these Anglo shares secretly. It seems personal collateral was not required from these investors. This free bet went west as the share price imploded. The tax payer has to pick up the entire bill.
Other grave controversies surround Anglo. Did Fitzpatrick have a conflict of interest in relation to the proposed new Anglo head office and the related investment of €68m? Litigation has commenced in relation to the former glass bottle site at Ringsend. This was acquired for €412m and is now worth €60m. Davy private clients fund is suing Bernard McNamara. McNamara is suing the Dublin Docklands Development Authority. Anglo was deeply immersed in this project through Fitzpatrick and Bradshaw (chairman). The DDDA portfolio requires a NAMA bailout.
The DDDA chairperson is UCD’s Niamh Brennan — one of the country’s leading experts on standards in corporate governance. Her complete silence on this toxic mess has been deafening. It echoes the wall of silence from everybody who is supposed to be obtaining accountability from all aspects of the Anglo disaster. I fear the taxpayer will foot the bill, when the litigation concludes. This is a most shameful chapter in Irish corporate history.
The new Anglo CEO, Mike Aynsley, has prepared a business plan for the bank. Up to 500 job losses are predicted. The EU Commission has argued that this bank should be wound up. The sooner a de facto receiver or liquidator is appointed the better. The appointment of public interest directors and state nationalisation has not expedited transparency or justice for shareholders or tax payers. It is not just our three amigos that are in the dock.
Failure of supervision is being followed by ineffective investigation. Paul Appleby has not made any statement as to the state of progress or otherwise of his investigations. Who is he accountable to? As a nation, we must move on from the blame game and convulsions of public anger. We have to confront the unsustainability of our public finances and restore economic competitiveness.
The remedies will be painful and are overdue. However, we must insist on answers and retribution on those who caused Anglo to lead other banks over a cliff. Anglo Irish Bank will be a lasting testament to Irish corporate ethics, unless the DPP has the final role.
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