Thursday, January 08, 2009
THE festive Christmas break prevented proper analysis of one of the most shocking and infamous scandals ever to arise in corporate Ireland.
On December 18 and 19, Seán Fitzpatrick, Lar Bradshaw and subsequently David Drumm resigned their posts in Anglo Irish Bank.
The statements issued by the individuals and the bank were preposterous and an affront to both shareholders and taxpayers. The public is only now grasping the enormity of the flagrant abuses that occurred.
As usual our regulatory authorities have been found to be completely ineffective and inept. I can’t understand why the Government has not insisted on the resignation of Patrick Neary, the financial regulator. It transpires officers of the Irish Financial Services Regulatory Authority (IFSRA) were aware of the concealment of Mr Fitzpatrick’s loans from Anglo to himself since last January when they reviewed the activities of Irish Nationwide Building Society.
This same office has been asleep on the job for most of 2008. Under Section 194 of the 1963 Companies Act, it is obligatory on a director to declare such an interest or loan. It is illegal for a director to borrow more than 10% of the net worth of the company. The last time I checked, Anglo had a capital value of €150 million.
IFSRA seems to think this is a matter for the Irish Stock Exchange or the Companies Office or the Office of the Director of Corporate Enforcement or the Chartered Accountants Regulatory Board or the Irish Auditing and Accountancy Supervisory Authority.
If these aren’t enough cover for Mr Neary, it appears that it’s a matter for his board. Who are they? Jim Farrell (chairman), Alan Ashe, Gerard Danaher, John Dunne, Alan Gray, Tony Grimes, Deirdre Purcell and Dermot Quigley.
It’s fair to assume these august and worthy pillars of society know significantly less about banking or company law than Mr Fitzpatrick and his colleagues. Maybe they should do the decent thing…
It now falls to the Minister for Finance, the governor of the Central Bank and the newly-appointed directors of Anglo to take responsibility for this outrage.
Alan Dukes and Frank Daly, respectively former Finance Minister and boss of the revenue commissioners, recently appointed to the Anglo board by the Government, should seek answers to the following questions:
* What collateral was provided by Anglo directors for loans from that bank? Did this include the use of Anglo shares as security? If so, why has this not been disclosed?
* Precisely what was the relationship between directors of Anglo and the Dublin Docklands Development Authority (DDDA)? Was it appropriate that individuals involved in both were party to the development of the former glass bottle site at Ringsend? Did this not give rise to a conflict of interest as investor and quasi-regulator simultaneously? Does Donal O’Connor’s resignation as DDDA’s chairman in December not confirm this conflict?
* What were the full circumstances in August when Seán Quinn’s contracts for difference (CFDs) were converted to a 15% equity stake in Anglo Irish Bank? Was this at the behest of the regulator? If so, why? What loans does Anglo have with Seán Quinn’s businesses? Is the bank compromised in the provision of loan finance to such a significant shareholder?
* Who within Anglo authorised directors’ loans of €150m at executive and board level? Why did these credit committees or executives not advise the auditors, Ernst & Young, of these loans and the arrangement to temporarily transfer the debts to the Irish Nationwide Building Society for each of the last eight years?
The first duty of any board is to protect shareholder value. Leaving aside any irregularities, the existing board’s tenure has seen share values collapse from €17.31 to about 17 cent. Approximately 20,000 betrayed shareholders must troop along to the EGM on January 16 at the Mansion House and vent their fury.
Even more grave is the prospect for the taxpayer. The Government is acquiring 75% of Anglo’s preference shares for €1.5 billion — effectively taking control of the bank. It seems the bank has a total loan book of €97bn. As much as €80bn of this relates to property.
While 45% of the bank’s security relates to Irish property assets, there is a strong international spread on their portfolio. Britain accounts for 35%, Europe 14% and US property loans, 6%. The latter includes the luxurious Apthorpe apartments in New York which aren’t selling.
Anglo top brass blurred the line between being bankers or investors. They supported to the hilt the Irish glitterati. Household names such as Seán Dunne, Bernard McNamara, Sean Mulryan, Johnny Ronan and Derek Quinlan have all been hitting the headlines over recent years. Typically, their prominence related to paying phenomenal prices for property investments. It now seems these speculators were actually gamblers. Gamblers on a long losing streak. They have lost all their bank’s shareholder funds.
But now they have a new line of credit — thanks to the taxpayer. More urgent questions have to be answered:
1. What are the prospects of viability for Anglo Irish Bank?
2. Can the bad debts be quantified?
3. How much further recapitalisation will be required? Will €5bn be enough?
4. What is the ultimate end game for this bank? Is it to eventually write off the toxic debt and transfer or sell on the good loan portfolios?
5. In either circumstance, is there any prospect of a return on the public investments? Is it simply a bonfire with our hard-earned cash?
The public are entitled to transparent information about the state of the bank and the extent of the mess. The wall of silence from bankers and officialdom is offensive and unacceptable to the public. I detect an undercurrent of fury about the shameful performance of Anglo. The time for polite niceties is coming to an end.
ON Christmas Eve the National Treasury Management Agency said it needed to raise additional funds up to €18bn to finance the exchequer in 2009. This will be done through a combination of a bond issue of about €5bn and the balance through conventional 10-year debt.
Unfortunately, sovereign debt markets have seen the Irish coming. We are being asked to pay 1.5% more than other euro members’ governments. Why? Apparently they heard about Anglo Irish’s €97bn liabilities.
Hell should have no fury like Irish bank shareholders and innocent taxpayers. We are victims of failed speculation. The upside of successful banking and property development until 2005 saw all the gains going to the golden circle of elite Irish developers. We were told what great icons of entrepreneurship these people were. The international reputation they won for Ireland was synonymous with success. Now that the Celtic Tiger has turned to a Celtic catastrophe, we are left with their unpaid bills and misery.
In New York and Paris financiers have been arrested, charged and imprisoned. I believe there is enough prima facie evidence for some of these players to be called in to "help the authorities with their enquiries".
I received a text before Christmas from a solicitor friend — "Why aren’t these guys in custody? Am I missing something?"
Yes, John you are. In this country we don’t do accountability or responsibility.
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