Cabinet was told of Seán Quinn’s Anglo debt

The Government was warned two months before the September 2008 bank guarantee that Seán Quinn’s debts to Anglo Irish Bank were enough to bring down the financial sector.

The situation emerged during the latest banking inquiry meeting, which also heard that senior Central Bank officials discussed a guarantee in October 2007 — and saw calls for extra regulatory staff ignored.

The former director general of the Central Bank, Tony Grimes, said the Quinn debts threat was highlighted during a meeting between him, the financial regulator, and the Department of Finance in July 2008.

He said the increasing amount of debt involved was considered “highly unusual” as Anglo was still loaning Mr Quinn large sums to invest in the bank’s share price.

This ultimately led to the bank approaching clients known as the “golden circle” and lending them €451m to buy up his shares — money which has never been repaid.

Asked by Fianna Fáil finance spokesman Michael McGrath if he believed the debt was a potentially significant issue that could affect the stability of the financial system, Mr Grimes said: “I think it was, yes.”

At the time, the Quinn empire employed almost 10,000 people, meaning the debts were of significant financial and political concern.

Mr Grimes confirmed to Socialist Party TD Joe Higgins that the Central Bank drew up guarantee “contingency plans” in October 2007 after the demise of Northern Rock. While the move was “academic”, by April 2008 “we moved from a situation of ‘it will never happen’ to one of ‘we better have something in place’”.

The Central Bank subsequently suggested that banks lend to each other as the sector risked “imploding”.

Despite saying he did not know if the ECB or Department of Finance were informed, Mr Grimes insisted this was not done in “secret” to cover up losses.

He said at a meeting with then taoiseach Brian Cowen, finance minister Brian Lenihan, the NTMA, and financial regulator Patrick Neary on September 26 — three days before the guarantee night — the Central Bank was told one bank needed €2bn after capital and another €8.5bn.

While the government initially felt in February 2008 a “guarantee was undesirable”, the move was ultimately made after Merrill Lynch consultancy reports on September 26 and 29 said it was the most “decisive” step and “ruled out” allowing any bank to fail — despite noting that the “huge sums involved” could cause the guarantee “credibility” issues.

The banking inquiry will hear from the former financial regulator, Mr Neary, today.

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