‘Clear and present danger’ averted in late-night rescue mission

DARKNESS still hung over Government buildings yesterday morning as the Government emerged from the meeting they hoped would prevent a bad dream from turning into a nightmare.

At 4am — three hours before the markets opened — an agreement was reached which Taoiseach Brian Cowen said saved the country from waking up to a failed banking system.

“An imminent, clear and present danger to the Irish financial sector” prompted the meeting, according to Defence Minister Willie O’Dea, who said this threat “could have resulted almost immediately in one if not more financial institutions going into difficulty.”

The Government had been in secret meetings for some weeks with the financial regulator and the banks to discuss “contingency plans” if an emergency situation arose.

Officials from the Department of Finance and the regulator monitored the situation throughout Monday when share prices of Irish banks plummeted, in the case of Anglo Irish Bank by 46% and Irish Life and Permanent by over 30%.

As this happened, the regulator, Patrick Neary, contacted Finance Minister Brian Lenihan to say there was an “immediate crisis”.

He briefed Mr Lenihan and the Taoiseach in Government Buildings as the markets closed at around seven o’clock.

Around the same time, news emerged that the US House of Representatives rejected a $700 billion bailout plan by 228 votes to 205.

World stock markets promptly slumped. The Dow Jones industrial average had fallen more than 700 points, its biggest points drop in any one day.

“That added to the urgency of the situation” Mr Cowen admitted yesterday.

Central Bank governor John Hurley also joined the discussions after he had met the Attorney General.

The heads of Bank of Ireland and AIB soon arrived at Government Buildings and phone contact was maintained throughout the night with senior members of the other banks.

All cabinet members were contacted, and reached on the phone, by Mr Cowen and Mr Lenihan, before any decision was made. Contact was also made at some point with the European Commission.

After hours of talking, a deal was brokered some time between 3.30 and 4am, and an announcement was made before the markets opened yesterday morning.

After just two hours sleep, Mr Lenihan told a 9.30am press conference that the action was taken because funds from the international market were drying up for Irish banks.

“If funds are not secured it will be a very, very serious matter for economic life in this country.”

In the Dáil yesterday evening, Mr Cowen hinted that such prompt action was necessary: “How far back would people think the country would be if we were to wake up this morning in the absence of what has been a state guarantee that has been offered in the way it’s been offered.

“Were we to find a failed banking system on our hands? What would be the situation then with Irish people and Irish worker? There are businesses and employers who have to get access to funds on an ongoing basis,” he said.

The opposition leaders and finance spokespersons were contacted by Mr Lenihan at around 7am.

Fine Gael leader Enda Kenny said: “I was on the floor of a TV studio at 7.13 when the Minister for Finance rang me. I had approximately 20 seconds to have a briefing from the Minister for Finance and even he, with all his tradition, could not involve himself in giving me a full briefing on that score.”

Labour leader Eamon Gilmore said: “I got a phone call at around seven o’clock this morning and Joan [Burton] got a phone call at around seven o’clock this morning.”

A Government spokesperson said last night the action was not taken to head off a possible crash of an Irish bank.

Pat Farrell of the Irish Bankers’ Federation said: “We’ve seen the global financial crisis unfold in the past couple of days with great intensity, we’ve seen interventions by other jurisdictions where banks had to get assistance from Governments in various shapes and forms. I think it was the culmination of all those events that prompted the Government to act and act very decisively in a radical way.”

Government officials worked throughout Monday night and all day yesterday on the emergency legislation, which was last night debated in the Dáil.

Monday night/Tuesday morning was an extraordinarily long day in the life of Mr Cowen, Mr Lenihan and the Irish financial sector.

The guarantee will end at midnight September 2, 2010. Hopefully by then, the Government can sleep in the knowledge that another round of midnight meetings will not be required.