Enough is enough. If Anglo isn’t wound up it may drag us all down

THE two Brians need to wake up fast. Recent news emerging about Anglo Irish Bank is analogous to the BP oil well in the Gulf of Mexico.

The toxic emissions are as damaging to the Irish economy as the oil slick is to the environment off the coast of Louisiana. Government must ignore the board and management of Anglo.

Chairman Alan Dukes, the directors and Mike Aynsley’s management are pursuing an agenda based on the survival of the bank. The Government is underwriting this strategy. This is misguided and will imperil our national finances. We must change course now.

What are these latest revelations? Anglo seeks to thwart the investigation of the Office of the Director of Corporate Enforcement (ODCE) into potential breaches of company law. Commercial court boss Judge Peter Kelly posed pertinent and blatantly obvious questions. A state bank, with €14.3bn of taxpayers’ money injected in the last year, needs to explain why it is not being utterly transparent. They are claiming legal privilege to refuse to divulge matters pertaining to critical decisions taken in 2008. The nub of this matter is probably a share support scheme, commonly known as the Maple 10. Public interest – my backside.

The next murky mystery emerging from the Garda Bureau of Fraud investigation relates to the misrepresentation of customer deposits. At various stages in the bank’s decline there were key milestones. These were, initially, the selling off and dumping of shares onto the market by investment fund managers. As the share price was in free-fall, the panic spread resulting in large scale deposits being withdrawn. Holes in the bank’s balance sheet had to be concealed.

We already knew of the €7.45bn temporary facility from Irish Life & Permanent. It now seems other back-to-back reciprocal financing arrangements were put in place. Failed American insurer AIG is alleged to have provided €1.2bn of funny money.

As Government ministers prepare €2bn of current expenditure cuts for 2011, the Department of Finance tossed this amount on to the Anglo bonfire. The total is mounting: €4bn last summer, €8.3bn in March and €2bn in May.

It was originally estimated, arising out of NAMA transfers, that total Anglo recapitalisation could be contained around the €12-€15bn mark. These impairments related to property loans. The non property loan book could be even more toxic. Anecdotes abound about the availability of Anglo loans. One story I heard last week was of a €5m loan issue to facilitate the retirement of a businessman. He conducted the sale of his business with the provision of Anglo finance. €2m of this was reinvested in Anglo shares, now worthless.

We have never had any visibility on all the different measures taken to provide Anglo finance to purchase Anglo shares. At the heart of the Seán Quinn fiasco remains an unsolved mystery. Why would such a successful entrepreneur in construction, property, insurance, manufacturing and other service sectors want to buy Anglo shares?

What a coincidence that Anglo’s biggest borrower became its biggest shareholder. How many other cases were there of loan customers buying bank shares? There’s no way that Anglo will tell us. Government should be demanding this information.

My supposition is the bank did everything in its lending power to provide support to the bank’s share value. Lending within the bank to directors and management was endemic. The collateral included Anglo shares. The potential conflict of interest is obvious.

The scope and capacity of the state to provide a bank bailout is becoming more constrained with each passing day. Eurostat have insisted that exchequer funds for Anglo and Nationwide are a part of the Government’s annual finances and cannot be accounted off balance sheet. The Minister for Finance has invented promissory notes to spread the cost of money for Anglo over 10 years. These glorified IOUs mortgage our future.

Exchequer returns up to the end of May indicate we will have a deficit this year of €20bn. This excludes the bailout largesse. We have the highest current budget deficit in the euro zone in 2010. Our national debt is heading for €150bn by 2014.

Lenihan’s legacy will be that our state debt will exceed our annual national output.

We now have the preliminary banking inquiry reports. Patrick Honohan adjudicated on the failings of our financial regulatory system. The Financial Regulator and the Central Bank were too lax and did not assert independent authority. The IMF and rating agencies incorrectly gauged the global credit bubble and consequent credit crunch from subprime products. The Government was so focused on being re-elected for a third term that it fanned the flames of the property and construction Klondike. The resultant jobs and tax revenue created an unsustainable boom. We were richer because of false, inflated asset values. The bubbles burst. Ireland ended up with the worst economic contraction of any developed economy since the 1930s. We know the story. The fog of fury that will descend around these reports and the subsequent investigatory commission is a glorified blame game. The parcel of accountability will be passed around in a circle. Bertie, Neary, Cowen, Fitzpatrick, Fingleton and assorted developers will point the finger elsewhere.

Time has moved on. NAMA will pursue the partial recovery of debts and ultimately manage the assets through incremental resales. Banking will be less competitive, with fewer domestic and foreign operators. Tighter restrictions on capital adequacy can curb a repeat of the credit bubble. Meanwhile, a greater crisis is festering – our sovereign debt.

The country and the Dáil Éireann are gazing into the rear view mirror as our vehicle is hurtling towards a crash. No one can authoritatively confirm the final tax payer cost of the present Anglo strategy. The original loan book at the time of the state guarantee in September 2008 was €72bn. The Minister for Finance has estimated that €22.3bn of taxpayer funds will be committed. No ceiling has been stated. Every previous forecast has been a mere fraction of what will be expended. Anglo refuses to divulge the full toxic story. Cowen and Lenihan remain adamant that it cannot be liquidated. The handling of this issue is more significant than the original hiatus. Our final exposure may range between €36bn and €46bn. Jesus wept.

We must scream stop. Enough is enough. The EU Commission and ECB probably support a mechanism whereby Anglo can go into administration. Instead of a good bank/bad bank zombie life-support structure, the appointed administrator can sell off any viable repayable loan book. The rest is a toxic skip.

NAMA can pursue and recover the remaining bad debts over the next decade. The blanket bank guarantee was a blank cheque. Now that we have visibility on the liabilities, we need to reserve our position. However dire the past failings the present policy position is more untenable.

The board of Anglo have lost contact with any notion of public interest, following a narrow fiduciary furrow. Lenihan should instruct Dukes to withdraw claims of legal privilege in the High Court. The Government should extricate us from liability to Anglo bondholders. Failure to wind up Anglo urgently may prove to be the most costly policy error of them all.

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