It is now apparent that the Irish financial system is a leaky, grubby, black hole. At one bank, Anglo Irish, mates and insiders, including the entire board, were loaned tens of millions of euros to do comfy deals that helped cause the bank’s collapse and nationalisation.
Two reports last week on Anglo Irish reveal it suffered a multi-billion euro run late last September to the point where it would have been insolvent but for the bodgied up deposits from Irish Life — the bank financed the purchase of 10% of its shares from a group of rich Dublin business it refuses to name. Even though it has lost 300 million euros on the transactions, it lent a quarter of a billion euros to directors in 2008 and paid them over 5 million euros more.
In the words of an editorial in the Irish Times at the weekend:
…the extent to which the directors and executives of the bank were also big customers is truly shocking. It confirms the picture that has emerged over the last few months of an organisation that was fundamentally flawed and morally bankrupt.
It’s clear that Irish financial regulators either were asleep, incompetent or turned a blind eye to the apparent insolvency of this bank last September and the self dealing at the top. It should have been closed then and nationalised, yet the Irish Government still went ahead with the now absurd guarantee on bank deposits and assets.
In the case of Anglo, it was guaranteeing a crock of rubbish: it was propped up by billion of euros of ‘deposits’ from Irish Life, which were reversed after balance date, while the board and management still got paid under false pretences, and the mates of the chairman and others had their share purchase loans written off.
The whole, horrible mess was detailed in part of a report from the Irish Government on the affairs of Anglo Irish from PricewaterhouseCoopers released on Friday night, two hours after the bank’s 2008 annual report was released.
The PwC report reveals that in the week before the government’s bank guarantee scheme last September, there was a run on Anglo Irish Bank with 5.4 billion euros in corporate and retail deposits withdrawn.
“As of September 27th, Anglo was forecasting net negative cash of €12.0 billion by October 17th,” it said.
At the end of September, Anglo’s balance sheet included 7.3 billion euros of deposits from Irish Life Assurance and 7.5 billion of short-term interbank placements from Irish Life and Permanent.
Its deposits stood at 51.5 billion euros at the end of the year.
The report found the bank had 15 banking relationships in excess of €500 million. It concluded that the size of the exposures significantly increases the bank’s risk profile. Most of these were property and housing developers. These loans could cost the bank 5 billion euros in losses over the next two years.
The bank said in its annual report that it lent 451 million euros to 10 clients to buy shares to support its share price last year:
The amount loaned was 50% more than previously thought. They purchased up to 10% of the bank owned by businessman Sean Quinn. He had accumulated a 25% stake, more than revealed.
The shares are now worthless after the bank was nationalised. Only 83 million euros have been repaid from the 451 million lent, meaning 300 million will be written off.
The bank also showed that 9.535 million euros was paid to the bank’s directors. Five executive directors, who managed the bank during the year, received a combined 8.13 million.
The Anglo report provides further details on the large loans drawn by the bank’s directors.
Some 255 million euros was advanced to 13 directors of the bank during its 2008 financial year to 30 September last, while 115 euros million was repaid. Including their board fees, that’s 20 million euros in total for each of the 13 directors in 2008.
The loans advanced to directors equal almost a third of the pretax profits made by Anglo in the year.
The outstanding amount owed by the directors at 30 September amounted to 179 million euros, of which 83.3 million was owed to the bank by the former chairman, Sean FitzPatrick. His loans were hidden by them being transferred to another Dublin bank at audit time with the connivance of Anglo’s then CEO and other senior executives.