Liam Collins on jailed bankers
Anglo Irish Bank and Irish Life and Permanent put billions on the carousel — and last week three executives paid the price, writes Liam Collins
‘ARE there any ‘funnies’ in the year-end figures?” Sean FitzPatrick, chairman of Anglo Irish Bank, asked John Bowe, a senior figure in the bank, in a phone call on Tuesday, September 30, 2008.
“We have a big funny with Permo,” replied Bowe, referring to the €7.2bn ‘circular transaction’ between Anglo Irish Bank and Irish Life and Permanent in which the two financial institutions lent and borrowed vast sums of money from each other to make Anglo’s balance sheets look healthier ahead of end-of-year results for 2008.
It was a deal so secret that David Gantly, senior manager in the treasury department of Irish Life and Permanent, told his opposite number in Anglo Irish Bank, Matt Cullen: “Walls have ears in this climate,” adding: “I can vouch for my own people... you have to be as tight as a duck’s arse here.”
But Anglo Irish Bank and Irish Life and Permanent had left a hostage to fortune when they put these billions on the carousel and let it flow over and back. The ‘big funny’ referred to by John Bowe didn’t look very amusing when the Irish banking system went belly-up in the months that followed.
Yesterday — almost eight years after these events and after the longest trial in Irish criminal history — former chief executive of Irish Life and Permanent Denis Casey (56), of Raheny, Dublin; former group finance director at Anglo Irish Bank Willie McAteer (65), of Tipperary town; and John Bowe (52), of the Capital Markets division at Anglo Irish Bank, from Glasnevin, Dublin, were sentenced by Judge Martin Nolan for that ‘fix’ in September 2008, which a jury decided was a conspiracy to mislead investors and depositors in Anglo Irish Bank.
A fourth defendant, finance director of Irish Life and Permanent, Peter Fitzpatrick (63), of Portmarnock, Dublin, was found not guilty of the same charges.
Around the time of the offfences, the governor of the Central Bank had enunciated what became known as the ‘Green Jersey’ agenda to counter the worsening global financial crisis. It encouraged Irish banks to lend to each other to stop valuable deposits “leaking” out of the Irish financial system.
Separately, executives of Irish Life and Permanent had been castigated by the governor of the Central Bank for being “too transparent” in revealing their reliance on funding from the European Central Bank (ECB) and advised to take steps to lessen their dependence on ‘the bank of last resort’ for figures due out in June.
According to Patrick Gageby SC, acting for Willie McAteer, the Central Bank, the Financial Regulator and the Department of Finance had all condoned “balance sheet management — they didn’t want an Irish bank going down”.
Michael O’Higgins SC, acting for Denis Casey, said his client “wasn’t worried” because John Hurley (governor of the Central Bank) and Patrick Neary (Financial Regulator) “knew exactly what had to be done... public confidence was vital.”
It all began on the long weekend of March 17, 2008. While Bertie Ahern was hobnobbing with George W Bush over a bowl of Shamrock in the White House, American corporate giant Bear Sterns was collapsing in New York and Lehman Brothers was going into a terminal meltdown. “This is an international development, not a local one,” said the minister for finance Brian Cowen at the time.
But the market doesn’t lie. Vultures on their hedge fund perches, the guys who make money whether the market goes up or down, could smell the carrion in the air and bet big that Anglo Irish Bank’s condition was terminal.
From a high of €17.30 in May 2007, the Anglo Irish Bank share price tanked by 33pc that March weekend in 2008 and by the end of the month its shares were trading at €6.50 and declining.
But there were some smart guys in Anglo’s St Stephen’s Green headquarters too and they had a trick or two up their sleeves. They also had a willing counterpart, Irish Life and Permanent, which, like virtually every other bank, was experiencing difficulty in getting access to funds.
Anglo Irish Bank needed some deposits to give it “strong corporate numbers” for its halfyear returns and it wasn’t looking good after the drubbing it got in what had become known as the ‘St Patrick’s Day Massacre’. The agreed strategy was that Anglo Irish Bank would deposit €1bn with Irish Life and Permanent (ILP). This was then transferred to Irish Life Assurance — a non-banking subsidiary of ILP. A total of €750m was then re-routed back to Anglo Irish Bank as a “corporate deposit” rather than an inter-bank deposit for Anglo Irish Bank’s six-month accounts which were released on March 30, 2008.
It was all about optics, or “stickiness” to use banking parlance. Corporate customer deposits are valuable because they tend to “stick” once they are lodged. Inter-bank deposits are much less reliable because they “fly around” the international financial system on a daily basis seeking infinitesimally better interest rates.
So in return for the help it got in March, Anglo Irish Bank put €3bn on deposit with Irish Life and Permanent and took a portion of ILP’s mortgage book as security in return, making ILP’s June midyear figures look better.
After it was over, John Bowe, who had been promised the job of head of treasury by Anglo’s chief executive David Drumm, told a conference call the only concern about the transaction could come from the Financial Regulator. But, as Bowe put it, “the regulator is more or less saying ‘look, I am not looking’.”
Anglo’s chief executive David Drumm knew the strategy would be difficult to repeat, so he called his boys together to draw up a list of 50 “funding initiatives” to bring in money to reach what was called the “mythical” figure of €51bn in customer deposits for figures to be published in December, 2008. Every Friday, executives would gather in the Anglo boardroom for “funding meetings” to discuss how a wide variety of “initiatives” were faring. “David Drumm had a major part in driving the process,” Paul O’Higgins SC, prosecuting, said in his summing up of the trial.
But nobody was lending.
“As funding initiatives fell away, David Drumm turned to me and asked me would I ask Irish Life and Permanent would they do €6bn or €7bn in September,” Matt Cullen, senior manager in Anglo’s treasury department, testified. Cullen rang David Gantly, his opposite number in Irish Life and Permanent. Gantly came back and said ‘yes’, Peter Fitzpatrick, finance director of ILP, had agreed to do it if Anglo would do the same for ‘Permo’ in December, when its year-end figures were due.
“I spoke to Willie McAteer and David Drumm. I relayed that message back to them. They said ‘absolutely no problem, go back and tell David Gantly we will do that’,” said Cullen in evidence.
Increasing the figure was not a problem because, “as they see it, you might as well be hung for a sheep as a lamb,” Matt Cullen told John Bowe after a phone call with his opposite number in ILP. In evidence, Gantly testified: “Obviously that was being reported to the (Financial) Regulator. I was also very conscious of the Green Jersey agenda and banks being asked what they needed to do to help each other in what were extreme circumstances.”
On September 22, a top-level meeting took place in a private suite of the Westin Hotel in Westmoreland Street, Dublin. Present were Sean FitzPatrick, chairman of Anglo Irish Bank, and his chief executive David Drumm. At the other side of the table was Gillian Bowler, chairwoman of Irish Life and Permanent, and her chief executive Denis Casey. The main item on the agenda was some sort of takeover or merger between the two banks, which was being pushed by FitzPatrick and Drumm. The meeting was less than cordial and agreement could not be reached on that issue.
Despite what was described as “significant differences between the two men” (Drumm and Casey) the transaction between the two banks was processed five days later.
Here’s how the ‘big funny’ happened.
On September 25, Anglo Irish Bank’s subsidiary in the Isle of Man transferred £978m in three tranches to Irish Life and Permanent. As in March, the money was moved to Irish Life Assurance and sent back to Anglo as a €1.2bn corporate deposit rather than an inter-bank loan.
On September 29, a further €2bn followed in the same fashion.
On September 30, a further €2bn was due, but after the Government bank guarantee of the night before, this doubled to €4bn.
The grand total came to €7.2bn which was delivered in nine different tranches. Later that day, when the ‘fix’ was over the line, it was suggested that Drumm should ring his opposite number in Irish Life and Permanent, Denis Casey, to thank him, which he did.
But even then Drumm was far from happy.
“Even with the €6bn ‘fixes’ which Mr Fucking Denis (Casey) confirmed for me this morning... we’re fucked,” he told John Bowe later that day. “We have to get a getout-of-jail card before December 3, unless we can fix the poxy balance sheet over (the financial) year end, which is next weekend, which to me just does not look doable.”
While deposits flooded into Bank of Ireland and AIB after the guarantee, the word on the financial street was that these two banks had been asked by the Government to take over Anglo Irish Bank and had refused.
Prosecuting Counsel Paul O’Higgins insisted that, unlike the March ‘fix’, “at no time during those numerous transactions was it disclosed to the regulator”, who only began to “notice” the scale of the transfers the following day, October 1. That day, Claire Taylor in the Financial Regulator’s office rang Ciaran McArdle, a dealer with Anglo Irish Bank’s group trading department, who told her: “It’s trying to manipulate our balance sheet for our financial year end. We have boosted our customer funding number. It’s not a real number.”
On November 18, 2008, Colin Golden, head of group finance at Anglo Irish Bank, read a briefing note detailing the ‘circular deal’ to the audit committee of Anglo Irish Bank explaining that “the transaction bolstered customer deposits”.
“Was this window dressing?” asked Anglo director Donal O’Connor, who was included by telephone from Australia.
“Balance sheet management,” answered Willie McAteer.
Anglo’s auditors Ernst & Young signed off on the results for Anglo Irish Bank for the year ending September 2008. Released to the markets on December 3, they reported a profit of €664m and customer and corporate deposits of €51.5bn. The origin of €7.2bn included in this figure was not alluded to.
But by then Brian Lenihan, the minister for finance, knew that Anglo Irish Bank was a busted flush. He insisted that Frank Daly, former head of the Revenue Commissioners, and Alan Dukes, a former minister for finance, attend the next Anglo Irish Bank board meeting on Thursday, December 11, 2008.
A week later, on December 18, he officially appointed both of them to the board of Anglo Irish Bank. That same day, Sean FitzPatrick resigned after disclosures that he himself had €87m in loans with Anglo Irish Bank. The following day, David Drumm resigned as chief executive.
The bank’s share prices stood at 22c.
On January 19, 2009, after he was officially informed about the €7.2bn circular deal with ILP, the minister for finance nationalised Anglo Irish Bank and its shares became worthless.
It may have been a ‘big funny’ but in reality it was a bad joke and a lot of reputations, not just those of the three found guilty of conspiracy, have been tarnished in the process.
‘Even with the €6bn ‘fixes’ which Mr F***ing Denis (Casey) confirmed for me... we’re f***ed’