Inside the world of business
Nothing exotic about it, just a plain old property bubble
IT WAS A Damning indictment. The 18-month Government narrative largely laying the blame for the crisis at Ireland’s financial institutions at the feet of the collapsed Lehman Brothers was torn up by the two reports which the Government itself commissioned.
Central Bank governor Patrick Honohan, as usual, didn’t mince his words. “The weaknesses of Irish banks were not caused by the interruption of cheap money from abroad [post-Lehman’s],” he said. Even before the US bank’s collapse, “it seems clear . . . Anglo Irish Bank and Irish Nationwide Building Society were well on the road towards insolvency”.
While Klaus Regling and Max Watson can see the imprint of global influences, they state that Ireland’s banking crisis was “in crucial ways ‘home-made’.”
The Government wasn’t particularly keen for an inquiry in the first place and it’s easy to understand why. Both reports support the view that there is plenty of blame to go round and government fiscal policy is roundly censured. Regling states that overall fiscal policies, notably in 2007 during Brian Cowen’s tenure as minister for finance, contributed “markedly to the overheating of the economy”.
Honohan refers to tax incentives boosting rather than restraining an overheated construction sector.
Regling, who now moves on to oversee the EU’s €440 million rescue fund to protect the euro, sounds vaguely incredulous in parts, as he recounts how fiscal policy, bank governance and financial supervision “left the economy vulnerable to a deep crisis”. Pointing to bank governance and risk management that were in places “disastrously” weak, he notes that Ireland was not undone by the “exotic constructs that caused problems elsewhere. This was a plain vanilla property bubble.”
Much remains to be done to ensure a proper system of governance and regulation is put in place, but the plain speaking in these reports is a valuable first step.
Denial has its limits
THE DEPARTMENT of Finance and the Financial Regulator have responded to criticisms raised by the former Irish Life & Permanent chief executive Denis Casey in an odd fashion – they have denied something that has not even been claimed and ignored the key issue.
Casey has questioned in a sworn statement – revealed by The Irish Times– why there had been no effective intervention to scrutinise or influence how Anglo Irish Bank reported the balance-sheet flattering €7 billion in deposits from IL&P in its annual results in 2008.
The deposits moved between Anglo and IL&P in a period of days over the end of Anglo’s financial year on September 30th, 2008, masking the heavy loss of customer deposits when the results were reported.
The regulator learned about the transaction within weeks, in October 2008. IL&P finance director Peter Fitzpatrick had a conversation with the regulator’s head of banking supervision, Mary Burke, on October 24th, 2008, and she raised no concern about it.
Kevin Cardiff, now secretary general of the Department of Finance, said he learned about the deposits in October in a telephone call with the National Treasury Management Agency after it was spotted in a PricewaterhouseCoopers report.
On December 3rd, 2008, Anglo presented its results for the year to September 30th, 2008. It made no reference to the IL&P transaction or its effect on deposits, which the bank showed were broadly in line with a year earlier. The department and regulator have repeated they were unaware of the transactions in advance and would not have approved such circular transactions had they known.
But this is not the issue raised by Casey. Why did the various authorities not question Anglo’s results or seek to influence how they were presented beforehand if they knew about the existence of the transactions well in advance?
Perhaps the Garda and the Director of Corporate Enforcement will get to the bottom of it as part of their inquiries into Anglo.
Rich get the gravy
COMPTROLLER & Auditor General John Buckley is conducting an inquiry into the DDDA’s involvement in the purchase of the Irish Glass Bottle site in Ringsend, but nothing he discovers will ever secure the return of the money that has been lost.
As the Becbay accounts make clear, a little over a year after the 25-acre site was bought, €452.8 million in wealth had disappeared. Poof! Becbay borrowed from Anglo, which borrowed from the markets and now the exchequer finds itself confronted with the bill. Heads I win, tails you lose.
It is par for the course, but astonishing nonetheless, that a main mover in this disaster, Bernard McNamara, is trying to sue the State, through the DDDA, for up to €100 million.
The legal costs involved are significant and it is not clear how he is able to fund his case. Also, as the latest annual return for Becbay makes clear, McNamara continues to reside at one of the capital’s most expensive addresses. His Becbay partner, Derek Quinlan, has moved to a no-doubt attractive home in Switzerland.
It reminds me of a London ditty. The chorus goes: “It’s the same the whole world over/it’s the poor what get the blame/It’s the rich what get the gravy/Ain’t it all a bloody shame?”
The song’s a hundred years old and the sentiment older still. These days it’s called moral hazard.
Today
The Dáil Committee on Public Accounts will publish the findings of an investigation into the contents of the Comptroller and Auditor General’s 2007 annual report. Elsewhere, the CSO will issue inflation figures for May and industrial production data for March and April.
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