Anglo Irish Bank was “extremely disingenuous” in several presentations to Government about the strength of its loan book and its capital-raising powers right up until its eventual nationalisation in early 2009, the Department of Finance’s top civil servant has claimed.
The department’s secretary general, Kevin Cardiff, told the Public Accounts Committee today Anglo was trying to minimise the extent of its losses even months after the bank guarantee had been introduced, and when the property crash was in full swing.
He said the department, however, was not at any stage taken in by the bank's “overly optimistic” outlook and had remained sceptical about the bank’s financial footing well before the true scale of its loan losses became apparent.
But Mr Cardiff insisted there was no evidence Anglo was insolvent prior to the Government’s decision to introduce a blanket guarantee, and the advice received, at the time, was that the bank was able to meet its liquidity requirements.
Mr Cardiff today appeared before the committee to answer questions on the advice given to Government prior to the introduction of the guarantee.
Anglo gave a presentation to Government on September 18th claiming that its financial situation was sound and stating that it had “no requirement for external equity capital”.
A week later advisers from Merrill Lynch warned the Government that Anglo could have a €100 million shortfall within four days, September 30th, and €4.9 billion by October 24th.
Labour’s Pat Rabbitte said Anglo’s presentation to the Government in September 2008 “must take the biscuit for chutzpah, sheer hard neck and lying”. Mr Rabbitte said the bank’s presentation about its finances was “outrageous”.
To which Mr Cardiff replied: “It was . . . and it wasn’t the only outrageous thing they said or did. They [Anglo] were continuously overly optimistic, in similar terms, for sometime thereafter.
“I think that their communications may well have been disingenuous . . . extremely so in some cases, but they probably thought they could use their skills and flair to get through the problems,” he said.
Senior people in Anglo suggested the bank would be able to raise private capital months after the guarantee, but such claims were never given “any real credit”, Mr Cardiff claimed.
Mr Rabbitte asked Mr Cardiff if it was not an offence in Irish law to present such a misleading picture to the Department of Finance.
Mr Cardiff said misleading or attempting to mislead the Department of Finance seems to be “a sport in some places”.
The committee last week published a series of partly redacted documents released to it by the Department of Finance regarding the guarantee. The papers show that consultants Merrill Lynch recommended a €20 billion emergency lending fund to the Government and highlighted serious concerns about a blanket guarantee.
Mr Cardiff said the Government was faced with a “rapidly evolving situation” in September 2008, and ultimately opted for an all encompassing approach to the problem of liquidity faced by the banks.
He said Anglo would not have been able to legally operate on September 30th if the guarantee had not been introduced.
Asked if a policy of nationalising Anglo and Irish Nationwide might have been a better option in hindsight than the blanket guarantee, Mr Cardiff said, in his opinion, simply nationalising the two institutions would not have been enough.
Merrill Lynch was hired by the Department of Finance on Wednesday, September 24th, 2008, and it produced an advisory memo for Government four days later, on Sunday, September 28th.
It warned about the potential downsides of a blanket guarantee and leaned towards a combination of alternative measures, including the €20 billion emergency loan scheme. Minister for Finance Brian Lenihan has said the 54 documents supported the Government’s decision to introduce the guarantee in September 2008.
While a guarantee would stem the outflows of deposits from the banks, the scale of the guarantee could be in excess of €500 billion, the advisers warned. The Government ended up covering liabilities of €440 billion.
Committee chairman Bernard Allen, a Fine Gael TD, said the details released to date were informative and revealing but that there were still some issues which the committee was keen to tease out with Mr Cardiff and his officials.
“We would like to know more about the process of deliberation which took place of the various options and why some advice was favoured over others,” Mr Allen said.
“We also would like to ask Mr Cardiff why some of the information we received was heavily censored and why we did not receive all the documentation we requested.”