The banking inquiry is looking at the how the mess was created. However, the big controversy this week has focused on the clean-up after the crisis and specifically the role of the IBRC, established in July 2011 to take on the two problem children of Irish banking, Anglo Irish Bank and Irish Nationwide.
The clean-up after the banking collapse was always going to be messy. On one side you had a bust banking system, the bulk of it now State-owned, and on the other a variety of borrowers, ranging from the high-profile developers – mainly handled by Nama and the IBRC – to the homeowners and smaller business borrowers.
From a national viewpoint, the sell-off strategy has worked out, with both Nama and IBRC asset sales going better than would have been expected a few years ago, fuelled by international investors scouring a low interest rate world for anywhere they can get a return.
After the €64 billion injection into the banks, the successful sell-offs by Nama and the IBRC at least meant that the hole to be filled by the taxpayer did not get any larger.
Nonetheless, as the process draws to a conclusion and we read of developers “emerging” from Nama and going back building houses and deals being done to sell off assets involving heavy debt write-downs, some questions are starting to spill out.
The Siteserv controversy has been the biggest spark, driven by some oddities in the way the deal was done, notably the €5 million pay-off to shareholders to sign up to the sell-off deal,.
Some €100 million of debt was written off in the Siteserv deal in the sale to Denis O’Brien’s company. IBRC management at the time will argue that this was just recognising reality, and both it and Nama have written down the book value of pretty much all the loans they had sold.
Lack of information
Homeowners in arrears may wish that banks would be as quick to recognise reality in their case. Part of the problem in assessing the Siteserv deal is the lack of general information – we simply don’t know what deals Nama and the IBRC have cut, what write-downs have been involved and how they have interacted with their borrower clients. Part of the issue with Siteserv is the presence of the same group of solicitors, brokers and accountants on various sides of the deal. For many it just sends out the message that the same gangs in place when we got into trouble are now the ones charged with – and making money from – the clean-up.
Now KPMG, which advised Siteserv (which had a former KPMG partner, Robert Dix, on its board when it was sold), is to investigate the Siteserv sale and other IBRC transactions on behalf of Minister for Finance Michael Noonan.
IBRC joint liquidators Kieran Wallace and Eamonn Richardson are among the best qualified to do the job and will, no doubt, leave no stone unturned. But politically you would think the Government will at some stage have to agree to an independent investigation.
A large part of the Siteserv story reflects the concerns of the Department of Finance – and the unwillingness of the Government to state categorically that it was happy with the deal. What emerged this week is that this is part of a wider story of tensions between the IBRC and the department covering other issues. Clearly, from the tone involved, these tensions pre-dated Siteserv. We have some background to this, but not the full story. My colleague Simon Carswell, for example, reported in 2010 on the support of then Anglo chief Mike Aynsley for a court move by developer Paddy McKillen to resist the movement of his loans from Anglo to Nama. The Department of Finance would surely not have approved.
Later, after Anglo became IBRC, there were well-reported tensions between the two sides over remuneration and over an apparent belief in the department that IBRC was trying to prolong its existence. There were no tears shed in the department when IBRC was liquidated in February 2013 as part of the deal to refinance the promissory notes.
Still, the extent of the tensions revealed in the FOI documents received by The Irish Times this week is striking, and cause for concern when so much money was at stake. Was it a case of an over-controlling government department insisting on playing everything by the rule book and not being experienced in the real world of deal-making? Or was the IBRC really being run without the proper controls and procedures in place and choosing sometimes to ignore the official view?
A particularly interesting passage in the documents involves a discussion about how the bank should interact with its borrowers. Aynsley said the two sides had to work closely to get the best value from the loans, while the department waned a more arms-length approach.
Taxpayer’s interests
The only thing that really matters here is what decisions were made, and why. The IBRC team insists that everything was done in the interests of the bank and the taxpayer. The department was constantly questioning its actions, as the documents show. It was far from an ideal relationship, with so much money at stake.
There are many people offering views on how this should all be looked at. There is no perfect way. In a transaction like the Siteserv sale, for example, we will simply never know how much value would have been recouped if the bank had put the whole thing into receivership and sold it off rather than letting the company handle the sale. It is ironic, perhaps, that after the IBRC liquidation sell-off went so well, the bank’s past has come back to haunt the Government. But return it has and it isn’t going away any time soon. Twitter: @CliffTaylorIT