Anglo Irish Bank The Bank that killed the Celtic Tiger

Anglo Irish Bank

The Bank that killed the Celtic Tiger

2006: Anglo has emerged as the world's top performing bank over the past five years
Mercer Oliver Wyman

2010: Losses reported by Anglo are the worst by any bank in the world
The Banker

             Executive Summary at 12/12/12
                 Julian M Clarke BA MBS PDA FCA 2013

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Background
Anglo Irish Bank Corporation was a commercial bank based in Ireland which, at its peak, had
operations in Austria, Germany, the UK, the US, Jersey and the Isle of Man.

Compared with Ireland’s four major retail banks and indeed Ireland’s building societies, it had a
minimal retail presence in its main domestic Irish market as it predominantly operated in the business
and commercial banking marketplace.

‘Anglo’, as it is often referred to in Ireland, was founded in 1963, listed on the Dublin Stock Exchange
in 1971 and remained one of Ireland’s smallest banks, primarily providing instalment credit,
accumulating losses of £300,000 between 1972 and 1976. In 1977 it had deposits of £2 million, cash and
government securities of £1.2 million and net assets of £100,000. By 1980 Anglo had made a profit of
£100,000. Its continued growth was aided by a variety of overseas acquisitions.

Seán Fitzpatrick
Over the next two decades Anglo became synonymous with Seán FitzPatrick who was to spend around
thirty years with the bank, becoming CEO in 1986 and chairman from January 2005 until his governance
related resignation in December 2008.

During FitzPatrick’s tenure as CEO, Anglo grew from being a small, fringe operator into the third
largest bank in Ireland. The only banks with higher market capitalisation were Allied Irish Banks (AIB)
and Bank of Ireland, both with strong retail and commercial presences. Ulster Bank and Danske Bank
(formerly National Irish Bank) are the other members of the ‘Big Four’ retail and commercial banks,
both owned by overseas parents (RBS and Danske) and hence not listed on the Irish Stock Exchange.

‘Niche lending’ and property development
Anglo’s rapid growth from the mid-1990s was typified by “niche lending”. Its specialisms included
property based projects which its competitors had previously approached more conservatively. It became
known as the “builders’ bank” or “developers’ bank” and commanded continuing loyalty amongst
property developers, even when the other banks became more active in development projects.

‘Risk premium’
This loyalty, allied to its less risk averse nature (and perhaps the ‘allure’ of doing business with Anglo),
resulted in it attracting business despite having a reputation for being more expensive - charging higher
fees and perhaps 1% higher interest than its competitors, often justified as a ‘risk premium’. This term
would transpire to be particularly apt.

‘Celtic Tiger’
Anglo was particularly successful over the period from the mid-1990s, often referred to as Ireland’s
‘Celtic Tiger’, characterised by high, export-led, economic growth, strong retail demand, good
commercial profitability, low interest rates, readily available international credit and high employment,
aided by a buoyant global economy which Ireland was well placed to avail of, with many multinationals
attracted over thirty years of successful ‘foreign direct investment’.

Promises of a well-educated, English-speaking workforce with internationally recognised creativity,
ready access to the EU market, low corporate taxes, and a pro-business environment in many other key
areas have been delivered and, with post-bubble competitiveness improving, many international firms
continue to choose to locate and grow in Ireland for these and a myriad of other reasons.

A further less frequently cited element is the ‘fun factor’ – people often find the Irish not only creative,
talented and industrious but also easy to get on with. Their naturally friendly demeanour, sense of
humour, quick wit and ability to laugh at themselves has exported well and resulted in many
multinational corporations enjoying working both with the Irish and in Ireland.

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Their trading and exports, as well as those of many indigenous Irish firms, led to a thriving global
economy and were the foundation for the subsequent Celtic Tiger economy.
The total US investment into Ireland is greater than into Brazil, Russia, India and China, combined,
while Irish companies own more stock investments overseas (ODI) than foreign companies make into
Ireland.
Ten of the world’s top-selling prescription drugs are made in Ireland, while half of the world’s fleet of
leased aircraft are managed from Ireland. Further examples of businesses located in Ireland include:
        8 of the top 10 technology companies including Intel, IBM, HP, Dell, Google, Microsoft &
          Apple
        15 of the top 25 in medical devices
        8 of the top 10 pharmaceutical companies
        more than 50% of the world’s leading financial services firms and
        160 medical technology firms, half of them indigenous

These examples illustrate the success of long-standing ‘foreign direct investment’ policies in attracting
almost 1,000 multinationals to Ireland’s shores which contributed significantly to the evolution of the
Celtic Tiger economy during the last global boom. It is these very strengths which will also help Ireland
recover more rapidly than many other countries when the global recession subsides and will be the
cornerstone around which economic growth will again emerge.
Indeed 2011 was a record year for the experienced government agency IDA Ireland which is responsible
for ‘foreign direct investment’, with more international firms choosing to locate in Ireland than in any
year during the preceding decade, while many more firms announced expansion of their Irish operations.
Ireland, though, is not solely reliant on the multinationals for export growth. Indigenous companies are
supported by the State agency Enterprise Ireland and during 2011 these firms exported €15.2 billion
worth of goods and services, more than €2 billion more than in 2010. Such exports during 2011 broke all
previous records and even exceeded the predominantly pre-recession record levels of 2008, the highest
ever annual export gain achieved by Enterprise Ireland client companies who, directly and indirectly,
employ a total of 300,000, around one sixth of the Republic of Ireland’s workforce. i
The ‘Celtic Tiger’ economy, with GDP growth often between 5% and 8%, could have been wisely
managed, creating a foundation for the inevitable global downturn. Instead:

        Rising tax revenues were poorly spent by politicians with short-term perspectives.

        A tax-incentive-driven property market developed with unimpeded growth in the volume and
         value of both commercial and residential property developments.

Anglo funded many of these developments, in Ireland and internationally. When a businessperson was
considering a development, invariably the advice amongst Ireland’s then business elite was “talk to
Seánie”.

Indeed the other banks, recent entrants attracted by the high returns available, saw themselves as being
in Anglo’s territory when funding developments.

Banks went to extreme lengths to ‘poach’ developments from Anglo - seen as ‘victories’ in a
competitive marketplace. Even the more traditional Building Societies got in on the lucrative, but riskier,
property development bandwagon.

Not unique to Ireland, growth of the loan book or loan portfolio appeared to become the primary driving
force in a rising property market with strong profitability for both lenders and developers.

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Property market – the invisible bubble
Developers were literally having a ‘field day’, with many of the green fields for which Ireland is
appreciated being ‘transformed’ into housing and commercial developments. Demand was high with
many properties sold ‘off the plans’.

The banks were having their own ‘bonanza’, busy lending to both participants in the property market -
developers and home-owners.

Irish householders were buying investment properties in Ireland and abroad, not just in the familiar
Continental European markets, but also in the ‘newer’ markets of Eastern Europe, many of whose
people had been attracted to Ireland to work, particularly in construction and hospitality.

Some financial institutions started offering residential customers interest-only and 100% mortgages,
assuming that the market could only continue in one direction - upwards.

‘Conservative’ banks?
Management memories were short. Previous property cycle boom-and-busts and risk management
policies were forgotten as sales growth, market share and profitability became the main business drivers.

Previously risk-averse institutions became risk takers.

High returns for the financial institutions, developers and investors was conditional on a number of
factors continuing to prevail, including availability of relatively cheap credit and a consistent rise in Irish
and global property markets. ‘Confidence’ amongst both the public and the business community could
only remain ‘sky high’.

Profitability
Retail spending was strong, personal credit available, and many businesses had never done better,
notably the banks who were hitting previously unheard of levels of profitability. Anglo’s asset base had
grown from €178m in 1987 to €26bn by 2003. Anglo’s annual increases in net profit before tax (NPBT)
were regularly in the region of 40% to 50%, with a third of profits often made overseas.

 Year       1988         1993        1998         1999        2001         2005        2006      2007

 NPBT       €3m          €9m         €57m         €89m        €195m        €685m       €1bn      €1.24bn

Anglo’s unbroken profit growth and “relationship banking” model did not go unnoticed. In January 2006
banking consultants Mercer Oliver Wyman reported that Anglo has ‘emerged as the world’s top
performing bank over the past five years’.

Anglo’s loan book had grown as rapidly as its profits, even doubling in size during the two years before
its 2008 peak of €72bn. More critically, the 2011 Nyberg report noted “the herd mentality” of other
banks in the face of the rapid expansion of Anglo’s loan book and profitability:
       “Bank management and boards in other banks feared that, if they did not yield to the pressure to
        be as profitable as Anglo, they would face the loss of long-standing customers, declining bank
        value, potential takeover and a loss of professional respect.”
       "As other banks tried to match the profitability of Anglo, their behaviour gradually, sometimes
        unintentionally, became similar.”
       “Risky lending policies served as a role model for other banks.”
       “Accordingly, when the crisis broke, large losses were realised not only in Anglo but in other
        banks as well.”

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The nightmare begins
The utopian dream of continued growth and profitability was soon to be transformed into a nightmare –
almost overnight.
Anglo suffered a considerable turnaround in its performance and share price during 2008:
1.     Heavy exposure to property lending. Much of Anglo’s €72bn loan book was advanced to
builders and property developers, hence badly affected by a downturn in Irish and international
property markets.
2.      Reliance on wholesale funding, availability of which dried up when credit markets slowed to a
snails-pace, following the sub-prime crisis and the onset of global recession.
3.      Corporate governance issues, which can only be described as self-inflicted “own goals”, led to
a rapid loss of trust and a shattered reputation.

Share price
Share price peaked at €17.60 in May 2007, valuing Anglo at nearly €13 billion and FitzPatrick’s 4.5m
holding at €80 million.
Uncertainty in global and domestic financial markets and rumours circulating about liquidity and
solvency of Irish and international banks, led the Irish government on 30th September 2008 to announce
it would guarantee all deposits and borrowings of the six Irish-owned banks for two years.
By December 2008, when FitzPatrick resigned in disgrace, Anglo’s share price had fallen by 98% to
€0.32, valuing Anglo at €242 million (despite a multi-billion euro loan book) and FitzPatrick’s stake at
€1.5 million.
Anglo was nationalised on 20th January 2009 as a result of an Irish State investment of €3 billion which
grew incessantly to €29.3bn, an amount similar to Ireland’s depleted annual tax revenues.

Profits and losses like swings and roundabouts
After its years of record profit growth, on four occasions Anglo reported the largest half-year and full-
year losses in Ireland’s corporate history:
 Period ended       No        Losses         Loan            Including NAMA Total      State
                    months                   impairments     write downs    investment
 March 2009         6         €4.1bn         €3.7bn                                €4.0bn
 December 2009      15        €12.7 bn       €15.2bn         €10.1 bn              €4.0bn
 June 2010          6         €8.2bn                                               €14.3 bn
 December 2010      12        €17.7 bn       €19.3bn         €11.5 bn              €22.9bn
 June 2011          6         €101m                                                €29.3bn

By July 2010, industry magazine The Banker reported that Anglo’s losses were the worst reported by
any bank in the world. Anglo’s €12.7 billion 2009 loss was far greater than those of large US, Japanese
and German banks. Royal Bank of Scotland and US lender Citigroup, amongst the world’s largest banks,
lost only a quarter and half respectively of what Anglo lost in 2009. Most of the losses of the 25 banks
surveyed were due to the subprime crisis, whereas Anglo’s losses were a result of … property lending.

NAMA
In 2009, partly modeled on the Swedish experience, the State established the National Asset
Management Agency. NAMA is the vehicle for banks transferring all loans over €5m at December 31 st
2008, performing and non-performing. Loans of over €80bn have been transferred at an average
discount or ‘haircut’ of around 50%.

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Former Anglo CEO David Drumm, now based in Boston, blamed the NAMA approach for the
magnitude of the immediate losses being triggered in Anglo. €10.1 billion of Anglo’s 2010 write-offs
were on loans of €35.6 billion - half the bank’s loan book - transferred to NAMA.

Corporate governance issues
The previous high-profile Anglo management team did not appear to have ‘trust’, particularly the
potentially damaging impact on it of their actions, at the forefront of their decision making.
Serious corporate governance related issues surfaced and are now under investigation by a number of
bodies including:

   1. ‘Hidden’ directors’ loans: Chairman Seán FitzPatrick’s director’s loans were temporarily
      transferred just before financial year-end to the Irish Nationwide Building Society (INBS), a
      practice it transpired that had been undertaken over eight years during which time the directors’
      lLoans were understated in Anglo’s financial statements. Other staff loans are also under
      investigation.
   2. Deposits from another financial institution — Irish Life & Permanent (IL&P) — of €7bn
      immediately prior to Anglo’s September 2008 year-end, were recorded as a customer deposit by
      Anglo. It transpired these followed one-day interbank loans from Anglo to IL&P, recorded as
      loans by IL&P. Anglo’s deposits were artificially inflated, thus improving key ratios of loans to
      deposits at year-end.
   3. “Golden circle”: Ireland’s then wealthiest businessman, Seán Quinn, had built up a 25% (or
      greater) stake in Anglo through ‘contracts for difference’, only 15% of which was subsequently
      converted into equity. To prevent the remaining tranche flooding the market and depressing
      Anglo’s share price, a group of 10 initially-unidentified businessmen, the “Maple Ten”, were lent
      funds by Anglo to acquire the shares, potentially ‘propping up’ the share price.
   4. Overcharging: In August 2010, Mike Aynsley, Anglo’s CEO from September 2009, announced
      an investigation into potential overcharging of customers on loans approved over a five-year
      period to July 2004. Anglo may owe between €30m and €50m, following possible application of
      incorrect interest rates.
   5. Relationships: The relationship between senior bankers, property developers and politicians
      appeared to be a very close one, including political appointments to boards of State-owned
      bodies. Property deals undertaken by the Dublin Docklands Development Authority (DDDA)
      using Anglo funds are being investigated. A number of Anglo directors, including FitzPatrick,
      also served on the DDDA board.

Governance related resignations
FitzPatrick resigned as Anglo chairman on 18th December 2008, the day the directors’ loans issue broke,
two months after he said Anglo had made mistakes but had not been "reckless". He stated “the transfer
of the loans between banks did not in any way breach banking or legal regulations. However, it is clear
to me, on reflection, that it was inappropriate and unacceptable from a transparency point of view”.

CEO David Drumm resigned the next day, followed in January 2009 by finance director (CFO) and
chief risk officer, Willie McAteer, and five non-executive directors a fortnight later, following a heated
extraordinary general meeting (EGM). A former senior partner in PricewaterhouseCoopers became
Chairman, later replaced by a former Minister for Finance. Australian banker Mike Aynsley took over as
CEO in September 2009. He has not yet met Fitzpatrick and in late 2010 said that if he did "I suppose I'd
like to say that I'm very disappointed with many of the things that I've found".

Fitzpatrick, with assets estimated at €50 million, was adjudicated a bankrupt by the High Court at his
own request on 12th July 2010, days after opposition from Anglo ensured the collapse of his proposed
settlement deal with creditors owed €150 million.
David Drumm returned to Boston, having led Anglo’s US operation prior to becoming CEO in 2005.
Anglo’s legal action against Drumm in the Irish High Court had to be postponed after he filed for
bankruptcy in the US in October 2010. Anglo claims that “Drumm’s pattern of concealment, deception,
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falsehood, manipulation and intentionally fraudulent behaviour” should not allow him a fresh start
provided under the US bankruptcy process, permitting Irish court proceedings.

Governance and boards
The Chairman of Irish Nationwide Building Society (INBS) resigned, as subsequently did dominant
CEO Michael Fingleton after 40 years, with a controversially generous €28m pension and €1m bonus.
INBS losses pro-rata have been greater than Anglo’s.
Author of the third of three banking-related reports, Finland’s Peter Nyberg, was particularly critical of
governance at INBS, with Fingleton given “extraordinary powers” by the board and many staff reporting
directly to him.
The board had formally delegated its powers “for the practical, effective and efficient management,
promotion and development of the bank to the managing director”. The INBS board had only three non-
executive directors for most of this period and rotation was modest while the directors had little practical
banking experience.
The CEO, CFO and Head of Treasury of Irish Life and Permanent (IL&P) resigned in February 2009.
Chairperson Gillian Bowler said the board was not informed about the “misguided” €7bn transaction
which served to flatter Anglo’s year end. "And if we had been informed, we would have insisted they be
stopped." During a radio interview she asked “what can a board do if information is withheld from it”?
In the case of Anglo, the Nyberg report said that, while procedures and processes existed on paper, in
certain cases they were not properly implemented or followed in practice. “It appears that, at least in the
latter years, only a handful of management was aware of all activities of the bank.”
“In Anglo, some board members had significant shareholdings in the bank, which indicates that they had
particularly full trust in the operations and growth goals of the bank.”
Across the entire sector, Nyberg was “widely assured” by management, non-executive board members
and “others” that the loan book problems came as a “complete surprise” to them.
“In some cases, management information systems were weak and did not give managers and the board
meaningful or complete information.”
The banking and lending expertise of non-executive directors was “insufficient” and too often there was
a “collegiate and consensual style with little challenge or debate” on bank boards.

Speaking up and vision
Nyberg concluded the “substantial losses” from the crisis could have been avoided had advance
warnings been “available and recognised”. The “mania in the Irish property market” created a consensus
that few professionals were willing to challenge.
Yet he said there were indications that prudential concerns voiced in certain banks “may have been
discouraged”. Contrarians within banking faced “sanctions, loss of independence, loss of job or loss of
credibility”.
“Managers who were strict on credit and risk within the banks were replaced”.
“A false consensus was created where contrarians and naysayers inside the banks and the authorities
were forced to conform or were silenced by the unrelenting success of the property market.”
Bertie Ahern, Taoiseach or Prime Minister for a decade, not long before his own governance-related
resignation in May 2008, said that he didn’t know why those who challenged the prevailing status quo
“don’t commit suicide”. The ostentatious behaviour of a minority in Irish society at the time was as
tasteless as Ahern’s unfortunate comment.
No Irish premier has ever had the luxury of such rapidly rising revenues, but Ahern spent unwisely,
awarded extraordinary pay rises to public servants and politicians, ‘benchmarked’ with private sector
salaries, stoked the property boom, ignored the overheating warning signals and laid the groundwork for
the crisis.

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Known for “sitting on the fence” and assessing public opinion before making a decision, his shallow
values and fondness for personal popularity denied the country the courageous leadership it needed at
such a critical juncture.
The vision to realise that this ‘golden’ period offered a precious opportunity to build a solid foundation
for future generations was visibly lacking. His preference for presidential rather than genuine cabinet
government killed dissent.
Whilst some on the outside had the temerity to suggest the consequences of the “mania”, no-one on the
inside had the courage to speak up and force the captain to change the direction of the ship.
It would appear the same malaise existed within Anglo as at the top of both Ahern’s and his chosen
successor Brian Cowen’s governments. Reverence for and deference to the leader was no substitute for
vision and values. The courageous decision-making most required as Ireland’s national finances crisis
developed was conspicuous by its absence.

IMF/EU bailout
Governance, practices, lending policies and funding at Anglo played a significant role in the necessity
for the IMF/EU bailout deal for Ireland announced in November 2010, allied to weak regulation, poor
financial management, and indecisive leadership by government and its officials.
Whilst Iceland allowed its banks to collapse, Ireland introduced a costly bank guarantee for depositors
and investors, hence paying the highest price of any European country for its banking problems, around
50% of GDP compared with Iceland’s 20%.
Over the previous decade, government revenues had risen from around €30bn to €50bn per annum,
boosted by massive property-related revenues, with government expenditure rising accordingly. The
Department of Finance said “the Public Service pay bill increased by 115% between 2000 and 2008”
with “average remuneration increasing by 68% and numbers increasing by 29%,” following an
untransparent ‘benchmarking’ process with upper echelons of the private sector. A former economics
professor said his pension had almost doubled since he retired.
Following the economic and property crash, taxation revenues rapidly dropped nearer €30bn, while
spending remained around €50bn, unemployment soared and huge funds were used to recapitalize the
banks and establish NAMA. Although it would never lend again, Anglo was recapitalized to the tune of
€29.3bn, with the State investing €70bn in all six Irish-owned banks.
National debt rapidly almost quadrupled from a low €40bn and represents over 100% of GDP.
The illiquid banks were surviving using funds from the Irish and European Central Banks.
Bond markets were raising the rates at which Ireland could borrow beyond 10%.
The situation was unsustainable. Ireland was six months away from being unfunded. Despite blatant
denials using clever language to the contrary by Brian Cowen and his government, the IMF, EU and
ECB visited Dublin in mid November 2010 and by the 28th of the month had agreed an €85 billion
rescue package at an average interest rate of 5.83% — €35bn for the banks and €50bn for the economy.
The property bubble had indeed burst and Anglo had played its role, leading not only to its own demise
and that of many of its previously wealthy customers, but also to the collapse of the national finances
and ultimately even to ‘loss of sovereignty’. IMF and EU decision-makers filled the vacuum left by a
decade of indecisive government who had basked in the glory of the ‘good times’ which they and their
supporters falsely believed had been their own creation. Visionary public servants and more courageous
politicians a generation earlier had actually laid the foundations.

Government
Anglo’s links with politicians even played a role in the collapse in January 2011 of Brian Cowen’s
coalition government with the Green Party. The extent of the government bank guarantee, denials of
IMF negotiations, and indecisive management of the economy and public sector, damaged trust in Brian
Cowen and his government.

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Reports of Brian Cowen’s round of golf with FitzPatrick months before the comprehensive bank
guarantee further raised suspicions of links between senior Fianna Fáil politicians and influential
businesspeople. Allied to a failed leadership challenge and the resignation of five cabinet ministers,
Cowen’s attempting a Cabinet reshuffle without the knowledge of his Green Party coalition colleagues
led to their final withdrawal from government. Cowen’s track record, like his predecessor Ahern’s, had
been of consistently considering the interests of the political party before that of the nation.
Ahern and Cowen’s Fianna Fáil party has always been the largest in parliament, even on the five
occasions a coalition government was formed by the other parties. A general election was held on 25 th
February 2011 with Fianna Fáil losing 57 of its original 77 seats. Perennial second and third parties Fine
Gael and Labour achieved their best ever results with 76 and 37 seats. They formed a coalition
government led by Enda Kenny and Eamon Gilmore with the largest-ever majority in the 166 seat
parliament. The national interest - and indeed integrity - is now on the agenda again with improvements
evident, including renegotiating the IMF/EU interest rate to nearer to 3% and a greater ability to take
courageous albeit unpopular decisions.
The ‘Anglo Factor’ played a significant role in the considerable change of fortunes of both the major and
minor parties.

Investigations
A number of investigations are ongoing: by the Financial Regulator, by the Office of the Director of
Corporate Enforcement (ODCE), by the Garda (Police) Fraud Squad (who raided Anglo’s offices in
February 2009), and by the Chartered Accountants’ Regulatory Board (CARB).
CARB’s investigation progressed rapidly and was apparently ready to report at an early stage, notably
that the four bank directors had various cases to answer. In March 2011 the Director of Public
Prosecutions requested CARB to adjourn planned disciplinary proceedings against four accountants,
including former Anglo Chairman, CEO and CFO (Fitzpatrick, Drumm and McAteer), because of
concerns that the public hearings might prejudice possible future criminal proceedings arising from the
State-organised investigations, which have interviewed hundreds of people and gathered thousands of
documents.
CARB found in September 2011 that Anglo’s then auditors Ernst & Young had a ‘prima facie’ case to
answer concerning concealed directors’ loans and IL&P transfers but not the ‘Golden circle’ share
purchase loans.
The Irish public are irate about the speed of progress of the State investigations, which are based on
meticulous information gathering, and contrast the process with that prevailing in the USA which
appears more effective.
After Ireland elected a new government in February 2011, the Criminal Justice Act 2011 was passed in
August 2011. It strengthens police powers to investigate white-collar crime and complex cases and
compels witnesses to disclose information.
On 7th October 2012, former Anglo directors Seán Fitzpatrick, Willie McAteer and Patrick Whelan were
in court and served with the ‘book of evidence’ accusing them of providing unlawful financial assistance
to buy shares in Anglo to members of the Quinn family and the so-called 'Maple Ten' or “Golden circle’
group of Irish investors. The cases will not be heard until 2014.

Regulation & reports
Businesspeople and bank directors were not the only casualties from the Anglo fallout. Patrick Neary,
the second CEO of the Financial Regulator, became another victim of the controversies and “retired”
early in 2009 with a handsome lump sum and pension.

Former IMF officials Klaus Regling and Max Watson investigated the causes of the banking crisis while
Professor Patrick Honahan, who was appointed Governor of the Central Bank after the onset of the
banking crisis, reported on the regulatory regime, government policy and actions of bank management.

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Both Regling & Watson, and Honahan, reported in June 2010:
      “There is prima facie evidence of a comprehensive failure of bank management and direction to
       maintain safe and sound banking practices, instead incurring huge external liabilities in order to
       support a credit-fuelled property market and construction frenzy”.
       “It is clear that a major failure in terms of bank regulation and the maintenance of financial
       stability failure occurred”.
      Only a small number of staff within the Financial Regulator were directly involved in prudential
       supervision of credit institutions – no more than two per major firm.
      The Central Bank and the Financial Regulator had an “unduly deferential approach to the
       banking industry”.
      “Intrusive demands” from regulator staff “could be and were set aside after direct representations
       were made to senior regulators”.
      Corrective regulatory intervention for the system as a whole was “delayed and timid”, and a
       greater increase in capital requirements on risky loans implemented several years earlier would
       have made a major difference.
   The April 2011 Nyberg report said that, if it were not for the international liquidity crisis, brought
   about by the collapse of Lehman Brothers in 2008, the Irish property market would have continued
   to expand and the crash could have been worse. The report viewed Ireland as a country that lost the
   run of itself and was obsessed with money made from a sector that, it was believed would, at worst,
   decline only modestly.
          While international developments helped trigger the crisis in Ireland, they did not cause it,
           and its origins were the result of “domestic Irish decisions and actions, some of which were
           made more profitable or possible by international developments”.
          Lower credit standards, the introduction of high-risk products, and access to credit on
           international money markets contributed to the Irish banking crisis. The report also
           concluded that many Irish banks were increasingly led and managed by people with less
           practical experience of credit and risk management, while governance at some banks fell
           short of best practice.
          There was “a national speculative mania” between 2003 and 2008, and behaviour that
           exhibited “bandwagon effects”. “As in most manias, those caught up in it could believe and
           have trust in extraordinary things, such as unlimited real wealth from selling property to each
           other on credit.”
          “Time-honoured prudential limits and procedures”, traditional values, analysis and rules were
           lost and, when it all came crashing down, participants had difficulty accepting their share of
           the blame.
          The country’s worst banks, Anglo and Irish Nationwide, were singled out for particular focus
           under the terms of the inquiry. They had insufficient checks and balances to cope with the
           surge in lending from 2003 to 2008.
          The boards of the banks operated on a collegiate and consensual basis. There was “disaster
           myopia” within the banks – bankers, and indeed most others, expected a soft landing in the
           property market and there was little or no contingency planning for a “hard landing” or a
           crash. However “in Anglo, some board members had significant shareholdings in the bank,
           which indicates that they had particularly full trust in the operations and growth goals of the
           bank” (Readings 375/376/377).
          Nyberg blamed all sectors of Irish life, saying that property buyers and banks made bad
           decisions, while the Central Bank, the Financial Regulator, the Government and politicians
           didn’t understand or care about the risks. Had one of those parties shouted stop, then the
           country would not have found itself in the depth of the crisis it is in.
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Yet the regulators were perceived as invasive by senior bankers.
In 2007 FitzPatrick said "business success is firmly grounded in confidence, and this can only be created
by an environment of adequate regulation. Among the more insidious aspects of the current regulatory
environment is its apparent presumption of guilt on the part of entrepreneurs and business people
generally…The whole structure seems to be geared towards something akin to an annual proof of
innocence statement. This is corporate 'McCarthyism' and we shouldn't tolerate it".
Ironically it is the practices of the bankers that the public believes ‘shouldn’t have been tolerated’.
Weak regulation, poor governance and slow investigations have diminished public respect for the
regulatory process. The head of the Financial Regulator, Englishman Matthew Elderfield, has made a
strong impression, including appointing ‘administrators’ to Quinn Insurance for “alleged breaches of
insurance regulations”.
The message is obvious: ‘light touch regulation’ died with the Celtic Tiger.

Quinn and wealth
Seán Quinn had been Ireland’s wealthiest businessman, building a business empire supplying the
construction industry before branching into general insurance, creating over 5,000 jobs.
The 2008 Sunday Times Rich List estimated his wealth at €4.7 billion but he didn’t feature on the 2010
list. His foray into Anglo shares transpired to be an unmitigated disaster. Regulators sent chartered
accountants to run Quinn Insurance. They discovered a legacy of under-reserving for claims losses and
potential losses in the region of €1.6bn which requires a levy of 2% on policies issued by the entire
industry. Quinn Insurance has been renamed Liberty Mutual following a change of ownership.
Following legal action by Anglo, Seán Quinn is no longer a director of the Quinn Group. Anglo, owed
€2.8bn, are pursuing Quinn family assets, notably commercial properties around the globe.
During his heyday Quinn acquired trophy properties including Hilton hotels and Ryder Cup venue, The
Belfry. The Irish High Court in 2011 prohibited the Quinn family from further attempts to put overseas
properties to the value of €500m, notably in Eastern Europe, beyond the reach of Anglo. However their
continuing to defy this order led to the Contempt of Court related imprisonment of Seán Quinn Jnr for
three months in July 2012 and eventually of Seán Quinn Snr for nine weeks in November 2012, the
highest profile Irish businessman to be imprisoned.
Justice Peter Kelly, the determined head of the Commercial Court, said that, on the uncontradicted
evidence before him, it seemed the Quinns had deliberately created and operated a scheme of mesmeric
complexity, reeking of dishonesty, for the twofold objective of putting assets beyond the bank’s reach
and to feather their own nests.
In response to Quinn’s claim in evidence that he ran his empire with honour, High Court Justice
Elizabeth Dunne said that his behaviour was “as far removed from the concept of honour and
respectability as can be”. She gave reasoned judgements, based on the evidence in front of her, that find
the Quinns have acted in “a blatant, dishonest and deceitful manner.” She described their evidence as,
among other things, “frankly unbelievable”, “completely lacking in credibility”, “evasive, less than
forthright, obstructive, uncooperative and at times untruthful”. Documents presented to the court were
found to have been “fabricated or falsified”.
"I did stupid things," Quinn told reporters, saying that Anglo "took my companies, my reputation and
they put me in jail." He famously told an audience at the height of his power: "I suppose I was always
very greedy. I was never happy with what we had, and I was always looking for new opportunities."
High Court Judge Elizabeth Dunne suggested Quinn "only had himself to blame".
This has been quite a fall from grace, as Seán Quinn was popular because he consistently created
successful businesses and valued employment, and kept an admirably low media profile. So what went
wrong? Were his use of the risky CFD’s to build up a reported 28.5% shareholding without initially
committing much capital an attempt to profit from the seemingly inexorable rise in Anglo’s share price?
Yet he forewent a €200m profit to continue his holding. Did Quinn really want to own Anglo? Or did his
fondness for a gamble reach such ridiculous proportions that ultimately cost him and his family heavily?
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Having been valued at €4.7 billion in 2008, his net indebtedness currently exceeds €2 billion.
FitzPatrick and Drumm are also bankrupt, as in effect are many of Anglo’s former clients. All enjoyed
multi-million annual earnings and significant net asset positions.
The timeless question begs to be posed: what makes the wealthy risk everything in the quest for more?
JD Rockefeller was asked “how much money is enough?” and apparently replied “just a little more.”
Could it be that simple?
Now bankrupt former Anglo CEO and later Chairman, Seán FitzPatrick, provided a further insight
during a December 2007 television interview:
      It’s not about making money. It’s a game. That’s what it’s all about. Money is just evidence.
      All the time it’s about winning and losing. That is the way I have been brought up.
      So if you make money, then I can understand if you try to spend it, well that is why you try to
      make it. But that is not what you do. You aren’t even trying to accumulate it. You just want to
      win.ii
Recalling the 1929 era, history has shown that many ‘ordinary people’ also suffer significantly when the
wealthy ‘play risky games’. The desire to ‘win’ can produce many losers, often not only those directly
involved in the game.
Whether it is the feeling of power that money can bring, the pleasures it can buy, or the pride of visibly
having more than someone else, in seeking further wealth, whether seen as part of a ‘game’ or not,
somehow the already-wealthy can risk losing everything – and not just what is capable of monetary
measurement.
Irrespective of the reasons, lessons remain unlearned and financial history repeats itself. Again and again
and again.

Bonds
When Anglo was one of Europe’s highest flying banks, it attracted significant investment in the form of
bonds from many other financial institutions, notably German, British and French. Yet at the insistence
of the European Central Bank, these bondholders have been protected with 100% of their investments
repaid when due. Speculative private sector investments have been transformed into State indebtedness
which has grown from €40bn to around €200bn – unaffordable by a little country earning €30bn and
spending €40bn.
Ordinary shareholders lost €20bn on AIB, €18bn on Bank of Ireland and €13bn on Anglo, while the
taxpayer has seen €70bn invested in failed banks and €40bn or so in NAMA.
‘Burning the bondholders’ became a major general election issue, with the public failing to understand
why financial institutions shouldn’t bear their share of the Irish banking losses. They were after all
speculative investments in high returning and hence riskier banks when a property cycle was clearly
reaching its peak. Did none of the other institutions employ economists?
When the bubble burst, those who could least afford it have been burdened with the aftermath, while
those who can most afford it have been protected.
Quite extraordinarily, this little country has been helping protect the larger European banking system
rather than setting a precedent with bondholder losses. But at what cost?
Surely a deal has been made behind the scenes which will alleviate Ireland of much of this debt burden
when the European economy is well on the road to recovery? Progress, though, has been slow and
national self-interest appears a barrier, with Germany appearing the main obstacle although weak
German banks were protected from losses on their investments in now ailing Irish banks by Ireland
repaying bondholders in full at the insistence of the European Central Bank and apparently also of US
Treasury Secretary Timothy Geithner.

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Anglo’s Future
Anglo’s new management team, led since 2009 by Australian Mike Aynsley, was advocating plans for
elements of Anglo to continue trading and lending by splitting the bank into a ‘Good Bank’ and a ‘Bad
Bank’.
While it is natural for executives to want their enterprise to continue trading, Aynsley and his team may
not have sufficiently appreciated the impact that a severe loss of reputation can have on future
performance. The EU Commission rejected their proposal. Anglo will never lend again and is being run
down over time.
Irrespective of the business, history has shown that when reputation is damaged, ‘customers’ usually
take their business elsewhere. When the key element of trust is broken, it becomes increasingly difficult,
if not impossible, to restore. Would you do business with someone you no longer trust?
The final resort of a business which has lost its reputation is to change its name. Along with many other
ventures for whom considerations of trust and reputation were not sufficiently high priorities, Anglo has
unsurprisingly also faced this ultimate indignity.
Anglo was merged with former one-man-band INBS and on 14th October 2011 the name ‘Anglo Irish
Bank’ was consigned to history. The State-owned bank was officially renamed Irish Bank Resolution
Corporation (IBRC).
Anglo Irish Bank’s legacy will surely transpire not just to include contributing to the death of the Celtic
Tiger, but also to ensuring that both its bite and roar will continue to be felt for a generation.
The Anglo experience has been a bitter pill for the ‘ordinary’ Irish businessperson and citizen to take,
when it was mainly a wealthy minority of the population that traded with it.
Most of this formerly wealthy elite of Irish society, generally Anglo clients, are now bankrupt or
protected from bankruptcy only by NAMA. Not unlike the previously conservative banks themselves,
the exhilaration associated with boom times can somehow lead to suspension of whatever faculties are
required to assess levels of risk associated with investment opportunities.
Following euphoria not dissimilar to the pre-1929 period, perhaps the universality of the lessons from
the collapse of Anglo Irish Bank and the Celtic Tiger can this time be learned well beyond Ireland’s
shores.

Endnotes:

i
    Enterprise Ireland Annual Report 2011 released 27th June 2012 (accessed 27th June 2012)
        http://www.enterprise-ireland.com/EI_Corporate/en/Publications/Reports-Published-
Strategies/Annual%20Report%20and%20Accounts%202011.pdf
ii
       RTÉ ‘One to One’ Series of television interviews; Áine Lawlor interviewing Anglo Irish Bank
Chairman Séan FitzPatrick December 2007
      http://www.youtube.com/watch?v=fakzFyVaG5Y (Accessed 30th July 2012)

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