ICAI investigating director’s loans and other matters at Anglo Irish
The Chartered Accountants Regulatory Board issued a statement yesterday that they have appointed John Purcell, former Comptroller and Auditor General to investigate the actions of directors at Anglo Irish Bank.
Sean Fitzpatrick, David Drumm and William McAteer who all resigned in the fallout after the disclosure of unethical activities regarding directors’ loans and unusual lending practices at the bank are all members of the Institute of Chartered Accountants in Ireland.
The appointment of a Special Investigator follows from the determination of the Complaints Committee at its meeting in January 2009 that the issues under consideration constituted a matter of public concern as per Bye-Law 71 of the ICAI Bye-Laws.
The special investigator will also be examining the performance of Ernst & Young, auditors to Anglo Irish Bank, in relation to the loans given by the bank to Sean Fitzpatrick.
This is an extremely necessary action by the self-regulating Institute in order to protect its professional reputation and that of its members.
Ulick McEvaddy – Anglo investors were “heroes”…haha good one Ulick
This has got to be a joke – Ulick McEvaddy, the successful Omega Air Inc co-founder, Fine Gael supporter and Libertas donator said on RTE Radio today that the the 10 individuals who were loaned €451 million by Anglo Irish Bank to buy its shares – a transaction which would have nicely boosted protected its share price by not allowing 75 million shares being offloaded by Seán Quinn to hit the market all at once– were ‘heroes’ supporting the Irish Economy.
He went on to say that he’d have also participated in the share purchase transaction had he been invited.
Heroes on a handout
No shit Ulick. If someone came up to me and said “Hey buddy, want to borrow some money to buy shares in us? By the way, if the shares tank, don’t worry about paying back the money…we just want to make our share price look good” I think I might just have accepted.
Yes, these people have NO obligation to repay more than 25% of the money…other than a moral one. The bank loaned them money to buy shares in itself…and it was securing the loan itself because the shares were the security for 75% the loan….if the share value went up the investors could just keep repaying the loan, confident that the shares are worth more than they’re paying for them. If the share price drops they can just stop paying and walk away with no legal obligation to pay off the loan.
But the share price would never drop, right?
As it stands, the investors have repaid €83 million, or 18.4% of the loan but says that it is “not optimistic about recovering the rest of the loans.”
Yet another mind-boggling event in the banana-banking industry in Ireland.
There still isn’t any reason for these people to be named though. The bank set up this ridiculous transaction, therefore the bank as an entity is to blame. Who takes responsibility for the actions of a corporate entity? The directors do, and to some extent the auditors (Ernst & Young).
And the Financial Regulator has finally realised that it has been misled by Anglo Irish…ya think?
Why are the executives being allowed to leave the ship
On Wednesday the chairman of Irish Nationwide, Michael Walsh, resigned…at a time when he believes “It is clear to me that Irish Nationwide Building Society cannot survive without reorganisation and significant Government support.” He was just the latest in the line of top executives to leave the ship when it starts sinking, including Denis Casey, Peter Fitzpatrick and David Gantly from Irish Life & Permanent, and the ringleaders at Anglo Irish, Sean Fitzpatrick, David Drumm and Lar Bradshaw.
These people got us all into this mess – why are they just allowed to walk away when the shit hits the fan? They should be forced to stay and work night and day until they sort this situation out.
Let them sit in a national government
Enda Kenny is doing us no favours shouting in the Dáil for this and that. Shouting does no good at this point. We all know that the government are utterly incompetent and probably as lacking in integrity and morals as the bankers who are in the spotlight at the moment.
The opposition have been shouting for years, and have evidently accomplished utterly nothing by doing so. Lets see what they can do when they all have to shoulder the responsibility together.
A general election is the last damn thing we need at the moment. We need unity, decision and strong leadership. We need a firm plan to get us out of this, and the steadfastness to stick to it. Unfortunately this sort of action is inconceivable to the party in power at the moment because they fear the outcry by the people who kept them in power.
We’re all going to suffer financially no matter what happens. Make the hard decisions and for fucks sake get on with it and do it before there’s nothing left to salvage.
Updated on the 21st because there were some inaccuracies regarding the loans for purchase of shares and to give a wee bit more info on the man Ulick.
Anglo Irish Bank, Irish Life & Permanent and the magical mystery money-go-round
The farce continues:
Revelations yesterday that the €7 billion deposit by a subsidiary of Irish Life & Permanent, Irish Life Investment Managers, with Anglo Irish Bank shortly before Anglo’s financial year end which was then withdrawn just after the year end in order to make Anglo’s deposit base look healthier had in fact originated in a loan from Anglo to IL&P brought the latest round of scandal within the Irish banking sector to new heights.
This is nothing less than a complete fabrication of the bank’s financial position and is massively misleading to shareholders and potential investors, not to mention highly dubious in terms of the deposit-to-loan ratio guidelines imposed by the Financial Regulator.
Once again this is the sort of activity which external auditors are supposed to expose.
Ernst & Young, Anglo Irish Bank’s auditors, have shown themselves to be guilty of gross incompetence and negligence, and when the fallout of this situation accrues to the people who were in charge (and it must if we are to have any hope of regaining our credibility as a country and as a global business) at Anglo at the time – Sean Fitzpatrick, David Drumm, Donal O’Connor, Lar Bradshaw et al – and the directors at IL&P who are currently in a crisis meeting, some of the blame must pass to Ernst & Young and possibly also to KPMG who are auditors to IL&P.
Edit: In fairness to KPMG, as IL&P’s financial year follows the calendar one, they can’t really be held to blame for this as this event probably wouldn’t have yet come under their scrutiny.
Round & round the garden, like a teddy bear
So just how much money do Irish banks have on deposit?
This is the question which arises as a result of the disclosure yesterday that the Financial Regulator (motto: hey, better late than never!) and the government-appointed auditors are investigating transitory deposits at Anglo Irish Bank.
It has emerged that Irish Life & Permanent deposited €7 billion with Anglo Irish Bank shortly before Anglo’s financial year end, then withdrew these deposits immediately after the year end, roughly 10 days later. This amount equates to roughly 8% of their total deposit base.
What this does is make the bank’s deposit-to-loan ratio look healthier than is actually the case, as it entirely misrepresents the hard cash carried by the bank.
According to IL&P:
During a period of unprecedented turmoil in global financial markets there was an acceptance that financial institutions would seek to provide each other with appropriate support where possible
It is absolutely disgraceful that the directors of the bank carried on this sort of behaviour, and for the auditors of either bank to claim that they had no knowledge of the activity is beyond belief. For the record, Ernst & Young who are Anglo’s auditors have already disavowed knowledge of similar shady practices by Sean Fitzpatrick, the former Chairman. The auditors to Irish Life & Permanent are KPMG.
One has to wonder just how many other banks have availed of this back-scratching relationship. It is scary to consider how badly this sort of banana-republic banking will affect our already seriously damaged reputation globally.
Irish banks – why is the Government persisting with recapitalisation?
On Saturday the AIB and Bank of Ireland agreed to the Government’s recapitalisation plan. Under the terms of this agreement each bank will receive an immediate investment from the Government of €3.5 billion in the form of preference shares.
€7 billion…cha-ching!
These shares will not carry an equity stake but will require an annual interest payment of €280 million to the Government by each bank. The Government will then have the option to buy a 25% ordinary share interest in each bank at the current market share prices.
It is actually quite a good deal for the Government, as the banks are currently massively undervalued, and although they do carry a not insignificant loan-to-deposit ratio (AIB’s is lower than BOI’s), barring a catastrophic occurrence several magnitudes beyond what we have seen in the past 18 months, shares in both banks should be worth significantly more in 5 years than they are now, so the Government will be effectively short-buying (probably not the correct term).
A solution to a different problem
One must wonder why the government is doing this though. The basic thrust of the plan is to get more money circulating in our economy.
The idea is that if the banks have more cash they can lend that cash to Irish businesses in the form of credit…who can expand operations/employ more people who can spend more on goods and services…which increases businesses’ profits so they can expand and employ more people and generates a higher tax take for the government and we all live happily ever after.
When people aren’t spending money the tax take drops, retailers and the service industries suffer, employers start tightening their belts and trimming the workforce and everything goes to shit.
So that’s a slight oversimplification…but there are people who can explain this far better than I and it’s not the point of this post.
AIB in particular have been saying that even if they have more capital they are not going to increase lending. Charlie McCreevy, our wunderkind of the Celtic feline warned today that governments are attaching too many conditions – not pay cuts for executives, but rules forcing them to lend to Irish businesses at the expense of foreign ones – to capital aid will force protectionism among our neighours. For a country as dependant on Foreign Direct Investment as Ireland (€131 billion), that would be a disaster.
The banks are also being pressured by the Financial Regulator to reduce their loan-to-deposit ratio – this means that they need to have a higher proportion of cash on deposit to the loans that they are giving than is currently the case.
You’ve loaned too much you naughty bankers…now loan us even more!
Radio talk shows and newspapers are full of people giving out about reckless lending. The banks themselves are beginning to accept that they lent too much and unwisely, although Robert Gallagher in this case blames ‘incomplete information’ rather than taking direct responsibility…who was providing that information Robert? Is it so difficult to admit you were wrong? (Our fantastic Fianna Fáil government thinks so).
Watch the bank balance sheets improve
Guess what’s going to happen to that cash? The banks are going to sit on it. This is not the solution to our problem, and it is going to compound the suffering of existing shareholders in the two banks in question by diluting their share interest, or forcing them to sell before the 5 year deadline to avoid that dilution.
(Apologies for the heavy reliance on the Irish Times)
Anglo Irish chairman apologises – and it only took a month!
I apologise on behalf of myself and the board. I am really sorry that this has happened.
These were chairman Donal O’Connor’s words last night at the Anglo Irish Bank EGM held at Mansion House in Dublin. The episode to which he is referring is how the director’s loans held by his predecessor Sean Fitzpatrick were concealed from shareholders by some extremely immoral practices.
Having thought about it for a month, I suppose it was wrong…
Sean Fitzpatrick resigned almost exactly a month ago, but at the time the Anglo Board publically accepted his resignation with regret. It has taken until now for a representative of the Board to apologise to shareholders.
Pesky shareholders
The board had hoped that they would be able to quickly adjourn the meeting once it had been opened, as the meeting had been called to allow shareholders to vote on the bank’s proposed recapitalisation by the Irish government. However on Thursday the government announced that they no longer intended to go forward with this, and that they would instead nationalise the bank.
The hundreds of shareholders who attended the meeting however were having none of this – there was an almost unanimous demand for the Board to step down, andthey were incensed when it emerged that the board, including now-resigned chairman Fitzpatrick have been paid their bonuses for 2008/
€179 million in directors’ loans
At the meeting the Board disclosed that directors’ loans currently stood at €179 million, of which €84 million was drawn down by Sean Fitzpatrick. They also revealed that the loans to Fitzpatrick stood at €129 million in 2007.
Incompetent auditors
Ernst & Young, the auditors, defended their processes in auditing the accounts, saying the audits were conducted
in accordance with the appropriate auditing standards
It is incredible that they expect what was either their failure to recognise or wilful omission of a reference to this annual temporary transfer back and forth of such sizeable director’s loans to Irish Nationwide to be accepted without criticism. If it is the former it an appalling reflection on their abilities as auditors, and if it is the latter it is massively immoral behaviour.
Largest shareholders
Among the largest patsies shareholders are the Quinn Group (Séan Quinn and his family) who have a stake of 15% which was worth approximately €1.22 billion a year ago, US investment manager Invesco, German institutional investor Dresdner, UBS, and Janus Capital. Current and former members of the Anglo Irish Board also hold relatively sizeable investments in the bank’s shares, including Sean Fitzpatrick who holds 4.9 million shares, the purchase of at least some of which must have been funded by his director’s loan.
All of these shareholders, plus the many private investors in Ireland, some of whom would have been hoping to fund at least part of their pension through these shares, may find their investment worth as little as 5% or less of their original cost when the bank is nationalised.
Financial Regulator chief executive resigns
The Financial Regulatory body stated on January 9th that it accepted that there were serious internal failures in its examination of the banking practices at Anglo Irish Bank.
Dermot Quigley told the Oireachtas Committee on Economic Regulatory Affairs that Sean Fitzpatrick’s loans were discovered in January 2008 by the Regulator. He refused however to disclose whether or not they had been reported to the chief executive.
The same day Patrick Neary, the chief executive of the Regulator, announced his decision to retire at the end of the month, a decision which was accepted with regret by the Regulator.
