The purpose of this part of the meeting is to discuss matters relating to the nationalisation of Anglo Irish Bank with Mr. Donal O'Connor, executive chairman of the bank. Mr. O'Connor is accompanied by Mr. Alan Dukes and Mr. Frank Daly who are non-executive directors of the bank. I welcome and thank them for coming before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses, or an official, by name or in such a way as to make him or her identifiable. I also draw attention to the fact that members of the committee have absolute privilege but this does not apply to witnesses appearing before the committee. I invite Mr. O'Connor to make his presentation.
Bank Nationalisation: Discussion with Anglo Irish Bank.
Mr. Donal O’Connor
Thank you, Chairman. We have given out a short slide presentation which I will go through. Members will see the contents page and the introduction but we will focus on the interim results and our view on the future, which is a very important matter. We will particularly focus on asset quality and impairment and on our draft business plan for the future because we believe those areas will be of particular interest to the committee.
I am joined by my colleagues Mr. Alan Dukes and Mr. Frank Daly, both of whom are State-appointed directors. Members will know both very well so I do not propose to spend any time going through their background. I will, however, provide some background about myself. I have set out details of my career on slide 4. I am from Monaghan and joined PwC in 1972, where I was senior partner from 1995 to 2007. I have worked in London and San Francisco, as well as in Ireland. I played an active part in global affairs and was a member of the global board at PwC, at which time I was also a member of the global governance committee and chaired the people committee. I have also held roles for the State, having been chairman of the DDDA and an initial member of the interim board of IAASA before I became a member when it was constituted.
I have been involved in the administration of the Insurance Corporation of Ireland since 15 March 1985 and in 1995 was formally appointed as administrator. I became a non-executive director of the bank on 27 June 2008, chairman on 18 December and executive chairman on 19 February 2009.
The overall objective of the board is to protect the Irish taxpayer, a key element of which is to stabilise and de-risk the bank. I will focus on a number of key steps in that task. The first is to assess and report the actual position of the bank, which we did a week ago last Friday when we reported our interim results. They were very poor and I will return to them. Another very important task is to maximise the recovery of all the loans we have and we will be resolute in doing that. It is also very important that we co-operate fully in all the investigations into a number of very serious matters. Looking forward, it is very important we develop a business plan agreed with the Department and the EU.
Members will see on slide 7 that we reported very disappointing interim results with a loss of €4.1 billion in the six months to 31 March. Those losses were primarily due to lending impairment provisions and their impact has been to virtually wipe out our shareholders' funds. I will spend some time going through the impairments to asset quality under the various headings. Members probably ask how the numbers can be so big and how so much can have changed in the period since September 2008. I will also take the members through the process we followed to identify those impairments and share with them some of the results and analysis of the process. I will then look at the future potential of a number of stress case scenarios.
Slide 9 refers to some of the things that have happened since September. There has been a rapid deterioration in conditions and outlook in economies around the world, whether in the form of unemployment figures, consumer sentiment or stock markets, all of which have been very negative. Governments around the world have responded with a series of initiatives such as interest rate cuts and quantitative easing but in all markets, particularly Ireland, there has been a lack of investment and of liquidity. There has also been a very significant reduction in asset values, particularly property. The result of those reductions in asset values has been that the net worth of our borrowers has been significantly reduced. The most telling statistic to demonstrate the change that took place in the six months to March 2009 is in the impact on our loan book in respect of loans that are past due but not impaired and those that are impaired. It is primarily based on empirical information, which shows that those figures deteriorated from €2.5 billion at the end of December to over €23 billion at the end of March, so there was a hugely significant deterioration in that period.
I will now share with the committee the process we went through to arrive at our numbers. First, all the loans across the group were reviewed by the lending teams. In doing that they took into account assumptions to reflect changes in asset values, pressures on cash flows of the businesses we were lending to, and on the client and tenant defaults we were seeing. However, once they had done that we then had an additional assessment which was carried out by group risk.
We also had a number of external reviews. One external review was carried out by external consultants that the bank hired. Another one was carried out by external consultants sent in on behalf of the Financial Regulator, and there was also an independent review by our auditors. It is important to note that as a result of those external reviews, the board did not make any adjustment to the charges that had been arrived at.
An analysis of some of our loan book is set out in slide 11. I have done it in that slide by way of geography. The key point I would note is that if one looks at Ireland one sees impaired loans of €8.6 billion, that represents 20% of the loan book, which is significantly worse than we have seen in other markets.
I wish to refer to two other points. In my chairman's letter accompanying the annual report on 20 February, I referred to the fact that we were likely to have to provide for approximately €300 million in respect of loans to ten long-standing customers of the bank. In our half-year results, we confirmed that we have actually charged a provision of €308 million in the half-year accounts. In the chairman's statement of 20 February, we also flagged that we were likely to have to make some impairment provisions against loans to some former directors. We have confirmed that in the half-year accounts we have made provision for €31 million in respect of loans for some former directors.
On slide 12 I have given a further analysis of our asset quality, but this time it is done by type of lending. We divided it between investment lending, business banking, personal lending and development lending, the latter being an area which I think is probably of most concern to people. Looking at investment lending, one will note that the provisions we have had to make in Ireland are significantly greater than we have had in other markets. At the end of March, we have provided nearly 6%. Members of the joint committee will also notice that the provision against personal lending is high. I would draw attention to the fact that this lending includes the €308 million I referred to a moment ago.
Development lending is the one that is particularly stressed in terms of its quantum. Slide 13 shows that we have divided this between commercial and residential. It is telling in that while we have provided nearly 14% overall, nearly 17% has been provided against residential both in Ireland and the UK.
Turning to the next page, we are looking at something that is of serious concern to everybody. When we did an overall review, we said we needed to assume that there would be a continuing deterioration in market and economic conditions. We did not just take what happened at the end of March; we said "Let's assume things will get worse". When we did that review it came up with potential losses of €7.5 billion. Of that we have provided nearly €5 billion, €4.9 billion to be precise, at the half year. Our overall review came up with a figure of €7.5 billion, but we said that even though we have anticipated some further deterioration since March, we need to recognise that things have continually got worse, so lets look at some further stress scenarios.
If I divide that into two and we look at our land and development book, which is proposed to be transferred to NAMA — I will talk about NAMA later — a 10% drop in values would result in an additional impairment charge of approximately €1.5 billion.
We also considered what would happen if we were to look at the bank in a post-NAMA situation. We estimated that we would have additional impairments of between €1.5 billion and €3.5 billion under a range of different stress scenarios.
I will now turn to funding, which is another important area for the bank. Funding has been difficult for all banks globally. The Anglo Irish Bank situation was exacerbated by the governance issues and the uncertainty that existed over the bank's future strategy.
Our retail funding has been resilient, but our non-retail funding — excluding Irish Life Assurance which was there on 30 September — has seen a decline, particularly in overseas and wholesale funding, which is now of much shorter duration. All of that has combined to give us increased reliance on Central Bank funding. This led to a need for additional capital, and the Government plans to invest €4 billion in the bank. This will put us on a much firmer footing, and we are very grateful to the Government for that. The bank is also considering a range of measures to improve its own capital position. Until the injection of capital by the Government is made, the Financial Regulator has granted temporary derogations in the interim.
We are co-operating fully with the Office of the Director of Corporate Enforcement, with the Financial Regulator and the Institute of Chartered Accountants in their investigations. It would be inappropriate for us to comment further on these investigations while they are ongoing, and we are conscious of the fact that the completion of those investigations is a matter for those bodies and not a matter for the board. However, we would welcome the timely completion of those investigations.
The board very much welcomes the establishment of NAMA. It has significant benefits for the bank. It will result in a significant reduction in the size of the bank's balance sheet, and it will reduce the uncertainty over future impairments. Very importantly, it will assist us with access to funding and will improve our liquidity, particularly on the international markets. We have also been doing work on the operations side. We have provided all the analysis of our loan book that has been requested by NAMA, and we are also establishing a NAMA unit in the bank, with the objective of transferring the loans to NAMA effectively when the time comes.
An overriding objective is to stabilise and de-risk the bank. A key element in our draft business plan is to reduce the size of the balance sheet. I have already referred to the impact that NAMA will have on that, which is fundamental to our business plan, but there are other options, which include selling parts of our loan book should we get appropriate prices. Another key element is to co-operate fully with NAMA and it is very important that we maximise our recoverability of loans. The board is resolute on that because of its importance to the bank and to the taxpayer. We also need to reduce our cost base, and we are looking very closely at all our costs to do that.
A very important part of our business plan is to appoint a new leadership team. We have already announced that we are appointing a new external CEO and an external CRO. We will also be making a number of other appointments to this new leadership team. We need to rebuild trust and confidence in the bank. In time, it is absolutely vital that we achieve sustainable profitability. All these key elements have the aim of creating a viable, efficient and respected bank, because this will provide the Minister with a range of options. We are conscious that a number of alternative scenarios have been discussed, including the Bradford & Bingley scenario. Bradford & Bingley is in wind-up. The UK Exchequer has had to provide £25 billion in funding to that bank.
The overall objective of the board is to create a viable, efficient and respected bank, as that will provide the Minister with the widest range of options. These options could include the bank continuing as a stand alone, State-owned bank that supports the Irish economy. It could be that we would attract investment in the bank. It could also be that we would sell the bank or parts of it, or that the bank would be part of a merger with or consolidation of a wider banking group.
I thank Mr. O'Connor. We will have questions, starting with Deputy Bruton.
I thank Mr. O'Connor and the other board members for the presentation. I have questions in four areas.
I am sure Mr. O'Connor read the report in yesterday's edition of The Irish Times which stated:
Anglo is finished. Helping it totter on will drag the banks and Ireland down even deeper into the mire ... Anglo ... which has not lent a euro since September ... is finished as a bank. Banking is about your reputation and customers' trust. Anglo has neither.
Has an orderly wind-down been considered by the board as a possible strategy? Mr. O'Connor's penultimate slide referred to its possible high cost. Has it been genuinely assessed, with the benefits and disadvantages set out? Obviously, it would have the benefit that the cash from the Government would not necessarily need to be invested up front, meaning that taxpayers' money would not need to be found. It would arguably put the bank in a stronger negotiating position with other bondholders who might meet some of the cost. As a corollary to this, has the announcement of the Government's investment of €4 billion without preconditions on the write-down basis envisaged by other bondholders not significantly reduced the directors' negotiating position? If they know the cash is to be invested, can the bondholders not hang tough, whereas if they did not know it, the directors would be in a much stronger position to negotiate? I would like to hear the case to be made for not winding down the bank. It has been in the view of many the bad apple in the banking sector which brought our banking system down a particular road that involved taking in considerable amounts of short-term money from money markets. They were not long-term deposits and represented a difficult loan base, funding the property bubble that created a catastrophe for ordinary people. It seems sensible to consider dealing with that source. How has the board considered it?
My second question relates to the period between September and March. I understand the potentially impaired loans which in September the bank stated were €2.8 billion are now stated to be €23 billion. Was it a new definition of an impaired loan that resulted in the change? Was it a new policy by the bank and its board to be tougher and face up to the reality of many of these loans, or was it simply, as set out in Mr. O'Connor's slide, that the international world economy got worse? There is certainly a sense among ordinary people that our banks have not been facing reality and have been pretending things will be rosy. Effectively, the bank has moved from an impairment figure of 3% to 30% of its loan book and it seems to be presenting it simply as the world economy getting worse. Has there been a sea change in the attitude of the board of the bank to the management of the loan books? Is it still looking through rose-tinted glasses or are new policies in place?
Mr. O'Connor referred to an external review. Am I not right in saying PricewaterhouseCoopers told us in November that no capital was needed by Anglo Irish Bank? How much value is added by such external reviews above what the board of the bank presents to them? What were the consequences for PricewaterhouseCoopers from the bank's point of view in getting it so wrong? Are these new external reviewers coming in with different instructions and approaches? From the outside there is a sense that for regulators it was like the appalling vista; they could not consider that anything could go wrong and did not really probe. We have records of them accepting Anglo Irish Bank's views as validation, which was inadequate. Is it credible for Mr. O'Connor to say the cap of all the bank's losses out of the €23 billion is €7.5 billion? One gets the impression that others looking in at Anglo Irish Bank assess losses at potentially much higher than €7.5 billion. Is it a matter for the board to resign if its predictions are wrong? What level of reputation is Mr. O'Connor putting on this?
Anglo Irish Bank told us it had the best security, the strongest guarantees and the best property portfolio. The Anglo Irish Bank board, of which Mr. O'Connor was then a member, was selling this message that systems were very strong and it had everybody nailed down, while other banks were different. Now we find the opposite was the case. The committee needs some insight into whether Anglo Irish Bank has changed completely in how it looks at itself and the outside world. Are we still seeing an element of putting a brave face on it and eking out the bad news gradually so it gets €4 billion now because we are not told it could need €10 billion or more before we are out of this?
The taxpayer has a choice and much of the information I see, as an ordinary person looking in, suggests an orderly wind-down is the best way forward. The bank is no longer lending money and is no longer part of a credible banking recovery plan. No business is turning to Anglo Irish Bank to say it is in difficulty and Anglo Irish Bank is the salvation. We need to hear an answer from the board to all those frustrations.
The suggestion lingers that Anglo Irish Bank was the start of the rot. Its approach to banking, directors' loans and share purchase, which are under investigation, were unique to Anglo Irish Bank. Many other banks say they felt they had to compete with Anglo Irish Bank's model which was driving huge profits, churning at such a rate and showing huge stock market surges. I would like to hear a more substantive description of what happened, what went wrong and why, and what is radically, completely different now.
Mr. Donal O’Connor
I will do my best and some of my colleagues may help me in answering. I will first take the question on September to March and then deal with the review of the wind-up. One of the reasons we showed that analysis of the past due but not impaired loans, and impaired loans, was to clearly demonstrate the change that took place in that period.
Deputy Bruton referred to the €7.5 billion we have discussed as our estimate and he might ask why we have not provided all the €7.5 billion at the end of March. Accounting standards say one can take into account only conditions up to the balance sheet date. We are not allowed to take all the €7.5 billion at the end of March. According to the empirical data on the past due but not impaired loans and the significant changes that took place, those events took place after September. To answer the question on whether we are looking through a different prism, one can only do it based on the data available at the balance sheet date.
One of the things we tried to do, and Deputy Bruton referred to it, was to look afterwards. We have not said it will be €7.5 billion but that it is the result of an analysis that was done. If things get worse than we have assumed, as they might, then every additional 10% on the land and development assets could be €1.5 billion. We said that when we look at what might happen in a post-NAMA situation that could be €1.5 billion to €3.5 billion. We are not saying we are sure it will happen but that it could happen. Our job is to try to stabilise and de-risk the bank. That is what the new board has been asked to do. We are reporting the news. I would much prefer to report good news to the joint committee but I have to report the news as we see it. The news is very bad, it is very disappointing. We have tried to estimate what would happen in the future but they are estimates for the future so they have a fair chance of being wrong.
The Deputy referred to the value of these external reviews and, in particular, to PwC and the change in its position. That shows how difficult it is and the uncertainty about making estimates. If one makes an estimate, one does so on assumptions. If those assumptions change and things get worse then they will be wrong. Even the change in the PwC assumption shows that its view changed. It is very difficult. The banks have got it wrong in the past, there is no doubt about that. We have tried to be as open and as straightforward as we could be. We have reported really disappointing results which reflect the deterioration that has happened. We think things will get worse, which bring us up to the €7.5 billion, but things could get worse again than that. We have said that every 10% on land development assets could be €1.5 billion, on the rest of the book between €1.5 billion and €3.5 billion. We try to be as open as we can be and that is what we have shared but things have got very much worse in that period. I do not know if any of my colleagues wish to contribute before I deal with the other question.
Mr. Mark Daly
We are presenting our very best assessment. We are not hiding anything or trying to put a gloss on anything. We are not trying to present anything as being better or worse than it is. We are being realistic. The value of the external reviews is confirmation more than anything else but the rigour now is in our own internal assessment of what the issue is.
Let us suppose one goes from a loan due on 1 June and negotiates a roll-up arrangement where that interest does not become due for the next 12 months. According to these categories that loan would move from being an impaired loan on 1 June to being fine. It seems these accounting rules are fairly elastic as to what policies underpin them or what actually happens within them. One can squeeze things into different boxes. Is not the policy very clear that a roll-up loan does not change its status? If it was at risk and impaired it does not suddenly become a non-risk loan because one negotiated a roll-up arrangement. That is just an example off the top of my head.
Mr. Donal O’Connor
I wish to make two points. First, there is clear guidance or observable data on this issue. If the reason a loan was changed to make it roll-up is the borrowers were under financial stress, that is clear observable data that loan was impaired. There is very good guidance. Probably the best way of looking at it is if one leaves aside what the accounting rules say and asks what might happen, that is where the €7.5 billion is relevant — about which we have been very open and also about what could go worse beyond that — because those are the figures that are of most interest. The accounting rules could restrict one to a smaller number and we do not necessarily want to focus on that smaller number but on the number that we think is the best estimate and show what might happen if the position gets worse.
What is the position with the development land being built into the €7.5 billion against which there could be another 10%?
Mr. Donal O’Connor
It varies but in some cases the reductions would be up to 70% from peak.
May I ask Mr. O'Connor why he was not as open about this last June when he was appointed a director?
Perhaps we can come to that later.
The rules seem to have changed between June——
Deputy Barrett, we have a system of operation. Please allow it to continue.
Mr. Alan Dukes
To underline one aspect of the Chairman's reply to Deputy Bruton, the effects of the three independent investigations that have been carried out into the impairment, has been broadly to confirm the results of the bank's internal work. I assure Deputy Bruton that we have not had a problem in imagining what we might do to move loans from impaired to non-impaired. All of the focus has been in the opposite direction. There has not been any factor of the kind that Deputy Bruton mentioned as a "top of the head" example. That is not going on.
Everybody in the sector has to get to grips with the fact that it is impossible to say, even at this stage, if we have reached the bottom of the property price league. We will not know that we have reached the bottom until prices start to go up again. There is no evidence of that. There is not anybody anywhere who can say when we have reached the bottom and how long we will stay on the bottom. That makes it very difficult to carry out the type of exercise we are discussing. There has been no change in definitions over the period. The definition of an impaired loan and how we treat impaired loans and assess loans as impaired have remained exactly the same.
Deputy Bruton also raised one or two other legitimate issues. He asked if regulators did not really probe adequately. With respect, that is a question, not for this board, but for other people. Others, looking at the bank from outside take a more pessimistic view than we do. I have seen a good deal of that commentary. In fact, there is no definitive way to answer that except to carry out the type of process that we have carried out on our assessment of loan and asset quality. All we can say in reply to those from outside who take a more pessimistic view is simply that three other independent examinations have tended to support the view we have taken. After that, the argument is about how long is a piece of string.
Mr. Donal O’Connor
Perhaps I should respond to the Deputy. He outlined the comments that have been made and his attempts to understand why an orderly wind-up would not be a better solution for the bank than for it to continue as a going concern. He asked if the board had considered an orderly wind-up of the bank and yes, we did consider it.
The bank has assets and if we want to maximise the recovery of those assets we will have to hold some of those assets until their term but for some period of time. That means they need to be funded. The bank has €50 billion in funding, about three-quarters of which is from outside the State. When we looked at what happens in an orderly wind down, and if the markets, particularly the international markets, see that the bank is in a wind-down mode, there is very significant chance that a large part of that funding would go from the bank. If, on the other hand, the markets see that the bank is a going concern, then there is a much stronger chance that we will be able to hold on to that funding and improve the funding situation. In arriving at our conclusion, we did not just depend on our own analysis and the members can be assured that the Government will have done its own work, but we also sought independent advice. The very clear advice was that if the market sees that the bank is in wind-down mode, albeit orderly, we would lose a significant amount of international funding.
Is it for technical reasons that one would move from one category to another? Is money not coming in because there is a guarantee and a higher return for the investor? Investors are not looking to the future of Anglo Irish Bank, but simply for the higher guaranteed return. They do not care whether it is an orderly wind-up or a bank lends nothing. They are not interested in this.
Mr. Donal O’Connor
As I said, in our experience we have lost a lot of funding. We have particularly lost funding from overseas because they check to see whether an institution is likely to remain a going concern. There are various reasons, one of which is a desire to deal with counter-parties that will be around in the long term. The advice we received from a major investment bank was that if we wound down, we would lose out. We do not know the answer but that is the advice we received and losses would fall on the State. I gave the example of Bradford & Bingley to show what had happened elsewhere.
It was mentioned that we would not need taxpayers' money but the difficulty is that for the bank to have a banking licence and keep funding and deposits we need to adhere to minimum standards. The reality is capital would need to be invested. If the bank was to be wound down, it is likely it would lose a significant amount of funding which would lead to greater funds being sought from the Exchequer. The bank has a better chance of improving funds as a going concern, which would provide the Minister with a range of options. That is why we concluded that continuing as a going concern was a better option than winding down.
My colleagues may wish to contribute to the discussion.
Mr. Alan Dukes
It is worth making the point that, as Deputy Bruton said, this is not emotional money that is available for the good of Anglo Irish Bank. Every operator in these markets develops a set of relationships with other operators. Some major depositors and investors have at various times had a close relationship with Anglo Irish Bank; this applies to other banks, too. Depositors come and go; the amounts they have on deposit may change and the terms under which they deposit can also change, but they like to have a series of settled relationships in addition to their other operations in the market. Such relationships are important and could be affected by an announcement of an orderly wind down.
On the issue of an orderly wind-down, what would have happened if Anglo Irish Bank had not been nationalised? What would have happened if the crisis in Lehman Brothers and world banking had not occurred? In other words, how good was Anglo Irish Bank before the international crisis?
We should be positive as indications suggest matters are improving in the United States. With this in mind, how good is the bank's asset portfolio there? Anglo Irish Bank has a rather small percentage of the impaired loans provision covering it. Can the delegates comment on this? Are there indications that others are interested in managing the bank's portfolio with it or taking it over? Is there a possibility of the bank's property portfolio in the United States becoming profitable soon? As Mr. Dukes said, nobody knows when we will reach the bottom, but let us suppose there is an upturn in the Irish property market. The delegates spoke of a write-off of 70% of peak land values. The former chairman of Anglo Irish Bank was buoyant about the bank's property portfolio in an interview on "The Marian Finucane Show" some time ago. He mentioned that a small percentage of the portfolio was based on non-commercial land and that the vast majority was based on commercial property with good rental income and so on. By how much has this point of view changed? Is it fair to say that, despite the significant downturn, there is a possibility of a good future if the economy improves? Many allegations have been made that the Government is trying to bail out banks and developers and we have heard of significant loans to individual developers in Anglo Irish Bank. Is that happening?
Mr. Donal O’Connor
The Deputy's first point was on the nationalisation of the bank. The Government took the view that nationalisation was in the best interests of all the stakeholders at the time and it is clear from the half-year figures that it was the right thing to do. We have had funding challenges and reported significant losses. A number of serious matters are under investigation. If Anglo Irish Bank had not been nationalised, it could have had detrimental effects on the country and the economy as a whole.
Will Mr. O'Connor spell out what those effects would have been?
Mr. Donal O’Connor
If the bank was not able to fund itself, it might have failed, in which case there would have been a call on a number of guarantees which would have had to be paid in cash and would have had an impact across the marketplace and the sovereign area. It would have been very negative.
The Deputy made points relating to the United States. It is a relatively small part of our book which, as the Deputy will see in the section on impairments, is performing relatively well. Some have expressed an interest in that part of the loan book and we are talking to all of them. If people are interested in parts of our book or particular groups of loans, we will talk to them because that would be in the interests of the bank. An upturn would be very helpful. We have anticipated that matters will get worse; therefore, an upturn in property values or activity levels in the marketplace would help the bank and be in the interests of taxpayers.
The Deputy also asked about the mix of loans. As I said, development assets account for a figure of €17.7 billion; the remainder of the total of €70 billion is accounted for by non-development assets.
Is Mr. O'Connor referring to land?
Mr. Donal O’Connor
Land and development.
It accounts for €17.7 billion out of a total of——
Mr. Donal O’Connor
Out of a total of €70 billion and between approximately 23% and 24% of the book.
The Deputy also asked whether any customers were being treated differently from others; the answer is no. The board is resolute in trying to maximise the recoveries from all borrowers; all are dealt with on an objective and independent basis.
Mr. Frank Daly
I have seen references to banks bailing out developers, but there is nothing like that going on in Anglo Irish Bank. As the Chairman said, we deal with all customers objectively. I come from a background where special preferential arrangements would be totally unacceptable. I have not seen any evidence of this, nor do I expect to see any.
Mr. Daly is saying there are no special arrangements. Anybody who cannot pay his or her loan will be dealt with in the normal banking way.
Mr. Frank Daly
We deal with our customers as customers of the bank and there is no special treatment for anybody. Anybody is entitled to come in and set out a case or suggest arrangements. We will deal with such persons in the normal commercial way in the best interests of the bank and the taxpayer.
On what percentage of the loan book is the bank rolling over interest in cases where people cannot pay?
Mr. Donal O’Connor
We have disclosed the figure. I believe some €70 million in interest was rolled up in the half year period but will check the figure and come back to the Deputy.
For what percentage of the total does that account?
Mr. Donal O’Connor
It is disclosed in the annual report but I would like to make sure I come back with a precise figure for the Deputy.
As regards the comments by the former chairman, how much of the bank's loans are in the commercial sector and performing or paying interest?
Mr. Donal O’Connor
As we have shown in the slides, at the end of March the impaired loans are €10.7 billion out of the total that we have disclosed of €72.3 billion. Those are the impaired loans at the end of March.
Mr. Alan Dukes
One could infer that the remainder of the loans are performing as per agreement. That may change. As the chairman has said, we have looked at various stress factors that could affect that. However, anything that is not described as impaired is a loan that is performing as per the terms on which it was granted and that continues. On dealing with impaired loans, every case is looked at separately. The bank tries to arrive at the position that is most appropriate in each case. In some cases there is probably very little prospect of anything being saved from it. In other cases it may be that a new renegotiation of the arrangements may help. In yet other cases it may turn out that an amount of extra financial facility will create a position with the development where it gets to the point where it could begin to produce some cashflow. However, every case is different and every case needs to be looked at on its merits. If there was any one feature of the way Anglo Irish Bank operated, it was in the area that each loan was looked at on a case-by-case basis and tailored.
Deputy Fahey asked how good was Anglo Irish Bank before the crisis and I feel able to comment on that because I was not involved in it before the crisis. It was as good or as bad as any other bank. If we look at this general area of development land and development and so on, each of the three main banks — Anglo Irish Bank, Allied Irish Bank and Bank of Ireland — had about 20% of that market. The remainder was among other smaller banks and building societies. They all made broadly the same kind of judgments about how good or attractive that kind of lending was. As it turned out they all made the same kind of judgments and, in hindsight, they were all equally bad judgments. They are all dealing broadly with the same kind of problem as regards loans in that sector.
My last question was how much the world crisis made that judgment worse. That is a key factor in terms of how bad Anglo Irish Bank was as a result of the bursting of the property bubble here and how much worse it was as a result of Lehman Brothers and the subsequent global financial crisis.
Mr. Donal O’Connor
If the Deputy looks at the combination of what happened, obviously Anglo Irish Bank, like a lot of other banks, was significantly affected. One of the issues that became clear to us as a board in trying to prepare the new business plan is that the Anglo Irish Bank model was not as resilient as other models when the stress came on. That was partially because it had a narrower focus of business and was not as universal as other organisations. That meant that Anglo Irish Bank was not as resilient when the stress arose, which is part of the reason we have the problem we have today. There is no doubt, however, that it is a combination of what has happened that has led to the problem, but Anglo Irish Bank was not as well able to deal with it.
Mr. Alan Dukes
In a sense, Anglo Irish Bank and the other Irish banks have a problem that is similar to the overall problem of the economy — the main cause of their difficulty is the collapse of the property market. The banks and indeed the economy find themselves in a position where the requirements of dealing with the fallout of that collapse of the property market puts us in a position where, by and large, we are looking for funding from elsewhere in order to help us get through the problem. This is at a point when, as the chairman said in his introduction, liquidity in international markets and the appetite for investment have very largely dried up. At a time when we in Anglo Irish Bank, people in other banks and the general economy are looking to access funding in order to solve the problem, funding has largely dried up and we are all in a similar boat.
I wish to follow up on some of the questions raised. There was a figure of €308 million in respect of the loans given to the ten clients for share acquisitions in the bank, which were in relation to the shares acquired by the Quinn family interest on contracts for difference. Mr. O'Connor assured Deputy Fahey that all of these were being pursued. How are they being pursued? If many of the ten developer clients are already customers of the bank and given what he said about developments being impaired, what chance is there of recovering any of this money? How does the bank intend to pursue vigorously its recovery? Many believe Anglo Irish Bank is a zombie bank, but Mr. O'Connor's presentation suggests it is in intensive care and on life support. On the scale of things, the amount of money involved is tiny, but it is a lot of money to ordinary taxpayers and those seeing their wages cut in order to pay for this mess. How does the bank intend to pursue the people concerned?
In earlier reports by PricewaterhouseCoopers we were told about the breakdown of customers of the bank, that there were small groups of customers who were heavy borrowers. There was one group of ten who owed over €500 million, and a smaller group which owed over €1 billion. Can Mr. O'Connor make that breakdown available? Is it true to suggest the bulk of the debts is held by a relatively small group of either individuals, their companies or related special purpose vehicles? If Mr. O'Connor has that analysis, it would be helpful to the committee to have it.
The then chief executive, Mr. Drumm, made a comment in the 2007 annual report that "the bank's low loss outcome in the event of a default is further underpinned by personal guarantees, and by the fact that close to 100% of the loan book is secured by a first legal charge on tangible assets, typically on a cross collaterised basis". Mr. Drumm had stated earlier in the 2007 report that "the bank does not engage in speculative development lending". I believe Mr. O'Connor was a director of the bank at the time, or was on his way to becoming a director. If these statements are true, where are the securities for the sum of €308 million and the directors' loans? The directors of the bank had a particular responsibility to it.
I saw a report on the former chairman and one time managing director of the bank. He had large cash or other balances held on deposit with the bank. However, there was no recourse to these in terms of directors' loans he had from the bank. Is Mr. O'Connor in a position to confirm this? Will he give us a breakdown of the figure of €308 million and the directors' loans? What is or was the security for the directors' loans? There are governance issues at the heart of Anglo Irish Bank which are incredibly important for Ireland's reputation. Unless we get to the bottom of this matter, we will not recover our reputation.
Those matters are being pursued by the Director of Corporate Enforcement. We have had a different type of bank since.
Mr. O'Connor is capable of deciding which questions he can answer. This is material that he himself presented to the committee. My question is valid. I am asking what people who have lost their personal savings are asking. Just like the Chairman, I have been all around the country in the past six weeks and have met people who had a pension scheme with Anglo Irish Bank. They have lost that pension. Some will need to work for another ten or 15 years to try to recover their financial position. The question is not meant to be disrespectful in any way but to try to get to the bottom of the matter and recover our reputation. While I have other questions about governance, it would be helpful if Mr. O'Connor could reply to this one.
Mr. Donal O’Connor
With regard to questions on individual customers or groups of customers of the bank, we cannot discuss them or provide information. With regard to the Deputy's question on the analysis to which she referred, the Government issued a statement and some information taken from an external report. I can get the details and provide them for the Deputy. I do not have them with me.
Do people owe amounts of money to the bank that are large in layman's terms but not in terms of high finance? We are talking about tens or hundreds of millions but not billions. The people concerned may also have large deposits. Is it true that such was the collapse of governance in the bank that there is no recourse to these large deposits in terms of the borrowings the people concerned may have received from the bank?
Mr. Donal O’Connor
As I say, my normal style is to be as open, helpful and constructive as possible, but I cannot comment on questions such as the ones the Deputy has asked. However, earlier she asked whether the bank was in intensive care and said we seemed to be suggesting we should keep it on life support to keep it going. That is a very important issue that the Government has obviously considered. As a board we have also considered it. That is why in answer to earlier questions we stated we had considered what would happen if the bank was wound up and what would happen if it could be kept as a going concern. We recognise the difficulties and are very concerned. The board is trying to deal with the issue in front of us. We are trying to stabilise and de-risk the bank. The draft plan we have come up with is aimed at doing this in trying to provide the best options, but it is a challenge. It will be difficult, but this is the best route to take as it provides a range of options. That is why we have recommended it.
Mr. Alan Dukes
Deputy Burton has referred to statements made by the previous chief executive in the 2007 annual report — a time when the current chairman was not involved in the bank. That dealt with the year to the end of September 2007. The Deputy quoted Mr. David Drumm as making statements to the effect that loans made by the bank were secured on the basis of personal guarantees and were the first legal charges on tangible assets.
Yes.
Mr. Alan Dukes
That has been and continues to be the basis on which the bank made those loans. The problem is, as the Chairman indicated in his introduction, that in a great many cases, while we have first legal charge on tangible assets, the value of these tangible assets has been seriously eroded by the overall reduction in property markets. That means for specific loans where the bank's security is in the form of a legal charge on the tangible assets, there is a problem with the value of the tangible assets compared to the original value of the loan. That is the banking problem with which we must deal.
I am not passing the border of what one may legally say on this when I say the governance issues to which Deputy Burton referred are worrying regarding the reputation of Anglo Irish Bank and, in some ways, Irish banking generally. We are at least as concerned as the Deputy is. We have spent a great deal of time ensuring we take all the steps we can, including full co-operation with the investigations, to get to the bottom of the matters involved. As the chairman said, while their conclusion does not lie in our hands, we would like them to be concluded as quickly as possible in order that we can get on with the business of operating the bank as a going concern without the albatross of these legacy issues hanging around our necks. The three of us present and our colleague Mr. Maurice Keane who cannot be with us today have been given, specifically on nationalisation of the bank, on our reappointment to the board a mandate to deal with these issues as quickly as we can and to co-operate as fully as we can with the investigations. It is one of the matters that has taken up most of the time of the board and our executive chairman, particularly since the date of nationalisation. We have had to spend a large amount of time ensuring these issues are properly examined and ventilated.
To continue on the question of governance and the management structure in the bank, a number of executive directors resigned, including the former chief executive, chairman and finance director. To what extent has the next tier in the bank, senior management, changed? The board must be particularly concerned that there were serious failures, for example, in risk management. Have there been changes? I heard Anglo Irish Bank was recruiting a risk management officer. The second tier of management in the bank must have been central to the decisions made on loans which turned out to be faulty. How many are still with the bank?
The delegates spoke about setting up a special team or section in the bank regarding NAMA. They also spoke about loans being grouped or interlinked. Do they expect whole portfolios to transfer to NAMA? According to the PricewaterhouseCoopers stress-testing report, groups of individuals with high indebtedness to the bank were its chief customers, that they were in groups of five, eight, ten or 15, but that its biggest customers probably numbered less than 100 and that they were responsible for the bulk of the impairments. In the context of NAMA, how does the board propose to deal with these developers, developer groups or group links of companies or individuals? I do not know what they are called. We do not have enough information to know, although the board knows. How does Anglo Irish Bank propose to deal with these people in respect of NAMA? Will it take a decision with the Government that for a particular developer everything will go to NAMA or will the bank negotiate with its customer on what will and will not go to it? What will the criteria be? Will Mr. O'Connor tell us about the special unit in the bank in respect of NAMA? Will it manage the loans subsequently and will NAMA be the overall supervisor of their realisation, winding down or management?
Mr. Donal O’Connor
On the first point, one issue on which we have spent much time as a board is leadership and the structure of the bank. In our draft business plan we have come up with a new structure and a draft leadership team. We have said we need a CEO, a chief risk officer, a chief financial officer, a head of group lending, a head of group treasury, a head of operations and a head of finance. All of these jobs are in play. We have definitively said we will have an external CEO and an external chief risk officer, but some of the other jobs will also be filled externally.
My understanding, from people whom I know who have worked in the bank, is that one of its problems as it reached its nemesis was that a number of senior staff were able to take out significant loans from the bank. Are all of the staff at a senior level solvent or are some, like some of the directors, in a financial relationship with the bank where their investments are mainly property related because they became players? That was one of the destruction points for the bank. Staff at a senior level in the bank became players in the property market and in some of the deals made. What is the current position? Have the loans of these senior staff been reviewed and exposed in respect of their borrowing from the bank?
Mr. Donal O’Connor
We have reviewed the loans of all customers, including those who are employees of the bank. All customers are dealt with in an independent and objective manner. That is the policy of the bank and the way the board is dealing with them.
If these are at the top of the second tier of management, have taken out loans and are possibly under tremendous financial pressure, how does that work?
Mr. Donal O’Connor
We have made a number of changes at the bank. For example, in appointing an external chief risk officer, we appointed an acting chief risk officer. Many changes have been made to the way in which we conduct internal processes. We are conscious of and alert to the issue and have certain processes in place to address it. We are able to do so independently and objectively. One aspect we regard as crucial is that in moving forward with the new business plan we need a new leadership team and people to come in and lead that team. As I mentioned when the slides were being shown, we are also carrying out a major review of our cost base. Many changes will be made at the bank in a short time.
The Deputy has asked a number of questions on NAMA, all of which are relevant and on which we have had to spend much time.
Mr. O'Connor should answer the question. Are there still senior staff members in management positions in the bank with significant mortgages from the bank?
Mr. Donal O’Connor
Yes, there are people in the bank with significant loans, some of whom are in senior positions. I meant to answer that question. What I was trying to stress——
Are there impaired loans?
Mr. Donal O’Connor
There are some people in the bank who would have impaired loans and there are some outside the bank who would also have impaired loans but we treat everybody in exactly the same way.
Surely to goodness——
Chairman——
Two members may not ask questions at the same time.
I have one question that may clarify the issue. The table on page 12 of the documentation shows a figure of €3.3 billion in personal and other borrowings which carry a rate of impairment of just under 20%. How much of this relates to senior staff and former directors? Given that Mr. O'Connor has told us it includes the figure of €308 million, presumably it incorporates directors' loans. How much in staff loans does it include? We need more information.
Mr. Donal O’Connor
It includes the figure of €31 million to former directors, to which I referred.
How much of it relates to senior staff?
Mr. Donal O’Connor
I do not have that number and I am not sure it would be appropriate to disclose it.
Last September this committee was misled by the bank and we are getting a load of nonsense again today. Nobody seems to have the information. I do not place blame on the non-executive directors who are doing a job on behalf of the State. However, Mr. O'Connor was a member of the board which misled the committee last September. As a result, many small investors have lost their investments and the reputation of the bank has gone down the tubes. If Mr. O'Connor is asked straight questions, will he answer them honestly? We are facing a debt of €7.5 billion for the taxpayer——
The Deputy should withdraw the imputation that Mr. O'Connor did not answer questions honestly.
I said a debt of €7.5 billion was facing the taxpayer.
Mr. Frank Daly
It is important to deal with Deputy Burton's question. The impairment of loans to directors or senior management is an issue in which the new board takes a direct interest. An organisation can ensure a person who has a conflict of interest is removed from the process. I assure the Deputy that we have put the necessary structures in place.
Can Mr. Daly give an example? I would like to know what that piece of management-speak means.
Mr. Frank Daly
I do not want to go into the personal affairs of any individual in the bank, but it is possible to set up a committee or an oversight or approval section which an individual would have no possibility of influencing. I assure the Deputy that the board actively ensures that happens and that there are Chinese walls to prevent conflicts of interest. As a non-executive director of the bank, I can tell the Deputy that there are the necessary processes, that they are implemented and overseen by us.
It is invidious for Deputy Barrett to make the points he made about the chairman. I joined the board in December last year when the former chairman resigned and we needed a chairman quickly. Mr. O'Connor was prevailed on by the board, including me——
Mr. Daly should not challenge me. I stated a fact.
Mr. Frank Daly
I am giving the Deputy the facts of what happened.
I stated the fact that Mr. O'Connor was a member of a board which came before the committee and misled us.
Mr. Frank Daly
Knowing Mr. O'Connor as I have for the past five or six months——
I do not care whether Mr. Daly appointed him or not. He should not make a charge against me. I am entitled to my opinion.
Mr. Frank Daly
The Deputy is entitled to an opinion.
I will defend that right as long as I am a Member of the House.
Please allow Mr. Daly to continue.
The fact is that I was a member of the committee last September when a senior member of the board of Anglo Irish Bank misled us. Mr. O'Connor was a member of the board at the time. Mr. Daly should not impute anything to me when he does not know the facts.
Mr. Frank Daly
I was not present at that meeting.
Exactly — that is the point I am making.
Mr. Frank Daly
It is important the committee realises——
Mr. Daly should get on with his job and I will get on with mine.
Mr. Frank Daly
Part of my job is to make sure this committee has confidence in the board of Anglo Irish Bank and has confidence in the chairman.
It is very difficult when one cannot get straight answers.
Please allow Mr. Daly to continue. The Deputy can come in afterwards if he wishes but he should allow Mr. Daly to finish speaking.
Mr. Frank Daly
May I explain? I think there have been a lot of straight answers. We are constrained, and I feel constrained in some of the answers we can give, for a number of reasons. I feel constrained in relation to client confidentiality.
You are not.
Mr. Frank Daly
I am explaining to the committee why it should have confidence in the board of the bank. If we breach client confidentiality it exposes us in two areas. First, it exposes us in the area of possible legal action. Would the Deputy like to be a client of a bank that came in and revealed details of its affairs?
We did not ask for names.
Mr. Frank Daly
There have been requests to go on and on into more information.
We have not questioned this bank about the names.
The Deputies can come in afterwards, but they should let Mr. Daly finish.
Mr. Frank Daly
Second, as a board, we would love to be coming in here giving more and more information but we are constrained, as was mentioned earlier by the chairman and by Mr. Dukes, because of the investigations that are going on. I come from a background where I am familiar with the regulatory framework. Over the years, I have seen the dangers of compromising an investigation by an ill-informed or prejudicial comment. That is the last thing anybody on the board of Anglo Irish Bank wants to do. That is constraining us in some of the information we can give to this committee.
I mentioned Mr. O'Connor's appointment as chairman. Earlier this year when the chief executive of the bank resigned and we needed a chief executive, Mr. O'Connor was prevailed upon by the new board to become the executive chairman. He certainly did not seek it and, if anything, he would have looked for anybody else to take the job. We prevailed upon him to do it. To be honest with the committee, over the last few weeks I have been somewhat appalled by some of the personal attacks on Mr. O'Connor. In my experience of him, and I did not know him before I joined the bank, he is doing a great public service.
I do not want a lecture. I did not make any personal attacks on Mr. O'Connor. I stated a fact.
Mr. Alan Dukes
Going back to the original question, Deputy Burton referred to slide 12 and the loan balance of €3.3 billion for personal and other lending with a cumulative impairment provision of €650 million on that. In the interim report, we have reported an impairment provision of €31 million on loans to directors and former directors. That includes former directors as well as directors who are currently in position. The total impairment provision we have made there is €31 million. A very small part of that provision relates to loans to persons who are currently directors of the bank. It is a very small proportion of that total. To give a hypothetical illustration, if there is a person who has a position of executive responsibility in the bank in respect of whom it is determined that the loan is impaired, there are procedures in the bank to ensure that person — whatever his or her function is in the bank — is not involved in any way in making a judgment as to what the impairment is or in making any kind of decision as to what procedure will be used to deal with the problem. That person is completely out of the loop whatever his or her function is in the bank.
My question arose from the governance issues which, as I said to Mr. O'Connor, I believe are central to this bank and to our country's reputation.
Mr. Alan Dukes
As do we.
I am not talking about any specific individual because I do not know anything about any specific individual. This is really important in terms of recovering confidence. There is a belief that in this bank a model was set going. I accept that Mr. O'Connor was a director for a short period of time. However, he was a director and managing director of the Dublin Docklands Development Authority, which has a close and intimate working relationship with this bank. As times passes, the understanding is emerging very strongly that people at the top executive level in the bank, whether at director level or below director level, became involved themselves — and were permitted to do so by the bank — in extraordinarily risky behaviour from a banking point of view. Not only were they lenders, but they became players in the property bubble themselves. The issue for the current governance of the bank is about the people involved in these faulty decisions. Not only were they bullish about the property market in general, but they were also bullish about their own capacity to borrow and to become players in deals in which the bank was negotiating for customers. This partly caused the collapse of the bank, because if one is a player in lending——
The Deputy is repeating what she has said already. Mr. Daly has explained how the bank has set up a structure to ensure that those people will be——
If she has a different point, she should make it.
Yes, I have one further point. Mr. O'Connor and Mr. Daly have said that they have no further role in respect of their impaired loans. We asked a different question. Mr. O'Connor said at the beginning that all of this would be recovered and worked out over time. People who have lost their pensions because they invested in this bank have lost everything. From a democratic point of view, they are entitled to know what happened to other people who got money from the bank and how and when they are going to pay that money back. That is the critical question but we have not got an answer to it. That applies to the big developers, to the people who did the overhang loans for the Quinn shares, to former and current directors, as well as to senior management staff. Contrary to what Mr. Drumm said, this bank was reckless in the extreme and senior management not only built up the bubble, but also included themselves in it. This collapse will be something that is taught in MBA courses in future years.
Mr. Donal O’Connor
All customers are being treated in the same independent, objective and resolute way when we try to recover money owed to the bank. That is what this board is focused on and that is what this board is doing. Every customer, whether an external or internal customer, is treated in an objective and resolute manner to ensure that we make the maximum recovery of all loans.
Would the Deputy like me to deal with her questions on NAMA?
Please.
Mr. Donal O’Connor
One particular point the Deputy made about NAMA is very relevant, even though I do not know the answer to it. We have earmarked €17.7 billion to go to our NAMA unit, and it will be a matter for NAMA to decide whether it wants to take all of those loans. We have also identified what we call the associated loans. If NAMA is going to deal with some loans for a particular developer, we feel it is better off having control over all the loans. We have all the development loans, but we also have all the associated loans identified beside it.
What is the value of the associated loans?
Excuse me, but Deputy Andrews is next.
I think that is a relevant question.
Mr. O'Connor has been very helpful to the committee. I would like to hear his answer in detail.
Mr. Donal O’Connor
We have provided NAMA with detailed analyses of names, numbers, the size of our book and all the associated loans. NAMA takes the decision on how much of the development loans or the associated loans it will take on. The Minister has made it very clear that we do not have any say. Our job is to provide that information to NAMA in an efficient manner. We have set up a new team. These loans in NAMA, based on the understanding we have, will be run. The decision is taken by NAMA. At the moment we are working on the basis that some work will be required by people in the bank to administer the loans to support the decision making by NAMA. We do not know the detail of that. Again we will adhere to whatever NAMA proposes. We are putting them into a business unit with separate people focused on it. We are engaging with NAMA to ascertain how it wants it. We are trying to co-operate fully in doing it, but we stress we are providing all that information and making it easy, and then NAMA makes the decision as to what it wants to do.
Is there a value for the associated loans — even a rough value?
Mr. Donal O’Connor
They are estimated and we have provided that information to NAMA, but at this stage it is not appropriate that I give that number.
Mr. O'Connor will appreciate that it is a key figure.
Mr. Donal O’Connor
We provide that number to NAMA, which has it. Given that it is making the decisions, I feel that it is not really appropriate for us as the bank——
Is it likely to be double what was in the development loan portfolio?
Mr. Donal O’Connor
It will be NAMA. The number is a percentage of the value that would go. It is not the same. It is not double. It would be a percentage. It is really a question for NAMA. It is not appropriate for us to disclose that because NAMA will make that decision,
Is Mr. O'Connor saying that it is less than the €17.7 billion?
Mr. Donal O’Connor
It is absolutely less than the €17.7 billion. I think I can say that comfortably.
It is somewhat harsh to say that Mr. O'Connor is not answering straight. While we might not be getting the answers we want to hear, he has certainly shown willingness to answer. He has not been dishonest. He has been straight with us and it is somewhat unfair to make that accusation. In my time as a public representative I have been quite involved in the docklands and I know that he was highly regarded when he was chairman of the Dublin Docklands Development Authority. I wish Mr. O'Connor and the board well. It is in everyone's interest that they are successful in the challenges they face.
Slide 22 states "Creating a viable, efficient and respected bank provides the Minister with the widest range of options". Does the board have an opinion on a preferred option? Is it pushing one particular option? Mr. O'Connor mentioned maximising the recovery of the loans. What are the main challenges and obstacles in maximising the recovery of those loans?
Mr. Donal O’Connor
In the Deputy's first question he asked about the options. From the board's point of view it is not so much that we have said that one is preferred over the other. I would like to see the ones we could move on most quickly. In the interests of all stakeholders the quicker we can make progress in stabilising and de-risking the bank the better. While we could operate as a stand-alone bank and broaden the offering we have, that will take time. However, that is a very viable option. On the other hand, if we could in the short term, for example, attract some investment into the bank or if we could sell some parts of our loan book which would help de-risk the bank, it would be very attractive. They are not mutually exclusive and could go hand in hand.
The third option, to be part of a merger or consolidation of a wider banking group, also has attractions. It has the added attraction that it could change the bank more quickly in that one of the things we clearly identified as part of the business plan was that we needed to be more universal. In answer to an earlier question, I said that one of the weaknesses we saw was the model that Anglo Irish Bank had — it was not as well able to take the stress when the stress came. Part of that is that its focus was narrow. A bank that is more universal with a wider range of businesses and offerings and that does not have all its eggs in one basket is better able to deal with it. Organically it would take a long time and be expensive to do it. It may be that some form of consolidation that would happen sooner would do it. All of the options are interesting and good, but if one could be availed of soon, it would be very attractive.
Another question was about parts of our loan book. If somebody offered a fair price for that loan book, we would want to engage with them actively. I hope that answers that part of the question.
The second part of the question was on maximising the recoverability of loans. That is difficult and a real challenge. One issue with which we are faced is the question of whether a customer is co-operating. If we have a customer who is not co-operating, we act decisively. We might decide to take control of the assets because we believe if we were to leave the borrower in control of them, the value would deteriorate even further and reduce what we might get back. We might put in a receiver and take control of the assets to maximise the return on the loan. If a borrower is stressed but co-operating, we try to find the best way to deal with the situation. My colleague referred to this — it sometimes seems counter-intuitive — but we nearly have to give more money. For example, if a customer has a development that is 90% finished, left like that it will not bring in any cash. If one finishes it, one might be able to sell or rent the properties. We are always looking for the best solution, but the major distinction is whether the customer is co-operating.
Is there a high level of co-operation?
Mr. Donal O’Connor
Generally, there is a very high level of co-operation. If we receive co-operation, it is usually better to work with the person concerned, but if we do not receive it, we act decisively.
Was there a review of all the guarantee documents for the six months or so before nationalisation? If so, was it carried out by the new board or the ODCE?
Mr. Donal O’Connor
What does the Chairman mean by "guarantee documents"?
The loan guarantees.
Mr. Donal O’Connor
There is an ongoing review of the security the bank takes. That is part of the process. For example——
I refer specifically to the period before nationalisation. Were they examined?
Mr. Donal O’Connor
They have been looked at and the board has received reports which examined them and our processes and procedures to see the level of adherence. We have had reports compiled in the last few months.
Mr. Frank Daly
There is oversight by the bank's internal audit team which carries out regular checks on the process with generally satisfactory results.
I welcome the delegates. I have examined the annual report and would like to raise a couple of points.
Deputy Bruton raised the issue of the recovery agency model for Anglo Irish Bank, as distinct from its continuing as a going concern. Mr. O'Connor has said one has to maintain certain tier 1 capital ratios, yet it is stated on page 51 of the annual report, "In light of the Government's commitment to recapitalise the bank, the Financial Regulator has, on a temporary basis ... exercised its discretion not to impose a minimum capital ratio". Therefore, it is not true to say that in a wind-down the bank would be required to maintain a minimum capital ratio. That would be at the discretion of the Central Bank.
According to the bank's annual report and presentation, Anglo Irish Bank has not had one segment of new business with new customers in the last year. The amount of new loans went up by €1.3 billion, of which €700 million was accounted for by a roll-up of interest and €600 million by commitments given to existing customers. The bank is no longer functioning as a bank. We are talking about €4 billion being put in by the Government on behalf of the taxpayer. The core tier 1 ratio, as stated in page 51 of the annual report, is 1.4%. The total capital ratio is 8.2%. Mr. O'Connor said that putting in €4 billion would bring the total capital ratio up to 9.5%. If one puts in the €4 billion the tier 1 capital ratio would certainly exceed 4%. However, to take off the €2.6 billion extra bad debts that the bank expects to write off would bring it down to €3.1 billion. Mr. O'Connor said that post-NAMA there could be further write-offs of between €1.5 billion and €3.5 billion. Anglo Irish Bank cannot effectively meet its capital requirements. It is putting in €4 billion of taxpayers' money. In terms of being able to fund the bank and the markets its Central Bank funding increased by almost €16 billion since last September. Its funding from debt security has reduced by more than €3 billion and funding from banks is down by €7 billion. Anglo Irish Bank is surviving only because the Central Bank has effectively given it a lifeline and intensive care.
The bank is effectively a recovery bank. Its argument that it has to go to the markets to maintain tier 1 capital ratio does not stand up. All its providers of funds are concerned with is getting repaid. They are already taking their money out because Anglo Irish Bank has to go to the Central Bank just to function. The point I am making is that there is no argument at the moment for Anglo Irish Bank to continue as a going concern. What is its core business? Page 12 of the documentation states that its core business is property development. It puts development — commercial and residential — at €17.7 billion but its total investments are €43 billion, the bulk of which I expect is property related. Some 84% of its business is property related. Business banking only accounts for 11%. How much of its business is SME business? Certainly it has not done any business during the past six months. Therefore, it is effectively a recovery bank. Mr. O'Connor said earlier that if he got a good offer in terms of the value of the assets he would consider it.
I now turn to NAMA. Mr. Peter Bacon stated that he will take over the toxic debt plus the related cross-guarantees. It is generally acknowledged within media circles that Anglo Irish Bank is heavily dependent on a small number of very large customers. If there were not cross-guarantees, why were there not cross-guarantees? If there are cross-guarantees, after NAMA comes along what will be left in Anglo Irish Bank? I expect it will be very little. Once again there is an argument that it should not continue. The ordinary people see €144 million in directors loans, a loan to management personnel directors, €7 million to other key personnel, totalling more than €150 million. They see that €255 million was advanced in the year to 30 September. Page 54 of the report, note 29.4.15, states:
Loans to the preceding Chairman of €106.8 million [of the €144 million, €107 million is to Seán FitzPatrick]. The redrawing shortly after 30 September 2008 of an amount repaid shortly before that date from deposits held with the Bank was the main reason for the increase in the loan balances during the period.
In layman's terms, I assume that means that Seán FitzPatrick effectively repaid loans before that period with deposits that he held in the bank. Media reports state that he has deposits of more than €23 million. Effectively he owes the bank €106 million. The ordinary man looking on is asking what is going on here. This is crazy. This means there was no governance in the bank.
I would like to know what security is provided. If one takes all the factors into account the core business of Anglo Irish Bank is development. The case for maintaining core tier 1 capital rather than winding up the bank does not stand up. Anglo Irish Bank cannot survive because the figures do not add up. One cannot maintain the core tier 1 capital ratios with the level of bad debts at the bank.
Mr. Seán FitzPatrick owns €107 million and has €23 million on deposit with the bank. If he used deposits to repay the loan prior to the year end, then withdrew loans after year end and still has €23.3 million, I cannot understand why the bank does not have security over the deposit.
Everything I have said is in the public domain. I am making no conjectures and no assumptions but stating facts. Anglo Irish cannot continue as a going concern. The bank must go after the funds of Mr. FitzPatrick. What will be left in the bank when NAMA comes into being?
The Deputy has posed the same question three times.
I will finish on this point. The chairman said he wanted to protect the taxpayer for the lowest overall cost but it will cost €4 billion. The bank is being wound down and I call on the chairman to formally state that is the case, rather than maintain the charade that the bank is a going concern.
Mr. Donal O’Connor
The first point the Deputy made related to the €4 billion being put into the bank. It is clearly stated in the accounts that we have temporary derogations. The EU can approve temporary derogations but if one wanted to become a licensed deposit taker on a permanent basis——
If the bank is wound down, it will not be a licensed deposit taker but an asset recovery agency, which is a completely different thing.
Mr. Donal O’Connor
I accept that, but if the bank is not entitled to act as a licensed deposit taker the Exchequer would have to provide €50 billion for the people who provided its funding. It would have to come from somewhere and that is a huge concern.
The Deputy's second point about the tier 1 capital was very valid. We have taken into account two things in arriving at the figure. NAMA is a fundamental part of the draft business plan.
It will cost the taxpayer significantly.
Mr. Donal O’Connor
If we transfer a significant number of assets to NAMA, our capital requirement will be significantly reduced because we will not have to provide capital in respect of those assets. The interim report of a week ago last Friday stated that we would undertake a number of exercises to generate capital. I cannot say any more because of the price sensitivity of the issue. The Deputy's analysis is accurate but two things make a difference. One is that we would need capital in a post-NAMA situation and the other is the steps we can take to improve our capital.
I wish to clarify that point. Mr. O'Connor bases his view that Anglo Irish Bank can continue as a going concern on two factors. One is the €4 billion from the Government through the taxpayer and the other is NAMA, which is also effectively the taxpayer.
Mr. Donal O’Connor
The business plan states we need to stabilise and de-risk the bank and the board believes it is vital to do so. A key element of de-risking the bank is making the balance sheet smaller.
There might be no balance sheet left after NAMA.
Mr. Donal O’Connor
I will come to the Deputy's second question. The first question was on capital ratios. His second question was with regard to NAMA and whether there would be business after NAMA. Our land development book is €17.7 billion out of the €72 billion we have, so that will go.
Plus the associated book.
Mr. Donal O’Connor
Yes, plus the associated book, but there will be——
Ultimately, Mr. Bacon would not——
Will the Deputy please let Mr. O'Connor answer the question? He can come back with supplementaries afterwards.
It is important. Mr. Peter Bacon——
Will the Deputy please let Mr. O'Connor answer the question? He can come back with supplementaries.
This is a conversation really. Peter Bacon has stated——
Will Deputy O'Donnell please let Mr. O'Connor answer his question? He can ask him further questions afterwards.
The Chairman is being petty.
I call on Mr. O'Connor to continue.
Mr. Donal O’Connor
There would still be a significant bank but a smaller bank after the transfer to NAMA. As one can see, most of the assets are asset-backed but they are supporting businesses in the three markets in which we operate. We have examined how one would move that business to make it viable, efficient and respected. We also looked at what happens in the alternative. We showed the Bradford & Bingley example because the UK Government has had to put in over £20 billion. With the €50 billion we have and three-quarters from overseas, that requirement will come on the Exchequer. As a going concern we can keep that funding. I hope the €4 billion is enough but I accept that it might not be. If we lost 20% of the €50 billion in funding, that is €10 billion in funding that would have to be provided. It is not easy. This is a difficult situation and the board has spent time in trying to assess it. That is what we have come up with. We believe that with a post-NAMA situation which significantly reduces the bank's balance sheet, risk and funding pressure, we can start to lend back over time. That is one of the things we want to do but we need to stabilise. We cannot get ahead of ourselves and over promise. We are saying that we need a period of stabilisation and need to gradually build back to make this bank a viable going concern. That is what we are really determined to do.
This is a relevant point. Mr. Peter Bacon has stated that he is effectively looking to take in performing loans linked to the non-performing toxic debt, so the bank may not have a choice in what loans it can or cannot maintain. I do not regard Anglo Irish Bank as systemic to the economy. It is a property development bank and business banking accounts for only 11%, or probably less, of its activity. It gets back to the point of how much of the bank's balance will be left once the NAMA procedure has taken place.
Mr. Donal O’Connor
NAMA will make the decision regarding what assets will transfer. We provide it with that analysis, but there will still be a significant bank. It will be significantly reduced but it will still be of a significant size. The key thing is trying to decide what is in the best interests of all stakeholders. We said this is a difficult situation. For the reasons I have outlined, we concluded that keeping it as a going concern is the best option and that this maintains a range of options for the Minister.
May I ask a brief supplementary question? What was Mr. O'Connor's reference to price sensitive information? I did not understand that.
Mr. Donal O’Connor
I made a reference to one of the things we talked about — I want to choose my words carefully — which was about steps we could take ourselves to improve our own capital with regard to liability management. However, anything I would say on that is price sensitive, so I cannot talk about it, even though I would like to do so. I would love to talk about it here but I cannot. Those are steps we would take ourselves to try to improve our capital position.
Is that because you are thinking of selling what you can?
Mr. Donal O’Connor
A statement will be issued today that will refer to the fact that we had said in the interim report that we will be looking at ways of doing liability management exercises. We will be doing that.
Is the bank in active negotiations to sell as much of its portfolio as it can?
Mr. Alan Dukes
A Chathaoirligh, if Deputy Burton keeps on with this, Mr. Daly and I will have to drag the chairman out to make sure he does not infringe the market abuse directive. We cannot allow him to do that, because it is market sensitive stuff.
I would like to make two remarks in reply to the comments made by Deputy O'Donnell. The fact that Anglo Irish Bank has concentrated mainly on property development does not mean that it is not systemically important. There is a much longer argument about that.
Mr. Alan Dukes
The Government came to a conclusion on that last January and decided that the bank was systemically important. If Deputy O'Donnell reflects on some of the other discussions about where this bank fits in with other banks, then it is not difficult to arrive at the conclusion that it is an important part of the system.
Deputy O'Donnell must allow Mr. Dukes to respond. He can ask him a question afterwards.
Mr. Alan Dukes
It is systemically important due to its importance in property development and due to the links between property development and other activity in the economy. The fact that the economy is in depression does not mean that property development will disappear off the map. It will not be a very active sector for quite some time to come. I think we will be bumping along the bottom of the property market for some time, but we are going to need property and infrastructure development even during a depression.
There will not be a resolution to the Irish banking problem at no cost to the taxpayer.
We all accept that.
Mr. Alan Dukes
There is a big cost that will have to be borne. There are 4.25 million people in this Republic who are the only ones that will bear it sooner or later. The question is what we can do to minimise that cost. A part of minimising that cost will be to spread it over the longest possible period that allows us to work out the problem. Stating that this bank or any other bank is now in a wind-down position will have only one result, which is that it will bring the incurring of that cost forward, compared with any other solution. The Bradford & Bingley example shows this very clearly. Deputy Bruton referred to it early on and there have been other references to it since. If we make that statement about any bank, the funding base of that bank will be immediately affected. To the extent that the funding base of the bank is affected, there is a cost that must be met from whatever resources are available. These resources are taxpayer resources, as the Deputy rightly pointed out.
It is not too difficult to reach the conclusion that a going concern with some prospect of developing other arms to its business will be in a better position over a period to spread the cost of the adjustment, than an enterprise that has been destined for termination. It was possibly a bit offensive earlier on to describe Anglo Irish Bank as being on a life support system. However, the hope in intensive care units is that the patient walks out after a period and that the life support systems are no longer needed. The other option, which is much more gruesome, does not see the patient walking out, but there are other consequences of that.
Is Mr. Dukes confident in that?
Mr. Alan Dukes
We have devoted a good deal of attention to this. Nobody in the bank would say that it will be an easy process to follow the route set out by the chairman. However, it is a reasonable and viable prospect. As economies adjust to the recession and as they build themselves up to develop, new financial possibilities will emerge. New responses will be needed to the needs of business as we move through a recession and into a recovery. We will certainly see new approaches in the banking sector. There is no reason Anglo Irish Bank should not be part of that.
Mr. O'Connor did not answer the question.
Does Deputy O'Donnell have a question?
It was a previous question I asked.
Mr. Donal O’Connor
We have provided extensive information on directors' loans in the accounts. However, as with customers of the bank, we are not at liberty to give any additional information. We have provided a huge amount. We are restricted in what we can do and cannot provide additional information.
It is in the public domain that Mr. Seán FitzPatrick has €23 million on deposit with a national bank. We are talking about Anglo Irish Bank. Effectively it is the taxpayers' bank. Will Anglo Irish Bank pursue that €23 million to effectively reduce the loan he owes to the bank?
Deputy Bruton referred to Anglo Irish Bank not being systemic. My point is that not a red cent has flowed from the bank for new business. What we need are funds flowing to small businesses that are providing employment. Anglo Irish Bank took everybody to the top of the hill on property development. However, it did not inform them there was a very steep curve down. That is the essence of the problem. This economy will survive with Anglo Irish Bank being wound down. We need to minimise the cost to the taxpayer. In order to minimise that, the board needs to continue the work it is doing. The NAMA vehicle will put enormous pressure——
The Deputy is repeating the same points.
Mr. Donal O’Connor
With all customers of the bank, the board will be resolute and objective in trying to get all moneys back. We cannot make any comment regarding individuals. We have put considerable detail into the accounts.
With regard to the Deputy's other point, €17.7 billion is for land and development. The rest is not land and development. There is obviously some in business banking. It is important to remember that many of the investment loans are supporting jobs in the markets with which we deal, including here in Ireland. We have come up with a draft business plan, a key element of which is that we need to stabilise. When we stabilise the bank, in time we can start to widen the business we do and support it. It would be much easier to come here today and tell the committee we had good results. Our job is to deal with the facts in front of us. Regardless of whether it is good news or bad news we need to tell it as it is.
A question that was asked on a few occasions went unanswered. How much new business has Anglo Irish Bank done since last January? How much lending has there been? What is the level of investment in deposits? Has there been any repossession of land or property yet or is the board waiting for NAMA to come in and do that work on the bank's behalf? If it has repossessed, has it repossessed any housing estates from developers? Will the directors or the Government decide what will happen to those empty properties? Will people on housing lists be accommodated? I am sure that is a Government decision.
The figures suggest a potential loss of €7.5 billion and €4.9 billion has already been invested, leaving a difference of €2.6 billion. However, the bank is getting an investment of €4 billion. Is that just to provide a little surplus in case it is needed at a later date? How much has been spent on fees for external consultants who have carried out independent reviews of the loan book?
Mr. Donal O’Connor
The amount of new lending is very small. I will get a precise figure and come back to the Deputy.
The Deputy mentioned repossessions. Referring to my earlier comment, when a customer is not co-operating, to protect the assets to ensure the maximum recovery, we take control of them. That could be done through appointing a receiver or taking them over, but we always act to see how we can maximise recovery.
It is correct that one of the questions was on Government policy, not ours. However, there have been incidences where developments have not been finished and we have advanced some money to have them finished in order that they can come on the market and be sold or rented. I partially addressed this issue in a previous response. It is no benefit to anybody to have a 90% or 95% completed development if one can provide an asset, whether to be sold at market price or to try to secure an income. We are always looking for the best course of action and are actively engaged to this end.
Whether a customer is co-operating is generally the key deciding factor in whether we need to take control of the assets or can continue to work with the customer. Banks need certain capital ratios, to which we must adhere. When we were preparing our plan, we not only examined the losses we had incurred but also focused on the figure of €7.5 billion and the capital we would need against it, having regard to NAMA. That is how the figure of €4 billion was arrived at.
Will Mr. O'Connor answer my last question on consultants' fees?
Mr. Donal O’Connor
I do not have command. The Financial Regulator sent them in. However, we have hired the consultants. While I will seek their permission, I will have no difficulty in providing the information.
What about new business investment? How much has been invested in Anglo Irish Bank and is on deposit?
Mr. Donal O’Connor
Funding on the retail side has been resilient. There has not been a significant change. I can provide further details. It has been a struggle. The level of non-retail funding has deteriorated.
Is Anglo Irish Bank actively seeking investment through a good savings interest rate to try to get money into the bank?
Mr. Donal O’Connor
Yes, we are trying to secure the balance, but we must be very careful. If one pays too much for funding, the cost will increase and one will incur additional costs; therefore, we must ensure the costs are appropriate. A major issue regarding the market is how the bank looks — whether it looks, internationally, like a going concern. If so, it is much easier to attract funding at a more reasonable rate than if it looks like it is being wound down. That is a key element of our business plan.
With regard to repossessions, is Anglo Irish Bank waiting for NAMA to do this work?
Mr. Donal O’Connor
We work through the loans and if we see that customers are not co-operating, we move to take control of the assets.
Have there been repossessions?
Mr. Donal O’Connor
We have put a number of companies and businesses into receivership. We have appointed a number of receivers and taken control of the assets. We can provide the information.
Were they property related?
Mr. Donal O’Connor
Generally, they would be people in developments which we would take over by appointing a receiver.
I shall begin by referring to what another member of the committee said on some questions I posed. Mr. O'Connor is very experienced and capable of answering for himself. At no time do I engage in personal attacks or question someone's integrity. I hope that is clearly understood. However, our job is to establish a few facts. Unfortunately, whether we like it, Mr. O'Connor was a director of the company when it was in private ownership, or public ownership in the real business sense. Therefore, it is fair to ask questions about what happened in that period. Mr. O'Connor will recognise that, with his two colleagues, he is now in a different position. The committee has a job to do, which is to establish the level of exposure for the taxpayer, now and in the future, and what should be the position of the institution in the future. Our job is to ask whether it should be retained or wound up. These are very difficult decisions to be taken by this or a future Government as vast sums of money are involved.
The delegates said there was a potential €7.5 billion liability for the taxpayer. Those who have been campaigning on the streets in recent weeks have heard the anger of the people and nobody should be fooled. Unless we give them the answers, using the structures of democracy, people will take to the streets. If we ask awkward questions, it may be awkward to give an answer, but an answer must be given. The way the bank was run was a disgrace and the taxpayer has an exposure amounting to vast sums of money on top of what NAMA will cost.
Slide No. 14 contains an alarming statement that, post-NAMA, there will be additional estimated impairments amounting to between €1.5 billion and €3.5 billion. Will the delegates explain where they will arise?
I heard people ask what they should do with their money in Anglo Irish Bank, whether they should pull their deposits. As we are trying to keep a ship from sinking, we tell them they are backed by the State guarantee, but we need to be able to tell them what will happen when the guarantee is no longer in place in 2010. Currently, the banks are covered by the State but the guarantee is not permanent. We need to be able to give depositors an answer as to whether their money will be safe if the guarantee is not extended. It is important that we give people an assurance and are able to answer their questions. We should be able to guarantee that what went before will not continue into the future. People with small savings have lost everything, as have those who bought shares in the bank, which have been wiped out. They took advice to put their savings into the bank. As they are now gone, we need to be able to give them answers. If harsh remarks have to be made, they have to be made because the people deserve an answer.
Other questions related to the behaviour of directors and staff. It is appalling that what we regarded as respectable institutions were run as backstreet hand-out shops for executives and their pals. I admire Mr. Daly and Mr. Dukes for taking on the job of non-executive directors in the interests of the State. I accept the good faith of Mr. O'Connor and do not question his integrity. However, questions have to be answered and he was at the bank at a time when his two colleagues were not there. People should put up their hands and admit they did not keep their eyes on the ball. They should accept that things happened with which they now disagree. Certain things happened under the watch of certain people, of whom Mr. O'Connor is one. I do not want to launch a personal attack, but somebody has to be able to give answers to the small investors who lost €25,000 or €50,000. I have met such people and they do not have a shilling. Billions of euro are involved but €25,000 was a lot of money for such people who entrusted their money to others to mind for them with a view to generating a small income.
People take risks when they buy shares.
I am aware of that but ordinary people were told not to gamble on the stock market but to invest their money in bank shares instead. That is a different scenario from the normal gamble on the Stock Exchange. The shares were supposed to be gilt edged. The people were told their grandmothers and great-grandmothers had invested in bank shares, if they had money to do so. A sum of €7.5 billion is a lot of money for the taxpayer to be exposed to and those in government have to give answers as to how they intend to find it. Every day of the week we seem to be downgraded such that an extra 2% is added to the cost of our borrowings.
As we do not see the bank directors every day of the week, I hope that at the end of this meeting we can send some message to the public about the future of the bank to assure them it is in safe hands and that every effort is being made to recover every penny possible. We need to publicly assure them that those who have committed wrongdoings or broken trust are being dealt with. I make no apologies for asking questions that appear awkward and discourteous. I did not mean them to be so, but everybody knows what has to be done when it gets too hot in the kitchen.
Slide No. 12 shows total investments of €43.3 billion, which is broken down into figures for Ireland, the United Kingdom and the United States. The cumulative impairment provisions are shown. To what do these investments relate? Are they property related? The same slide shows a commercial and residential development figure of €17.7 billion. Is that figure greater when one includes the figures to which I referred?
I thank the delegates for their attendance and hope all of us who operate in the public interest can work together to find a solution. As with other things that have happened in this country, it is time we put up our hands and apologised to the small investors who have lost everything. We must give them an assurance that those of us who were elected to represent them will ensure steps are taken to prevent this from happening again.
Mr. Donal O’Connor
I will try to deal with a number of the questions raised. I agree with Deputy Barrett's point. One of the things I did at the EGM, in the annual report that was published on 20 February and also in our interim report which was published last week, was to apologise on behalf of the board to stakeholders in the bank for what has happened. We appreciate the hurt, outrage and anger that people feel. I repeat that today.
The Deputy stated that he has a job to do, and I as executive chairman, together with my directors have a job to do. That job is essentially to try to stabilise and de-risk the bank on behalf of all the stakeholders. The Deputy draws attention to his concern about additional losses we have identified post-NAMA. I would rather not have to do this, but I cannot, we need to be clear and tell it as it is, that there is such a risk. I hope it does not happen. There is a range of different stress scenarios and we can give no certainty on impairment. That is the best estimate when we look at various stress scenarios. That was not just the bank's view but the view of the external consultants. That was the range, and I wish I did not have to say it, but they are the facts and I need to share them with the committee.
I was also asked what would happen after the Government guarantee.
Will Mr. O'Connor explain how losses ranging from €1.5 billion to €3.5 billion could arise after NAMA?
Mr. Donal O’Connor
If we look at the conditions that have existed up to the end of March, we have essentially provided €4.9 billion. We look at all the deterioration, the reductions we have seen in asset values, all the estimates, taking everything into account. We then said, "Let's assume that things will get worse", that is how one arrives at €7.5 billion. We then said, "There is a fork in the road and our NAMA business has gone." What about the future because Deputies have asked about the situation of the bank as a going concern? We identified that we needed to see the stress in the system. The estimate that we came up with was a range of €1.5 billion to €3.5 billion additional impairment that could happen under scenarios if things got even worse. We hope that does not happen, but we have to be open and it might happen, but it is still just an estimate. That is why we are saying the impairment is €4.9 billion up to end of March, we think it will actually be €7.5 billion and it could be more. We are trying to be as open as possible.
Is that in relation to property loans?
Mr. Donal O’Connor
That is in relation to the total loan book.
I presume the property will be gone.
Mr. Donal O’Connor
As I stated in regard to the land and development book, every 10% deterioration in the market costs roughly €1.5 billion.
Is this as a result of what the Minister told us when he was before the committee with Professor Bacon and the future head of NAMA? We asked if they had purchased land or buildings at a certain price and subsequently sold them on at a lesser price that they would be back to you looking for the balance. I found it extraordinary that when you enter into a contract to buy something off somebody, one had better be sure that one is buying at the right price. Is this the scenario Mr. O'Connor is taking into account?
Mr. Donal O’Connor
No. We are pointing out that in the land and development book, broadly speaking, a 10% reduction in values has an impairment impact of €1.5 billion. We did need to say very clearly what might happen the loan book, given that the transfer of land and development to NAMA is a fundamental assumption in the business plan. If we were to come before the committee in one year's time we need to be able to respond to questions on what happened to the book. We need to give the Government an estimate. The estimate of the capital that was needed was €4 billion, to deal with €7.5 billion, but it could get worse. That is why we said €1.3 billion and that is on the business that is continuing. That would happen whether it was continuing or in a wind-down mode.
Does that €1.5 billion include the haircut that NAMA will give?
Mr. Donal O’Connor
That is the post-NAMA situation. This is trying to look at what would happen the business. We come along and do the transfer to NAMA.
Where is the haircut from NAMA in the bank's books?
Mr. Donal O’Connor
The Deputy has seen the accounts we provided. We have made an estimate, but the actual haircut will be decided by NAMA, as the Minister made clear.
Anglo Irish Bank has already provided for a 70% write-down of land values.
Mr. Donal O’Connor
No. In some cases we have gone up to 70%, but in the analysis we have provided we have provided €2.6 billion against our land and development book at the end of March.
Does that include the NAMA haircut?
Mr. Donal O’Connor
That is what we provided at the end of March. In our €7.5 billion estimate we have anticipated that things will get worse after that.
Has Anglo Irish Bank made an assumption as to what other assets NAMA will seek to take?
Mr. Donal O’Connor
Yes.
It may not be a correct assumption.
Mr. Donal O’Connor
It may not be. NAMA will decide; that decision is not in our hands. We have tried to be as open as we can be in making the analysis in as professional a manner as we can and in providing the information.
The Deputy asked what would happen after the Government guarantee. That is a matter for the Government rather than the board, but depositors will take comfort from the fact that they are dealing with a nationalised bank, a bank owned by the State.
There was a question about investments. One type of investment that always comes to mind is the provision of loans for a shopping centre which will have lots of cash flows supporting that business because there will be lots of tenants in it. We would have done that in all of our markets.
Has Anglo Irish Bank factored in the fall in rental values in shopping centres?
Mr. Donal O’Connor
We have. In making assumptions about what will happen we take into account the possibility of tenant defaults and pressure and so on. They are all things that have affected the market and that we have factored in in both the figures we arrived at at the end of March and the €7.5 billion and in looking at our stress cases.
When Mr. O'Connor refers to investment, would a fair percentage of it be property-related?
Mr. Donal O’Connor
Absolutely, and it would be asset-backed.
Is it 60% of the total amount of €43.3 billion?
Mr. Donal O’Connor
In investments.
Yes.
Mr. Donal O’Connor
Most of it would be asset and property-backed.
At a minimum, 84% of Anglo Irish Bank's loans are effectively related to property.
Mr. Donal O’Connor
Yes.
On slide No. 13 there is a figure of approximately €8.9 billion in terms of residential property in Ireland, the United Kingdom and the United States. Does this relate to individuals who were assisted by the bank to invest in "buy to let" or similar schemes, or do many relate possibly to trophy homes in places such as Shrewsbury Road and so on where people bought individual houses at the top end of the market and live in them? The impairment levels the bank anticipates on these properties are high.
Mr. Donal O’Connor
The vast majority relate to developments of houses or apartments as opposed to personal loans. They would be business loans on the development side.
Where would the personal loans for trophy houses be, for which Anglo Irish Bank had become famous?
Mr. Donal O’Connor
I do not have the details. A personal loan to a person would come under the heading of personal lending.
If that person was also a developer and bought a trophy home——
Mr. Donal O’Connor
If somebody has a personal loan, it would come under the heading of personal lending.
Some of the people concerned bought houses in places such as Shrewsbury Road for €5 million to €8 million. It seems there were people competing with cheque books sitting in cars and running into auctions.
We must move on as it is now nearly 1.50 p.m.
Mr. Donal O’Connor
If we gave a loan to an individual, it would come under the heading of personal lending.
A figure of 70% is a very high write-off.
I will be as brief as I can. I welcome the representatives from Anglo Irish Bank and thank them for attending and producing the accounts they produced last week which are pretty scary and, I suppose, realistic. The figures produced, detailing losses of more than €4 billion, are nearly all made up from the provision for impairments. What does that tell us about the figures that came out in September 2008?
I note that the witnesses refer to the global fall in property values but the provisions for impairments have gone up five times in that period. If one examines the accounts one will see the figure has gone from €879 million in September to €4.3 billion. This includes a €500 million special provision for David Drumm that was, apparently, picked out of the air and put into the accounts to make it look as if a larger provision was being made. It seems to me that the lesson of these accounts is that they are realistic and true but those that preceded them were fiction. The excuses the witnesses are giving today are not credible; property values did not fall by 90% in the given six month period. They fell, but as part of a gradual and steep decline. The figures we got previously from Anglo Irish Bank were pure fantasy and that is the lesson we will learn from the accounts produced in the past week.
My next question will be difficult for the witnesses but, in the spirit of what Deputy Barrett said, I must ask it. Mr. O'Connor was on the board as an accountant last September and he signed off on these figures, though they make no sense. The figures are nonsense; Mr. O'Connor knows this and I know we are being given a tissue of excuses for what has happened. The new board of Anglo Irish Bank, with its new broom, has decided to produce a set of accounts that is realistic and true. The last set of figures was a total fantasy and it is time this was acknowledged; the excuse that this is all due to a fall in property prices in the past six months is extraordinary. In fact, the first set of figures never took all this into account. I hold Mr. O'Connor partly responsible for this because he was an accountant on the board at the time. Ernst & Young was also there at the time; how can that institution sign off on the extraordinary difference in impairment provisions in that six-month period? How can the witnesses stand over the retention of Ernst & Young as accountants for and auditors of Anglo Irish Bank? They presided over a fantasy and I suggest Mr. O'Connor did so also.
Mr. O'Connor is extraordinarily good technically and is very at home answering technical questions but I do not think he should be chairman of Anglo Irish Bank.
This meeting is not being held to attack an individual.
It is not an attack on an individual; it is very important that the chairman of a public bank be accountable.
This meeting is to deal with the nationalisation of Anglo Irish Bank.
I will address the nationalisation of Anglo Irish Bank. At the EGM, over which Mr. O'Connor presided, he did not allow the auditors answer questions from shareholders and members of the public. Why did Mr. O'Connor protect the auditors? He did not allow the directors, some of whom have since resigned, to answer questions from the public. They should be answerable now to taxpayers and shareholders; they were at the meeting and should have been answerable then. It is no good coming to us claiming to be open and transparent when these people are being protected; they should have answered the questions about the accounts on the day of the EGM. The questions had been in the public arena for months yet Mr. O'Connor did not allow shareholders to ask them and that was wrong. Those who are paid by shareholders or the public purse should be accountable. This is very important.
After the EGM all of the non-executive directors resigned, bar the ones who had just been appointed. Why is Mr. O'Connor the only survivor of that regime? Ann Heraty, Gary McGann, Ned Sullivan and several others resigned but, for some reason, Mr. O'Connor is still there. Does he have some particular quality, or is it because he was there a short period of time? What reason is it? It is very important to know what differentiates them from Mr. O'Connor. He is as much of a legacy of the FitzPatrick regime as they are. It was Seán FitzPatrick who asked him to be a member of the board. Seán FitzPatrick was very close to him in many ways at the press conference last week. Mr. O'Connor said that Mr. FitzPatrick told him about the Sean Quinn shareholding and how that had been cleared up. I do not want to discuss the intimate details of board meetings, but did that issue come up at any board meeting after Mr. O'Connor was told about it, presumably in June? Did he raise it, or did he accept it? Did it come up at any subsequent board meeting, or was it buried? There was 25% of the bank up for grabs, and it is a matter of great public interest to know now whether it came up at a board meeting or whether it was just brushed under the carpet. It should have been at every board meeting before and after that date.
What is the position of the company at the heart of this, namely, Ernst & Young? That company has stood over all these figures over the years, which now look to be a complete and utter fiasco. Why is the company still the auditor to Anglo Irish Bank? I know this is out to tender, but the company should not be in the tender process. Where is Maurice Keane? Why is he not here today? We spoke about corporate governance earlier, and he was appointed in late January. What was the procedure for his appointment? Who was consulted about that and how was the decision made? There are very big question marks on the corporate governance of this issue. Mr. Keane has very fine technical qualities. He is a banker, like everyone else on the board except Mr. O'Connor. However, he also has a history of being involved with a company called DCC that——
I am sure the Senator is aware of the rules governing the committees.
I will not mention any names.
He has already mentioned it. I am sure that a person who is so interested in governance will stick to the rules.
I will ask a generalised question about corporate governance. When people are appointed to the board of Anglo Irish Bank, are any inquiries made about their past corporate governance history? Are any inquiries made as to whether they have been involved in the promotion of individuals from the position of chief executive to chairman, something that is a parallel to what happened with Mr. FitzPatrick? What was the procedure for promoting somebody to the board of Anglo Irish Bank since Mr. O'Connor became chairman?
Mr. Donal O’Connor
The Senator has raised several issues and I shall try to deal with them. I agree that the figures from September to March are extremely disappointing. I agree with his comment that the figures are realistic. During my presentation, I tried to explain what had happened in the period from September to March.
In answer to another question, I mentioned that an accounting rule is that one can only take into account the conditions that exist at the balance sheet date. One cannot anticipate what will happen afterwards. I gave an example of that when I said that we estimated the losses to be €7.5 billion, but we have only provided for €4.9 billion at the end of March, because we can only take the conditions that exist at the balance sheet date. From the evidence I have shown, and looking at what has happened to our past-due but not impaired loans, it is quite clear that our borrowers have been under stress during that period.
Another point to make is that many people have equity in their loans. The difficulty is that when anything happens the first hit will always be directly to the borrower before the bank is affected. Once matters get past a certain level the hit will be to the bank. Clearly some of that occurred in the six month period. We, as a board, have carefully gone through what has happened in the period and we are very conscious of having to adhere to the accounting rules. I have given the example of the €7.5 billion for which we have not provided at the end of March because the accounting rules do not allow us to do so.
The second area raised was the EGM. There were two questions. At the EGM I was asked questions regarding the auditors. I pointed out at the EGM, and because I did it at the EGM I can repeat it today, that the temporary re-financing of loans was unacceptable and wrong. I pointed out that this was a weakness in the bank's systems. These issues are being investigated and I cannot go further in regard to them. That was the answer I gave when I was asked that question. With regard to the directors, as chairman of the board at the EGM, it was my job to speak on behalf of the board. That is what I did to the best of my ability.
We must vacate this room in approximately five minutes.
Mr. Donal O’Connor
There were several other questions. I was asked why I am still on the board. I am still on the board because the Minister has asked me to be on the board. That is the job I was asked to do. There was a question regarding issues that are under investigation. I said earlier that a series of very serious investigations by the Office of the Director of Corporate Enforcement, by the Financial Regulator, by the Institute of Chartered Accountants in Ireland is taking place. We are co-operating fully with those. We would welcome the early conclusion of those reports.
I was asked about the position of the auditors. We have announced that the audit is going out to tender. I will ask my colleague, Mr. Frank Daly, who is the chairman of the audit committee, to give some additional information in that regard. There was also a question about one of our other directors and about the procedures we have in place. The procedures we have in place are that we consult among a board regarding any director that is suggested. The Minister, as a shareholder of the company, has a key role to play in this so we consult the Minister. When Mr. Keane's name was mentioned to us as somebody who could potentially join the board we jumped at the chance because we thought he would be a great addition to the board. I think I have answered the questions. Mr. Daly will talk about the auditors
Mr. Frank Daly
I will talk about the auditors. To add to the executive chairman's final point, we jumped at the chance to get Mr. Keane on the board because of the skill set he had and his banking experience which was something we felt we needed on the board, just as we jumped at the chance to have Mr. O'Connor take on the chairmanship of the bank last December when we were in real difficulty because of the resignation of the previous chairman. I prefer to judge people on what I see in terms of commitment and experience, and the sheer effort that he is putting into this bank and has been putting into this bank since he was appointed chairman in December and since he was appointed chairman on a temporary basis as executive chairman in February. I can say from my own experience and that of my colleagues on the board that there is no doubt about his commitment, about the skills he brings, or about the way in which he is trying to bring this bank forward in a very open way and to the best standards of governance. It is a key driver for this full board and nobody is more committed to that than the chairman.
In regard to the auditors, as the chairman has mentioned, the audit is going out to tender. It is a matter for Ernst & Young to decide whether to tender for that. I should also say that the audit committee, as is part of its function, is evaluating the performance of our auditors. I am also constrained by the fact that the performance of the auditors is under investigation. It is very difficult to comment on Ernst & Young without a risk of prejudicing those investigations. We dealt with that real risk in earlier conversations. Our wish on the board is that these investigations be concluded as expeditiously and as effectively as possible.
I welcome all three witnesses. No money will pay them for the job they have undertaken on behalf of the State. There are questions that I cannot ask today, such as how they hope to look for extra tier one capital ratio other than by asking the Government, what type of mezzanine financing is due shortly, and the haircut that they expect on the securitisation of the loans to the Government. It is not of the witnesses' making, but there is unfortunately a cloud over Anglo Irish Bank by virtue of a mistaken belief that the purpose of nationalising the bank was to bail out developers. I take comfort from Mr. O'Connor's statement that the bank will move to take control of the assets of those developers who are not co-operating. Will he confirm again that there is no bail-out of a developer? To help to remove this cloud, can he confirm that there was no political representation to bail out any developer?
Mr. Donal O’Connor
The policy of the bank set by the board is to deal with all customers independently and objectively. We have had no interference in carrying out that duty. Our job is try to maximise the recovery of the loans. We treat every customer in the same way. The only time we take a different path is if a customer does not co-operate, because we need to act in the interests of the bank.
There has been much talk about a wind down and so on. Can Mr. O'Connor confirm that this wind down would be similar to what would have happened if the bank had not been nationalised? Can he confirm the amount of money that would have to be immediately paid to the ECB and to the Central Bank here in the event of a wind-down? In view of Deputy O'Donnell's question, it is important to point out that this would be a disaster.
I compliment the directors for a difficult job being done since they took over, particularly the chairman. I do not accept the criticisms being made of him. On the basis of the responses to our questions, the directors are doing a good job for the taxpayer and we should have confidence in them.
Hear, hear.
Mr. Donal O’Connor
We have been very clear in looking at what is in the best interests of the bank. We are clear that continuing the bank as a going concern is in the best interests, and a wind down is not. We recognise that this is a very difficult situation and we had to assess the right thing to do. We got expert advice as well as our own analysis, and our consideration is that it is in best interest of the taxpayer not to wind the bank down. The bank should continue as a going concern, because that provides the greatest range of options.
My understanding is that there is a significant amount of billions that will have to be repaid immediately. Can Mr. O'Connor confirm that amount?
Mr. Donal O’Connor
It depends. If one puts a company into an immediate wind down, then the money becomes immediately due. If it is put into an orderly wind down, then it will depend on the speed by which people want——
What does he mean by "orderly"?
Please allow Mr. O'Connor to finish.
On a point of order, the Deputy was trying to say that word should go out from this committee——
Excuse me. Mr. O'Connor was explaining the difference between an immediate wind down and an orderly wind down.
There may be other views on this committee, and we have a right to present those views and debate them. He is totally entitled to give his view, but he is not entitled to draw conclusions for the committee.
I should like Mr. O'Connor——
Hold on a minute. Will Deputy O'Donnell please let Mr. O'Connor finish. Four people started to speak at the same time and that means no one can be heard.
I was trying to ensure there was no misunderstanding between a wind-down and an orderly wind-down.
Mr. Donal O’Connor
I am saying there can either be an immediate wind-down, an orderly wind-down or the business can continue. I do not believe anybody is recommending there be an immediate wind-down so we are talking about the comparison between an orderly wind-down and continuing as a going concern. If there is an orderly wind-down, people with money on deposit have the choice of taking it out. The assessment we have made and the advice we have got from international experts is that if we are portrayed as being in wind-down, significant amounts of the funding we have will leave the bank and will have to be replaced by funding from the Exchequer.
The alternative is that if we are seen to be a going concern, with a credible business plan and the support of the Government, then we are much better placed to retain the funding we have and indeed improve the situation. That is the basis from which we have arrived at our decision. I do not know whether my colleagues would like to come in on that.
Anglo Irish Bank is a nationalised bank.
Mr. Alan Dukes
Yes, and we have to take cognisance of the instructions given by out tutelary authority, the Minister for Finance, who has appointed all of us on the basis that Anglo Irish Bank is a going concern.
The directors are getting that direction from the Minister.
My question was based on the premise that a wind-down, irrespective of how it is to be done, would involve the immediate payment of a very significant amount of money to the ECB and the Irish Central Bank.
We have had a clear reply in respect of that from Mr. O'Connor, as regards an orderly wind-down.
Deputy Fahey is trying to get——
If people want to turn this into a political football, I propose to suspend the meeting immediately.
Deputy Fahey is trying to suggest that Anglo Irish Bank now resembles a well run convent, with Mr. O'Connor as the mother superior. This is the picture being painted by Deputy Fahey, which is immensely flattering, except for the fact that, as with Whoopi Goldberg, there were a few gangsters around the house.
Deputy Bruton is trying to contribute. Will Deputy Burton please allow him?
I am very grateful to the three directors for coming here today.
Deputy Burton is calling for the nationalisation of Anglo Irish Bank. She heard today what the results of that would be.
Deputy Fahey is now going off message. He had his lines written out, but now he is winding off the message.
The Labour Party is calling for the nationalisation of Anglo Irish Bank.
Absolutely, because Anglo Irish Bank represents the closest thing——
Deputy Burton heard today what the consequences of that would be. We should be dealing with the IMF at the moment if we had listened to Labour Party policy.
——to the misuse of Irish public funds and depositors' funds, and when the history of this bank comes to be written, that will be proven beyond doubt. However, Deputy Fahey's party had intimate connections with the bank and its followers.
If we had followed Labour Party policy we heard today what would have happened.
I want to make a proposal.
Has the Deputy a question?
I want to know whether Mr. O'Connor is willing to come back to this committee in, say, two weeks because we have only explored a very small element of the questions we have. For example, he took his seat on the board of the bank at a time when he was, I believe, heavily involved in the Dublin Docklands Development Authority, to which the bank was a major lender. I want to follow up on Senator Ross's question. Mr. O'Connor said that when a big loan was made, the first to lose out would be the developer with an equity stake in the project for which it had been made. Once the equity stake in the loan vanished the bank would start to take the hit. What was the process involved, particularly after St. Patrick's Day? Mr. O'Connor joined the board some time around June 2008. What was the process, because clearly the bank was in acute crisis from St. Patrick's Day 2008 onwards, when the share price crashed? However, the bank had been in crisis before that because of the Quinn overhold and the contracts for difference. From the time Mr. O'Connor joined the board in the summer of 2008 when the bank was clearly in crisis, what was the policy then on the loss of equity by developers which had clearly happened by then and the bank then taking in effect, equity shares in the deals and the rolling up of interest which was central to disguising the bank's balance sheet or real position in the accounts for 2008? I do not believe we have had detailed answers to Senator Ross's questions, which are legitimate, and Mr. O'Connor should come back to the committee to answer them. I do not believe we have had detailed answers on the changes in governance and the business model in relation to the sub-bank tier of bank management. Mr. O'Connor said the impaired loans were isolated, but what exactly are those people doing in the bank, given that its major function now is to mind assets for NAMA?
On Anglo Irish Bank's relationship with the ECB and the Central Bank, which is clearly supporting the bank as a nationalised entity, how long can it continue with a business model which is paying high interest rates on foot of its window at the Central Bank and the ECB? Is that model sustainable in terms of keeping the bank going? We need to return to this, Chairman. I am aware that Mr. O'Connor may not have the answer to these questions today, but they are important for the taxpayer in terms of standing over the unilateral and total guarantee that Fianna Fáil and the Green Party rather foolishly decided to give at the end of September.
I second that. I had at least six questions which were not answered.
There is a great deal of scepticism in this committee. People came in here with straight faces and told us the bank did not need capital and that all it required was a guarantee, when everything in the garden would be rosy. There are people cheerleading today who said then that the going concern route was the only way to go, and that capital was not needed. We now know that the reality is completely different and that the mandate given to the directors was to operate the bank as a going concern. The extent to which the board assessed the alternatives is very suspect, if the mandate was clear. It is crucial to tease out the strategy statement for the bank as a going concern. All we have heard is talk about winding down, selling off loan books, recovery and so on. It does not sound to me like a going concern that is making a contribution to any business that is trying to develop.
On the issue of whether an orderly wind up would cause a flight of capital, if there is international advice, let us see it. It should be provided to the committee so that we may look at it. International advisers, whether Ernst & Young or PricewaterhouseCoopers, have already put discredited evidence before this committee in the manner they have signed off. Let us be the doubting Thomases, stick our fingers into the cuts and see whether we accept what these wonderful international advisers tell us. These are important issues and it is not good to politicise them. It is incumbent on us as representatives of the taxpayer to determine the right fork to take in the road.
Mr. O'Connor has a mandate to say certain things and I believe him, but our job is to tease matters out. We should see the international evidence and we need to see the bank's strategy statement which will convince that ultimately Anglo Irish Bank will be an efficient and respected bank, as Mr. O'Connor says. We need that strategy to be sketched out for us, even if it is a five-year programme, or whatever. That is the decision that we are ultimately attempting to probe — to ensure that we do not make a bad mistake on this that would worsen a bad situation. To make that judgment we need to have more information.
Mr. Donal O’Connor
Several points were made. The first related to my involvement in the Dublin Docklands Development Authority and its relationship with Anglo Irish Bank. When I was with the Dublin Docklands Development Authority it had very robust independence and conflict of interest procedures. I am very familiar with that through my 36 years as a professional. Whenever issues arose, people would excuse themselves. There were redacted minutes so there were no issues. When I was in Anglo Irish Bank I was not involved in anything to do with the Dublin Docklands Development Authority.
The Deputy spoke about people in the bank. When we addressed that issue earlier, we referred to the procedures we have in place. Importantly, we also referred to the new leadership team being put in place in the bank. Obviously major changes are taking place in the bank as a result of the review we are doing.
Deputy Burton mentioned the Central Bank of Ireland and the ECB. I ask her to remind me of her question about the Central Bank of Ireland and funding.
Anglo Irish Bank seems to be heavily reliant on the Central Bank of Ireland and the ECB to have a window for funding.
Mr. Donal O’Connor
This will answer the question the Deputy's colleague asked. Those in the market have clearly told us — I am talking directly to these people — that they are looking to see what the business plan will look like. If they see that as positive they would be likely to come back and deal with us or deal with us more extensively. The message that comes from Ireland to the international markets as to whether we are a going concern or in wind-down has a great impact when these people come to see us. Obviously we are trying to show by being the going concern and having a plan that is sensible and that will aim to create a viable efficient and respected bank that we can then attract more funding to the bank. In addition, the transfer of our land and development assets to NAMA is a fundamental part, because at a stroke it reduces the scale of our balance sheet and helps to deal with the funding issue.
It has a major impact.
Mr. Donal O’Connor
That is why the business plan is very important. There are two aspects. First is the restructuring of NAMA, which is crucial, and second is the message to the marketplace.
When will the business plan be published?
Mr. Donal O’Connor
We have shared the key elements of the business plan. We are in discussion with the Government on the business plan. We hope it will be finalised shortly.
What is "shortly"?
Mr. Donal O’Connor
Obviously that needs to be done with the Government. We hope that will be done shortly.
Will it be two or three weeks?
I also asked whether it was sustainable that Anglo Irish Bank is offering very high interest rates. Outside minding its development loans and its NAMA relationship the other core thing it seems to be doing is taking deposits and paying relatively high interest rates to keep a flow of money at the bank. While I am not seeking an answer today, we need to discuss the sustainability of that business model. That was my point about the ECB and the Central Bank of Ireland. Clearly they have pro tempore authorised that as a model. I do not know whether that is sustainable in the long term.
Mr. Donal O’Connor
That is a very good question and I can deal with it. Obviously at a future date I can deal with it in more detail. I have referred several times today to the need for us to be attractive for funding. When a bank is attractive for funding it can get a better price. When it needs to struggle for funding it needs to pay more. NAMA makes us need considerably less funding and deals with a major part of the problem. The second issue is how the market looks at the bank. We have very significant funds from the international market — we could have more. The market sees a business that is a going concern with a plan and is being supported. Those are very important messages. The combination of NAMA and having a plan that will create a viable efficient respected bank with the support of the Government will help us reduce the cost of funding and help us deal with exactly the issues the Deputies raised.
That model also implies that the bank does not need to call in the developers' loans.
The Deputy has raised many questions that she would like to discuss further with the chairman, Mr. O'Connor. We will have a meeting with the chairman to——
Mr. Alan Dukes
Before we conclude on the matter, people have talked about statements going out from this committee. The last statement that Deputy Burton just made is without foundation.
I did not hear it.
Mr. Alan Dukes
She has claimed that what has just been said by the chairman means that "the bank does not need to call in the developers' loans."
I said that is the model.
Mr. Alan Dukes
There is no basis for that statement.
All banking is circular.
The Deputy is a total disaster.
Mr. Alan Dukes
There is no basis for her statement.
I thank Mr. O'Connor, Mr. Dukes and Mr. Daly for appearing today. I also join other members of the committee in thanking them for giving of their service to the nation. I look forward to further meetings in the future.
There is a standing invitation.