Today I am second last on the batting list. Normally I am third last.
I thank Mr. Dukes, Mr. Bradley and Mr. McGloughlin for coming before the committee. It takes stamina to reach this stage of proceedings. There has been a great deal of discussion and some details, technical and otherwise, have been provided. I have spent approximately two and a half years examining the balance sheets and loan portfolios of the six Irish-owned institutions. It was via the latter that they created the mess in which we find ourselves. The lack of professional behaviour in the banks is what led to that mess arising, with accumulating speed and during quite a short period.
On 16 July last year, Mr. Dukes probably received the biggest corporate hospital pass in history in so far as he took up the chairmanship of the bank. He took over from an executive chairman - his immediate predecessor - who had been in situ since Christmas 2009. This man had been on the board of the bank since the summer of 2008 following the resignation of the former chairman of the bank’s risk committee, Mr. Fintan Drury, on 29 June of that year. The individual to whom I refer is Mr. Donal O’Connor, a three-term managing partner at PwC. The latter provided advice to the previous Minister for Finance, his Department and the then Government in dealing with the initial trawl of the loan ledgers of the banks. The PwC report provided the foundation for the delivery of the NAMA construct on 16 September 2009, with indicative figures for passing by the Dáil of €77 billion in loans to be sold for €54 billion in NAMA bonds and consequent implied losses across the banking sector. The majority of such losses were not at that stage identified as lying in Anglo Irish Bank but the overall figure for them was €23 billion. That figure was pathetically low.
I do not want to spend time going over the forensics of this matter. However, after a major fire there is always a need for assessors to carry out a forensic examination. In this instance, such an examination was not forthcoming as recently as 30 September 2010, when the previous Government issued the cumulative losses, as a categorical top-out, at €50 billion. Three days later, some €7.9 billion of senior bonds in Anglo Irish Bank were redeemed in full. I was disappointed at the time because I felt that this transaction should have been placed on hold and that discussions should have taken place. That would have been an appropriate moment at which to engage in such discussions with the EU and the ECB. At that time, I and a few people for whom I have professional respect flagged the fact that loan losses would be well over €70 billion. I carried out a summary calculation and indicated, during a programme broadcast to which Mr. Dukes and I both contributed, that loan losses in Anglo Irish Bank would not be €21 billion or €22 billion but that they would be at least €32 billion and would probably climb to €42 billion. I was of the view that €72 billion in loans would result in approximately €30 billion of collections over a period and that, therefore, €42 billion would probably be the prudential requirement to write off. Coming at this matter from another perspective, Deputy Doherty stated earlier that if one has €31 billion or so in promissory notes and if one includes the interest rolled up over a period of ten years, then the final bill comes to approximately €42 billion. The Deputy's assertion provides a sort of cross-check in respect of the sums.
I wish to return to how all of this happened. It is not the case that Anglo Irish Bank was the only entity on the stage. Irish Nationwide Building Society was also involved. It may have been involved at a lesser level but it was equally incompetent in the context of asset creation and funding. Again, Irish Nationwide operated within crazy loan-to-deposit ratios for a number of years. It was a private fiefdom overseen by very few people. I commend the recently-departed managing director, Mr. Gerry McGinn, and his team on carrying out the damage limitation work-out within the society.
Reference was made to the group recovery management unit in Anglo Irish Bank. When I was dealing with loans, recoveries and restructuring in the 1980s on behalf of ICC Bank, we used to refer to our unit as the "damage limitation unit". I was of the view then that it was important to get motivation high, although it was not easy to do this. However, there are ways of addressing the work and of getting on with it.
Irish Nationwide had a balance of approximately €12 billion, of which €9 billion was in loans. As recently as August 2010 - only one year ago - when speaking at a university in Beijing, the Governor of the Central Bank flagged the fact that the loan losses in Irish Nationwide - acknowledged at approximately €2.75 billion - would need to be uplifted by a further €500 million in order to arrive at a final top-out. The €2.75 billion to which I refer was included in the €50 billion which the previous Minister for Finance indicated would be the top-out figure for losses. However, the Governor of the Central Bank indicated that a further €500 billion would be required, thereby bringing the final figure to €3.25 billion. Luckily, I did not embarrass myself in the company of others but I shouted at the television that it would be €6 billion. I was wrong because it was €5.9 billion.
The scale of the professional misjudgment whereby these loan portfolios were allowed to rise to, and remain at, levels where they defied financial gravity is the great tragedy in this matter. If one does not admit the scale of things after they have collapsed, then one loses ground in the context of deciding how to repair them. We lost so much ground that the ECB and the Central Bank - depending on who would take what documentation as security - were obliged to fund the six Irish-owned banks to the level of approximately €150 billion. Some €70 billion to €80 billion of this financed the redemption, in full, of senior bonds in the banking system. If the truth had been acknowledged, those bonds would not have attracted anything approaching that amount. That is the great tragedy.
It is important that Deputy Boyd Barrett referred to a number of issues. I credit Mr. Dukes with acknowledging the philosophical need relating to this matter, in addition to the need to consider the aspects of financial engineering and forensics. However, there was a lack of philosophical duty of care. The word "trust" was used and Mr. Dukes referred to an EU official with responsibility in the area of regulation stating that he has not found a product on offer here which contains faults. Financial obligations are bonds; they are relationships, not products. Depositors place their money in banks and financial institutions on the basis that they will be able to get them back and get a small return for leaving them at those institutions to be guarded and minded by prudential banks, boards and managements who seek to use those funds by identifying in the community opportunities to fund businesses and households who, in turn, enter obligations to repay those obligations. It is all about obligations and trust. That is why we are in a crunch at present in Europe and elsewhere in the world with banks not trusting one another on the interbank markets, as we speak, with one year Greek debt standing at 143%. That means people do not trust anything. They have written them off. With Switzerland pegging its currency and other things happening that could blow the system, we are here discussing what happened the deckchairs, how we can rearrange them, how we can get people to sit back up on them as the ship could well be going down.
I am not a merchant of doom but I hate when people in a group-think cannot recognise the facts, discuss them and, conversationally, deal with them. I find it frustrating that today I am the second last to speak and for the last four meetings I was third last to speak. Yesterday's meeting extended beyond six hours and I only got to speak at the end of it. I appreciate that, on a human level, it is not easy for our visitors to enter and engage in meaningful conversation and exploration of what needs to be discussed but it is in these situations that good ideas, commitments and architecture for doing the job of work at hand get discovered. That is why this process is valuable.
Every prudential rule was broken and that was a shame. Balance sheet rules were disregarded. Responsibility for this did not only involve regulators but big firm names whose headed notepaper was known globally. They were doing perfunctory work and getting familiar, complacent and fuzzy in the head when it came to signing off reports.
To share where the stoplight was moving in this conversation in the INBS, on 16 February 2009, the then chairman, who had been in that position for seven years and on the board for 14 years, resigned. Nobody was aware of it. What happened? He had been 14 years in a private financial fiefdom and turned what started off as a mutual organisation of savers and borrowers - who had the common experience of saving to show the ability to be disciplined about a monthly commitment which, on getting married, became a commitment to repaying a loan - into a fiefdom. That mutuality was lost. There was a €9 billion loan portfolio within an overall balance sheet of €12 billion, of which more than 80% of the €9 billion comprised a stable of 80 clients. There was a staff of 600 or thereabouts in the firm earning, on average, not an overly high remuneration bar a very small group at the very top of the organisation. The average salary of staff in AIB was approximately €52,000 in the year ended December 2008. It had 75,000 employees, 10,000 of whom were in Poland.
