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Anglo’s Auditors Cheat The Hangman

Posted on: January 19th, 2009 2 Comments

THE accountants Ernst &Young sat in the front row in the Mansion House. Silent. Demands from shareholders that the number crunchers should answer questions were turned down.

The Anglo directors sat on the podium in the Mansion House. Silent. Demands from shareholders that the part-timers should answer questions were turned down. AGM chairman Donal O’Connor made a shaky start in his first task as Anglo chairman.

He had been “impressed” by his dealings with the silent Anglo directors. So “impressed” that he never allowed them to answer a single question. He refused to put the accountants on the podium at the Mansion House to reply to shareholders’ legitimate complaints.

Those who had lost their life savings wanted to know how these geniuses had missed the €87m in loans taken out by former chairman Sean FitzPatrick. Some insisted they would never have bought the shares, had they known. Mr O’Connor is himself an accountant.

An accountant of the PWC variety, not of the E&Y variety. Both firms are members of the Big Five. The lucky E&Y accountants will probably never have to answer any questions. From now on, Anglo will be buried in the state apparatus.

AGMs and EGMs will become a distant memory. Coincidentally, the Irish Association of Chartered Accountants is holding an enquiry into Ernst & Young’s behaviour in the Anglo fiasco. They will not be shaking with fear. Self-regulation is rarely too rigorous.

Fourteen months ago Sean FitzPatrick, the departed Anglo boss, was actually a member of the Institute of Chartered Accountants’ Council. A top dog who mixed in lofty circles. He certainly still has friends perched in high places on the Anglo board.

He is good pals with Ned Sullivan, chairman of Greencore when Sean joined his board. Ned looked distinctly uncomfortable in the Mansion House on Friday. Sean is probably still good pals with Gary McGann, boss of Smurfit Kappa, where Sean was chairman until his little accident surfaced recently.

Gary did not look too happy on the podium on Friday. Nor should he. Gary was chairman of the audit committee during much of the time when Sean was moving €87m in and out of Anglo. He must have missed the offending transactions.

Or maybe the auditors never told the audit committee? Donal himself was not singled out for criticism at the meeting. But Donal has taken steps to avoid potential problems too. He succeeded Anglo’s recently resigned director Lar Bradshaw as chairman of the controversial Dublin Docklands Development Authority — just as Sean was departing the same DDDA as a director.

O’Connor said he was resigning from the DDDA to ensure there could be no suggestion of a conflict of interest. No one asked who recruited whom to what board. There was little point. It would have been interesting to hear the answers.

Interlocking director relationships in Ireland need sterner scrutiny. But O’Connor was having none of that. He was tortuously economical with information. He even refused to offer any more than a cursory reason for Anglo chief executive David Drumm and finance director Willie McAteer’s resignations.

He would only volunteer, inanely, that their positions were “untenable”. He politely parried all threatening questions by passing the buck back to the Government. The decision to nationalise was the Government’s, not his.

Donal was happy with the Government’s assurance that the shareholders would be treated “fairly”. Which means they will be receiving next to nothing when the “assessor “ has finished his job.

Meanwhile, the silent directors will still be receiving their fees. In the grimmest meeting of battered shareholders on record, there was a light hearted moment when a Tipperary investor stood up and demanded that the board “bring back Seanie”.

Everything seemed to have gone wrong since Sean FitzPatrick left the bank. “Was not he the guy that led the shares up to €17?” asked the shareholder mischievously? Since his departure in December the world had collapsed. Let him start again! Gallows humour.

The central question was never solved. Why was it necessary? For what greater good was Anglo saved from liquidation? And here, the Government and O’Connor seemed to be telling different stories.

O’Connor insisted that there was no run on the bank; but Finance Minister Brian Lenihan’s sudden statement on Thursday night revealed that “the funding position of the bank is weakened”, an obvious reference to the withdrawal of deposits.

Danger loomed. And the sign of danger emerged again on Friday morning. Lenihan was uncharacteristically touchy when being interviewed by John Murray on RTE’s Morning Ireland.

He snapped at Murray, saying that the RTE man was embarking on a dangerous line of questioning. On the contrary, Murray was probing perceptively. He had simply asked whether anyone in their right mind would put their money in Anglo.

Later on the same programme, David McWilliams, one of the heroes of the current saga, answered emphatically in the negative. According to McWilliams, banker or punter, you would want to be barmy.

The reason for the rescue is becoming clearer by the hour. It is even contained in the minister’s own statement, if you read between the lines. Watch out for the word “systemic”. There it was in the second paragraph.

“Systemic” danger means that a threat to Anglo is a threat to the entire banking system. It is patently obvious that, despite the guarantee, Anglo was in deep, deep trouble late last week. Ten days ago Brian Lenihan dismissed nationalisation in an interview with the Irish Times.

Within a week he had clasped Anglo to the State’s bosom. Something had happened. We are not going to be told. Questions at the meeting about Sean Quinn’s role in Anglo were refused. Ditto FitzPatrick’s dealings.

The banking system was in danger, not just Anglo. Which provides us with the good news for the economy, but not for the taxpayer or the poor shareholders. The domino effect is removed. Anglo is now the strongest bank in Ireland.

It only sinks if the government goes belly-up. The State has taken all the bad debt from Anglo’s balance sheet onto its own books. All those whispered words about the developers at Anglo having doubled up their toxic debt in Bank of Ireland and AIB are now less worrying.

Anglo cannot bring down the two big banks because the government is in charge. If ever there was a systemic danger to the Big Two it is now reduced to zero. The Bank of Ireland and Allied Irish can breathe a sigh of relief this weekend as they see the clouds lifting over the Anglo debt.

No one wants to see the banks collapse. And to be fair to Bank of Ireland and AIB, they have not recently suffered the sort of chicanery that has been going on in Anglo.

Directors there will certainly be departing soon, but none has been forced to walk the plank for concealing loans from shareholders. Anglo’s behaviour has done collateral damage to all Irish banks. The other two can recover their global credibility over time.

The Anglo saga is one of the worst ever stories in Irish corporate history. And it is only starting. It is ending in disaster for small shareholders, but not a bother for the plutocrats. Fifteen thousand of the 20,000 shareholders held less than €1,000 worth of stock — as valued at the suspended share price.

Many depended on Anglo for a dividend. So who has been pummelled and who has escaped? Shareholders will walk away with nothing. Ireland’s global reputation is in bits. Taxpayers are in danger of being fleeced.

Never mind, the directors will continue to draw their fat salaries. Incredibly, a new chief executive has been appointed from inside the bank, the staff still received their performance bonuses despite a disastrous year and the new chairman refuses to allow small investors to elicit any information from key players.

And worst of all, the auditors are let off the hook, unaccountable to anyone for their amazing failure to detect or report a gigantic loan to the chairman.