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Financial eunuchs have bottled it

Posted on: August 10th, 2013

WHAT a wonderful week for flying under the radar. The puff piece about Ireland in Forbes magazine, the Central Remedial Clinic funding row and the puzzle about whether Des Peelo, friend of Haughey and Bertie Ahern, was really a member of Fine Gael, all provided glorious diversions. Far more important events were buried.

On Thursday, we sat back in wonder as RTE led with the Forbes fable. That little balloon was properly pricked by Richard Boyd Barrett in the Dail when he pointed out that Ireland was a wonderful world for invading investors, but not so pleasant for its suffering citizens.

The confusing claim from poor Peelo, the accountant from the Haughey-Boland stable, that he had been a lifelong member of Fine Gael was torpedoed by the party itself. They had scoured their records back for two decades and could not find Peelo’s name anywhere.

Once again, we were being trapped in trivia.

Gloomy news was banished from our minds. We were being brainwashed, partly by a brilliant government spinning machine, partly by a distracted media. The understandable thirst for good news is such an imperative today that a dark secret is being kept under lock and key in the vaults of the fortress in Dame Street: the banks remain in deep, deep doo-doo.

The Central Bank, under instructions from the Troika, has been holding a trial run for next year’s European stress tests of our tottering banks. The results have been dismal. Not only has the process been a fiasco, it has been spun as a success.

The Central Bank, very significantly, did not even publish its report on the three, barely surviving, Irish banks. Nor did it comment. It was left to Bank of Ireland, AIB and Permanent TSB to spin their own story on the “balance sheet assessments”. Reading between the lines, the findings were disastrous.

The whole process was described by one of Ireland’s few independent economists, Karl Whelan, as “shambolic”. Luckily for the banks, other news during the week overshadowed the shambles. Luckily for the Central Bank, a consequent expose of its craven relationship with the three banks has not been carried out, partly because the results have been kept under wraps. Omerta has been restored to the banking world. The Central Bank has bowed to the bankers’ demands for secrecy.

Happily for the normally information-deprived citizens, Bank of Ireland is trying to raise money on the stock market. The rules of market fundraising have forced it to shine a tiny nugget of light on the findings of the latest test.

We have learned that the Central Bank has suggested to the Bank of Ireland that it needs to make a massive provision of €1.3bn for bad loans. More importantly, we have learned that Bank of Ireland has told the Central Bank to jump in a lake. Or, as the Bank of Ireland puts it in a statement, the findings are subject to “ongoing engagement”.

It is rubbishing the Central Bank’s methodology. It has refused to acquiesce with its Regulator’s request.

What an extraordinary way for the top brass at the Bank of Ireland to treat the bosses at their Regulator. But Richie Boucher, the €843,000-a-year survivor of the property furnace at the Bank of Ireland, must be laughing. While he sits secure on his plutocratic perch, he sees the financial eunuchs in Dame Street either deferring – or disappearing in their droves. He and David Duffy, his nominal competitor in AIB, have won the battle with the Regulator.

AIB has responded to the assessment tests weakly. It refuses to give any detailed information, insisting that it still “believes” that it is well -capitalised and “in excess of the minimum regulatory requirements”. Ditto Permanent TSB.

Neither bank says a word about a suggestion of further provisions for bad debts, but there can be little doubt that the Central Bank has expressed exactly the same sentiment in their cases. They will need to make further provisions for bad debts. No doubt they are giving the Central Bank the same two fingers as the Bank of Ireland, behind closed doors.

The Central Bank is in retreat. Boucher and Duffy have recently seen the back of a series of human scourges of the banks, some specifically employed in the Central Bank to put manners on the likes of them. They must have licked their lips when they heard that the great white hope, the Regulator himself, Matthew Elderfield, was heading for greener pastures in Lloyds of London.

Elderfield fled without even fulfilling his contract. He was only one of seven top regulators to depart.

Next, it must have been as big a thrill as an old-style performance bonus for the Boucher/Duffy duo when they heard that Peter Oakes, the Central Bank’s director of enforcement, was throwing in the towel after just two years and that chief economist Lars Frisell was departing after only 18 months. These Central Bank guys do not have Boucher and Duffy’s stamina. Nor, of course, their wages.

But the ultimate adrenaline rush must have flowed through the two bankers’ veins when they heard that Fiona Muldoon, Dame Street’s feisty Director of Credit Institutions, had not only lost out in the race for Matthew’s job, but was heading off for a new life.

Fiona, who declared war on Boucher and Duffy in an excoriating speech about their treatment of mortgage arrears, need not apply to the Bank of Ireland or AIB for a job. A heroine has been first defeated, then despatched.

Is it a coincidence that so many of them left simultaneously?

The Government’s “pillar bank” strategy has put Boucher and Duffy back in the driving seat. The two boys know that they are now too big to fail. In the old days of Regulator Patrick Neary, they used to sort out their problems over a good dinner or a round of golf. Today they challenge the Regulator up front. The Central Bank has not even felt confident enough to issue them with an instruction to make the necessary €1.3bn provision. The Regulator is indulging the big bankers in “negotiations”. The Regulator has blinked first.

The horrible truth is that we are heading into serious trouble in next year’s stress tests. They will be independent and external, in sharp contrast to the kindergarten stuff this week. There will be no cosy

‘The very understandable thirst for good news is such an imperative today that a dark secret is being kept under lock and key in the vaults of the fortress in Dame Street…’

“engagement” about the methodology – meaning changing the figures to suit the BoI. The current tests have all the features of the much despised “self-regulation” where the bankers themselves have provided the Central Bank with the figures. Next year, there will be no massaging or fudging. Europe will send in the hit squads.

After that, it will be recapitalisation or bust.

Remember Ireland’s bankers have lied through their teeth incessantly. Last week’s statements that they are well-capitalised are laughable. Yet we nearly swallowed them hook, line and sinker as the spinners got to work. The crippled Central Bank, by its silence, is close to being complicit in this deception.

Cursed by its staff departures, facing further flak about an extraordinary lapse of regulation in the case of Custom House Capital, the Regulator is now facing a credibility crisis. Last week, it escaped scrutiny about its failure to force the banks to provide for their loan losses. The Central Bank has bottled it.

Sunday Independent