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Permo Board Clings To Office

Posted on: February 15th, 2009

YOU could believe anything of Anglo. If they turned up with billions in mafia money tomorrow, you would hardly blink. Anglo, a disgraced basket case, was singled out for nationalisation. It was staffed by cowboys, directed by zombies, audited by men with white sticks, regulated by a sleepwalker and chaired by Sean FitzPatrick, the ultimate insider.

Luckily Anglo operated on a distant planet. The other banks may have been reckless, greedy and unregulated. But that was where their common ground with Anglo ended.

Anglo was the bad, bad bank; but it was isolated.

That was the myth, spun by the Government and the other banks.

Until last Tuesday, when the myth was exploded.

Sean FitzPatrick’s concealment of €84m loans was suddenly relegated to the halfpenny place.

Last Tuesday we heard from RTE’s David Murphy that the cancerous Anglo ethos had spread. Not to AIB or Bank of Ireland. The culture of concealment was creeping into the least likely place.

Irish Life & Permanent was in the frame. Until Tuesday, the Permo had successfully hidden below the radar, skilfully avoiding the spotlight.

Initially when the story broke, the board of Irish Life was doing what arrogant boards do best: hanging on to their jobs, defying the Government and refusing to resign. Instead of blinking, in the early hours of Friday morning it eyeballed Brian Lenihan and offered him a couple of token victims. But by Friday afternoon the minister had begun to show a bit of mettle. He drew blood when Denis Casey finally fell on his sword.

The staggering story that Irish Life had provided “exceptional support” to Anglo in its hour of need was bad enough. Worse still, Irish Life was complicit in a deal that deceived investors at Anglo. A stunning €7bn deposit into Anglo from Irish Life had given a false impression of financial health.

Sharing uncanny parallels with FitzPatrick’s wheeze, Irish Life left the €7bn deposit sitting in Anglo over the year end. The consequent bloated figure for deposits was the only one that the world was ever meant to see. Within days Irish Life whipped the deposit back out of Anglo.

The old pals act was in the ascendant.

We all suspected a secret cartel, but we rarely caught a glimpse of such concrete evidence.

Irish Life was forced to admit that it rescued its rival. Initially they dressed up the move in anaesthetic language claiming “there was an acceptance that financial institutions would seek to provide each other with appropriate support, where possible.”

Wow. Irish Life was trying to muddy the waters. It was landing all its banking comrades in the manure business. The old defence of “sure, we are all at it” was dredged up. There is no evidence the big two banks were at it.

But the defence begs the question: if Irish Life is happily helping Anglo to distort its books, how can we believe the balance sheet of any public company?

Now we know. The books can be cooked to order. Book cooking is a growth industry. Pick the right figure for the year-end date. Bob’s your uncle.

Not to worry. There is a first line of defence. The auditors will put a stop to these antics.

Well, Anglo’s auditors, Ernst & Young, are wonderfully consistent. They miss everything. They missed the Sean FitzPatrick dodge. Now they have missed the Irish Life dodge. If we are to believe poor E&Y, they were hoodwinked on the double.

It will be fascinating to find out if Irish Life’s auditors, KPMG, were aware of its decision to accept a €7bn “interbank” market deposit from Anglo and magic it into a “customer deposit” for the purpose of resending it to Anglo.

Charitable auditors might dub this manoeuvre as “window dressing”. Less charitable ones would call it something else. The most charitable auditors might not spot it.

If the auditors were not alerted, perhaps the second line of defence, the directors of Irish Life, were on top of this practice? Were the directors aware of the “acceptance that financial institutions would seek to provide each other with appropriate support where possible”.

They must have been, because that is what the company’s statement said. So if the directors were aware of this lethal landmine, surely they were monitoring its progress? Apparently not. If not, why not?

There was little evidence of any such alertness in the Irish Life boardroom early last week. Quite the opposite, there were signs of complacency; it launched an outrageous public relations stunt of its own.

On Monday, the hitherto untainted saints of Irish Life brazenly issued a press release. The top brass were going to take a pay cut. Voluntarily.

The part-time chairman Gillian Bowler had reduced her pay to €288,000. Whoopee. The then chief executive, Denis Casey, was not going to accept a cent more than €890,000. Bonuses had been cancelled.

As a demonstration of brass neck even Sean FitzPatrick might have blushed.

A public relations coup, because by Wednesday evening the Minister for Finance would have announced pay cuts for Bank of Ireland and AIB bosses. The world knew that a Commission on Bankers’ pay is about to insist that it is capped. This was a cynical stroke. IL&P would have been forced to swallow the same medicine within weeks. They were stealing a march on their colleagues.

Worse still, Irish Life & Permanent sent its soft-focus chairwoman, Gillian Bowler, out to bat on this sunny wicket on Tuesday’s Morning Ireland. Gentle Gillian’s job was to milk the salary cuts for all they were worth.

Interviewer Cathal MacCoille filleted her. Why were the salaries so high?

Gillian trotted out the old argument that such dazzling talent must be prevented from deserting to a competitor. Presumably she included herself in this array of geniuses?

Mmm. Chief executive — and an initial survivor of last week’s fiasco — Denis Casey resigned on Friday after 29 years with Irish Life. The other two top executives, Kevin Murphy and the now departed Peter Fitzpatrick, have over 50 years between them. No sign of anyone beating down these lads’ doors with a cheque book. Job mobility is not their strongest suit.

The well-rewarded trio must have enjoyed a cosy relationship with their non-executive directors. These include not only a new favourite of the boardroom merry-go-round, former European commissioner David Byrne, but also newcomer Liam O’Reilly.

O’Reilly was an interesting addition to the board last year. Almost unknown, Liam was another anonymous Financial Regulator. He was succeeded by the now lavishly rewarded, but not lamented, Paddy Neary.

Liam O’Reilly is presumably a disciple of the old “light regulation” regime, much beloved by the Financial Regulator and the banks. So his transition from Regulator to banker was probably seamless. Just like the seamless bond between the banks and the Regulator today. We are likely to hear a lot more of O’Reilly.

Irish Life has committed a sin far graver than Sean FitzPatrick’s.

FitzPatrick is gone. The discredited Permo board have reluctantly waved goodbye to the chief executive after defying the Government and giving themselves a vote of confidence. At least the board and boss of Anglo had the good grace to resign.